Conflict of Interest with fees paid by purchaser?
10:10 AM, 28th July 2022, 4 years ago
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Hi All, I have recently come across a ‘Modern’ online method of auction. The house to be sold was circa £225,000.
The online auctioneer was instructed by the vendor, but the fee of £6,000 was to be paid by the purchaser.
Now, this seems to be a big fee, but the client, the vendor paid no fee. The entire sales fee was paid by the purchaser.
Does this seem to be an enormous conflict of interest?
Is this not contrary to the law? And if not why not?
Please let us know.
David
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Member Since July 2013 - Comments: 1998 - Articles: 21
10:35 AM, 28th July 2022, About 4 years ago
Hi David
I don’t see a conflict of interest. The auctioneer seeks the best price for the seller.
The purchaser just factors in that on top of the “price” he pays 2% (or whatever the rate is) plus VAT. Provided all buyers are aware of this (i.e. it is not buried in the special conditions) then bidding will reflect this. Where purchasers occasionally get caught out is paying the seller’s solicitors’ costs as well.
Member Since January 2016 - Comments: 297 - Articles: 1
11:09 AM, 28th July 2022, About 4 years ago
Mr Auctoneer I will pay you
10k fee and buy the house for 200k?
Now what is your view?
Member Since January 2015 - Comments: 1439 - Articles: 1
11:31 AM, 28th July 2022, About 4 years ago
Auctions, property or otherwise, have always charged the seller a fee plus the buyer a buyers fee, plus VAT.
Always check an auction house’s Ts & Cs
Member Since July 2013 - Comments: 1998 - Articles: 21
11:31 AM, 28th July 2022, About 4 years ago
David, I don’t follow your argument. There is no discussion, just bids with the hammer falling to the highest at or above any reserve price.
Under a “traditional” auction, the hammer falls at say £250,000. The seller pays say 2% plus VAT – £6000 and receives net £244,000 net.
Under the new arrangement the buyer knows that if he bids £250,000 he will pay £256,000 so he lowers his bid accordingly.
In my example if the winning bid is £244,000 the Seller receives the same net amount but the commission is only £5856 (£244,000 x 2.4%). The auctioneer is slightly worse off.
Member Since September 2020 - Comments: 158
6:05 PM, 28th July 2022, About 4 years ago
I’ve seen estate agents offering this service alongside traditional auction houses. The bigger concern is the conflict of interest that the estate agent has in frustrating the completion and pinning blame to the buyer. The terms normally require completion within a specified timeframe, but if no completion, the buyer fee is still due to the estate agent. You can’t tell me a minority arn’t gaming the process. Also, there must be bidding of the virtual walls, even harder to detect than if stood in a physical auction house, I stay well clear.
Member Since January 2016 - Comments: 297 - Articles: 1
9:04 PM, 28th July 2022, About 4 years ago
Reply to the comment left by TrevL at 28/07/2022 – 18:05
Upton Sinclair said
“It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
Member Since July 2013 - Comments: 1998 - Articles: 21
11:07 AM, 29th July 2022, About 4 years ago
Reply to the comment left by TrevL at 28/07/2022 – 18:05
TrevL, it’s not my specialist area but when the hammer falls the contract is made and the buyer pays the deposit, usually 10%. If the buyer fails to complete the deposit can be forfeit. The seller can still sue the buyer but the buyer may be a worthless SPV.
Whether the auctioneer is entitled to his commission on exchange or only on completion is a different question from whether the buyer or seller pays that commission. In either case the deposit will cover it. At the very least, I would expect a reputable auctioneer in these circumstances not to charge commission if the property is put in their next available auction.
Others may have direct experience and can comment.
Member Since January 2016 - Comments: 297 - Articles: 1
11:34 AM, 29th July 2022, About 4 years ago
Reply to the comment left by Ian Narbeth at 29/07/2022 – 11:07
It is clear that your concept is entirely utopian.
Member Since July 2013 - Comments: 1998 - Articles: 21
12:05 PM, 29th July 2022, About 4 years ago
Reply to the comment left by david porter at 29/07/2022 – 11:34
What concept is Utopian? The original post was about the buyer paying commission rather than the seller.
What in my posts are you disagreeing with?
Member Since May 2014 - Comments: 252
7:58 PM, 29th July 2022, About 4 years ago
Reply to the comment left by david porter at 28/07/2022 – 11:09
If there were only one bidder then they would get the property at the starting bid, so no problem. If there were multiple bidders any one of them could win and pay the fee, so it makes no difference to the auctioneer who wins as they will be paid anyway. The auctioneer will try to sell for the highest price for their reputation.
It is not a case of one buyer giving a ‘bung; before the auction to get the property.