Modern Method of Auction? I don’t get it.

by Readers Question

14:25 PM, 23rd September 2014
About 4 years ago

Modern Method of Auction? I don’t get it.

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Modern Method of Auction? I don’t get it.

More and more sales are being conducted by what is termed “Modern Method of Auction”.

It is sold as a buyer friendly method of purchase but from what I can see, a non refundable reservation fee of 3.5% subject to a minimum of £5,000 plus VAT needs to be placed which then “secures” the transaction and takes the property off the market. Other than that it basically looks like a normal estate agent transaction. The terms go on to grant 28 days to exchange contract and then a further 28 days to complete. That is pretty standard anyway and unlike traditional auctions I assume these dates are arbitrary and unenforceable?Modern Method of Auction

As far as I can see this simply looks like the estate agent fees are passed from the vendor to buyer. When looking closer at some of these deals, at best one bid is in place but for the vast majority no bids at all are in place.

Knowing a reservation fee of £5,000 needs to be paid would surely lead to a lower offer to account for this.

In that case who benefits?

Regards

Onslow Clough



Comments

Romain Garcin

16:07 PM, 23rd September 2014
About 4 years ago

There is not really such thing as a "modern method of auction" as far as I can tell. This is just an empty marketing term.

It is not "buyer friendly" at all since it is a way (not sure how solid) to be able to charge the buyer: They are not acting as agent but as auctioneer, or so is the claim.

Onslow Clough

17:15 PM, 23rd September 2014
About 4 years ago

Reply to the comment left by "Romain " at "23/09/2014 - 16:07":

That's my view Romain, a marketing tools, something different. I still can't see who benefits from this system, if anything it makes the buying process more complicated.

Ian Cognito

17:29 PM, 23rd September 2014
About 4 years ago

What you describe is not an auction. With regard to the fee, I have previously paid the developer (not agent) a non-RETURNABLE reservation fee to secure the purchase. However, being part of the sale price and accounted for at completion, it could better be called a holding deposit.

Ian Ringrose

17:37 PM, 23rd September 2014
About 4 years ago

I get it; it is a way for agents to double charge for selling a property.

If the reservation fee was £1000, then it may make sense as unlike an auction the buyer can pull out if the mortgage survey comes back with problems. But unlike a normal sale the seller can not pull out, so protecting the buyer.

At the current fee level, I just ignore any properties that use “Modern Method of Auction”, as all the local ones that I considered had starting bids way to high.

Onslow Clough

17:46 PM, 23rd September 2014
About 4 years ago

Reply to the comment left by "Ian Cognito" at "23/09/2014 - 17:29":

I agree Ian, It bares no resemblance to a true auction yet it is marketed as a "modern method of auction" if you go on some of their websites there are images of all sorts of auction paraphernalia, auctioneers waving gavels, punters with hands in the air etc. Quite misleading. With regard to these "Auctions" the non returnable reservation fee does not form part of the sale price and therefore could not be considered a deposit.

Ian Cognito

17:58 PM, 23rd September 2014
About 4 years ago

Thanks for explaining that, Onslow. It's new to me! Having done a quick Google, I can see that an auction does take place but, as you say, a fee of £5,000 or 3.5% goes to the agent rather than 10% of the sale price to the seller.

Onslow Clough

18:03 PM, 23rd September 2014
About 4 years ago

Reply to the comment left by "Ian Ringrose" at "23/09/2014 - 17:37":

Thank you Ian, I thought it was just me. For the Agent it's win win. I didn't realise they also got paid by the vendor. Genius.

I also agree with your other point, the starting prices are too high as to encourage any interest. When you look at the properties being sold this way they appear to be attracting little or no interest.

I too disregard any houses being sold this way.

Guy Charrison

15:05 PM, 24th September 2014
About 4 years ago

"The modern method" is just a marketing term. The truth is only at a traditional auction - and I am a auctioneer and director at Network Auctions - do you get a contract created (exchange of contracts) at the fall of the gavel. The Modern method maybe called buyer friendly, but as auctioneers and agents we must never forget that we are the vendors agent. One of the concerns for the Modern Method is the huge fees, they seem to be paid by the buyer, buyers are not stupid and will bid less as they will be hit with fees that are often twice that of a traditional auction, therefore if we accept buyers are not stupid the seller will surely be getting a lower price and a slower sale. Maybe not to the sellers advantage in theses respects.
Guy Charrison FRICS FNAVA FNAEA FARLA FRSA

Mark Alexander

15:22 PM, 24th September 2014
About 4 years ago

Reply to the comment left by "Guy Charrison" at "24/09/2014 - 15:05":

Hello Guy

Welcome to Property118 and thank you for your valuable contribution to this thread.

I appreciate this is your first post so you may not be aware of our rules in respect of posting self promotional website links, email addresses or telephone numbers. I have removed the link to your website.

You may find the following linked page interesting >>> http://www.property118.com/business-sponsorship/
.

Onslow Clough

16:18 PM, 24th September 2014
About 4 years ago

Reply to the comment left by "Guy Charrison" at "24/09/2014 - 15:05":

Thanks Guy, as I suspected the Agent fees have been passed onto the buyer, but as you say, buyers aren't stupid and so will obviously deduct the £5000 fee from the offer so as to effectively pass it back to the vendor.

Equally, vendors aren't stupid, so they will inflate the asking price by £5000 knowing that any buyer will knock £5000 off.

However buyers will of course anticipate this and therefore knock £10,000 off the offer price to counter the inflated asking price and the £5000 fee.

Of course the vendor will be prepared for this and ..... sorry i'll have to stop my head is starting to spin.

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