Modern Method of Auction – does reservation fee count towards mortgage value

Modern Method of Auction – does reservation fee count towards mortgage value

11:52 AM, 16th February 2015, About 7 years ago 12

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We are considering a property for sale by modern method of auction, specifically by Great Northern Property Auctions. Modern Method of Auction - does reservation fee count towards mortgage value

The vendor has chosen the model whereby he pays nothing and the auction fees are collected via a 3.5% or £5,000 (whichever is greater) + VAT reservation fee which is non returnable and does not form any form of deposit.

In the case of the property we are interested in, the starting price and sale projected purchase price is such that the reservation fee at £6,000 (inc. VAT) would be in the region of 15-20% – this is the North East, property prices are low.

For the purposes of a mortgage would the reservation fee be taken into account as part of the cost/value of the house?


Simon Bentley


by Simon Bentley

15:17 PM, 17th February 2017, About 5 years ago

Sorry to dig up an old thread but I thought it preferable to starting a new one and as I started it in the first place I felt I could.

We went no further with the property that made me start this thread as there were complications over the title deeds and what was being sold with the property,rights of access etc.

Anyway we are once again looking at a property that is up via "modern method of auction" and I have done some further pondering on the subject.

This really is nothing more than a money making exercise for the estate agents who promote it- the same estate agents that have partnered together to create Great North Property Auction and presumably others.They are supposed to act in the interest of the vendor however in my opinion by recommending to sellers that they try this route they are doing nothing of the sort and are also doing potential damage to the property market in areas that are already suffering from house price stagnation and even deflation.

The houses being sold by this method in the NE tend to be in the very low end of the market, some guide priced at as little as £5k but typically they are under £75k. Having recently sold a house at the top of that bracket we paid less than £1500 in agents fees despite using one of the bigger more expensive agents (through them we achieved a higher sale figure than the others were suggesting we should even market it at so they paid for themselves) so I would say that can be taken as a reasonable estimate of agents costs- where as GNPA have a minimum of £6k (inc VAT).

So assuming all things being equal that a property sold via MMoA achieves the same overall price including costs that it might via a traditional sale the vendor is down £4.5k on a sub £75k house or minimum 6% - so that's one gripe out of the way.

Now lets take a look at the very bottom of the market and why I think it might be damaging to an already crumbling market segment. In some areas of the NE there are clusters of houses up for sale via MMoA, these are very run down and need lots of work etc and are in very depressed areas starting as they do from guide prices as little as £5k, but that's £5k + £6k in auction fees-now of course they may well make more than guide but my point is that the real value is the total price including fees however the land registry record only the price paid,if the fees amount to anything up to 50%+ of the value the figure recorded is vastly under valuing the property, and where does everyone including professional surveyors doing valuations look to try to gauge the values of houses - we look at recent house sales in the area as recorded at the Land registry.

The examples above of the lowest of the low prices is used for dramatic effect but this applies to house in these areas in far better condition selling for say £25-50k where these fees can depress recorded prices by up to 20%. Which in turn will reduce values placed on other houses in the area and the cycle will repeat.

I'm not sure there is an answer. Perhaps trading standards ought to look at these outfits but really it needs someone who has been on the receiving end to report them. There's probably nothing illegal about estate agents recommending to clients that they use the very auction house that the estate agent is in fact a shareholder/partner in, but I suspect it is far from acting in the clients best interest in many instances and its got more to do with clearing properties of the books and profit - they are a business of course and have to make a profit but we believe we are paying for impartial advice when we engage an agent and I don't believe people are getting it all the time.

Of course if agents promoted the model where the seller pays the fees much of this wouldn't apply,and at the end of the day the vendor would likely get the same proceeds of sale - but sadly its an easier sell to get the buyers to pay the fees.

by David Lovegrove

18:06 PM, 17th February 2017, About 5 years ago

I have just bought a property via this route with I am sold.
There terms of sale state the reservation fee (£6k) is part of the consideration. I think this is for stamp duty purposes as the mortgage company did not include this sum when I asked them to.

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