Selling property via an estate agent can be a very long and time-consuming process. Even after agreeing a final price, buyers can rethink their offer and drop the offer whenever they want. This problem can be avoided by using an auction to sell your property (Cooper, 2022). Selling property via an auction produces a good balance between speed and price. Most properties achieve reasonably fast sales and circa 90 percent of it’s market value. There are two types of auctions, the traditional auction and the modern method of Auction. The latter one has gained a lot of traction since the start of the pandemic and will continue to become more popular in the long run (Zarihs, 2021).
First, the traditional auction is an auction with a single event where buyers bid for properties in an auction house in real time (Cooper, 2022). These properties are advertised a month in advance with a guiding price of the properties worth (Zarihs, 2021). The following image shows how a traditional auction works. The bidder must complete the purchase of the property within 28 days. Therefore, the number of potential buyers are limited as 28 days is not enough time to guarantee a mortgage, especially when most of the properties offered are of sub-standard quality and not eligible for mortgages. This is also the reason why mostly cash buyers are involved in traditional auctions.
On the other hand, the Modern method of auction takes place online. The estate agent arranges viewings of the property on behalf of the seller for potential buyers (Zarihs, 2021). The seller is allowed to set rules, such as the starting date of the bidding and the auction duration. Noticeable differences between the two auction types is that with the modern method of auction, a successful bidder has to pay a non-refundable reservation fee (Zarihs, 2021). Furthermore, it allows a total of 56 days to exchange contracts and complete the purchase.
The modern method of auction adds a greater level of certainty for the seller with the use of legal agreements and the financial commitment of the buyer (Cooper, 2022). However, there are also many disadvantages of modern auctions. Sellers mostly receive around 85 to 90 percent of the market value of their property. Also, buyers are not legally committed to purchase the property as opposed to traditional auctions. Even though there is a legal agreement between buyers and the auctioneer with a financial commitment, buyers are still able to drop out of the purchase (Cooper, 2022). This is done on purpose by modern auction companies to increase the amount of buyers in the market and should in theory increase the prices of the properties sold. Moreover, buyers winning a bid have to not only pay the non-refundable reservation fee of around 5 percent, deposit fee of 10 percent and stamp duty fees, but most of the time also an auction entry fee just to participate in the auction. The face of property auction has changed due to the rise of the modern method of auction. This auction type is more approachable by buyers and achieves higher sale prices of properties for sellers (Cooper, 2022).
Speaking from a personal point of view, I think the use of an online form of auctions for buying and selling properties, is very troublesome for buyers. Even though buyers are not legally committed to purchase the property, it only helps buyers who have enough money to spare and waste. Buyers who win a bid, should be committed to purchase the property. These buyers have already spent money on an auction entry fee, and a non-refundable reservation fee before even seeing any legal paperwork. After exchanging contracts, buyers have to pay a deposit. The process can still go wrong with certain issues arising, such as something being wrong with the condition of the property or even a change of circumstances. When the purchase is cancelled, the buyer has already paid fees of 15 percent of the total property price (and even an auction entrance fee) and wont get this back. This type of auction is a very big commitment money wise for buyers, and when things go wrong, won’t even get their money back. If I would buy a property, I would not want to worry about processes going the wrong way and losing part of my money. Buying a property is already stressful enough without the use of a modern auction. Therefore, I would never use the modern method of auction. Would you use the modern method of auction to buy a property? Why (not)? Which auction type would you prefer?
References
Cooper, M. (2022, August 23). Modern Method of Auction: A Step-By-Step Guide To Success. Home Selling Expert. Retrieved October 11, 2022, from https://www.homesellingexpert.co.uk/guides/modern-method-of-auction
Zarihs, H. (2021, November 10). Modern Methods Of Auction | What is it? and Pros and Cons. Hank Zarihs Association. Retrieved October 11, 2022, from https://www.hankzarihs.com/modern-method-of-auction/
