In the fast-paced property world, the traditional method of property auctions has evolved to keep up with technological advancements and changing buyer preferences. One such modern approach to property auctions in England and Wales is known as the modern method of auction.
The modern method of auction involves an online platform where potential buyers can participate in the auction from the comfort of their own homes, it’s a bit like eBay! Unlike the traditional method where auctions are held in a physical location, this online platform allows for a more convenient and accessible bidding process.
Here’s how the modern method of auction typically works:
1. Property Listing: Properties for sale are listed on the online auction platform along with detailed information, photographs and guide prices.
2. Bidding Period: The auction runs for a specified period, typically around 30 days, during which interested buyers can place bids on the property.
3. Proxy Bidding: Buyers can set a maximum bid amount, and the system will automatically place bids on their behalf, increasing the bid incrementally until the maximum amount is reached.
4. Transparency: The auction process is required to be transparent, and buyers can see the current highest bid at any time during the auction.
5. Reservation Fee: Upon winning the auction, the buyer is required to pay a non-refundable reservation fee (usually around 3% of the final winning price) to secure the property.
6. Exchange and Completion: Following the auction, the buyer has a set timeframe to exchange contracts and complete the purchase, which are the same as the traditional property buying process but with added pressure of deadlines.
The modern method of auction offers can offer several advantages for buyers, including:
– Flexibility: Buyers can bid on properties at any time during the auction period, allowing for greater flexibility in the bidding process.
– Transparency: The online platform provides transparency throughout the auction, giving buyers confidence in the process.
– Accessibility: Buyers can participate in auctions from anywhere, eliminating the need to attend physical auctions.
There are however a number of pitfalls upon which hitch buyers should be aware if they are thinking of proceeding to buy in the modern method of auction.
Lack of Physical Inspection: One of the drawbacks of buying a property through an online auction is the limited opportunity for physical inspection. Buyers may not have the chance to view the property or indeed to have it surveyed in person before placing a bid, which can lead to unexpected issues or surprises post-purchase. To mitigate this risk, it’s crucial to conduct thorough research, request additional photos or videos of the property and consider seeking professional advice from a surveyor.
Reservation Fee: Winning bidders in a modern auction are typically required to pay a non-refundable reservation fee to secure the property (usually 3%). This fee is in addition to the purchase price and can be significant. Buyers should carefully review the terms and conditions of the auction and ensure they have the necessary funds available to cover the reservation fee to avoid any financial strain. Also note that HMRC will charge stamp duty land tax on the purchase price plus the reservation.
Exchange and Completion Deadlines: Upon winning the auction, buyers are usually given a strict timeframe to exchange contracts and complete the purchase. Failing to meet these deadlines can result in financial penalties or the loss of the property. It’s essential for buyers to have their finances in order (even to the point of having a mortgage offer in place) and be prepared to act swiftly to meet the exchange and completion deadlines.
Competitive Bidding: The competitive nature of auctions can lead to bidding wars, driving up the final sale price of the property. I bet you didn’t know that the seller can even bid against you (at least up to the reserve price set). Buyers should set a budget and stick to it to avoid overstretching financially. It’s also advisable to conduct market research to determine the fair value of the property and bid accordingly.
Seller’s fees: Ut is usual to see in the terms of the auction that the buyer will pay all of the seller’s fees (including legal fees) on completion.
Legal Considerations: Buying a property through the modern method of auction involves legal processes and contracts that buyers must understand fully. Ensure that you have all of the legal title checked before proceeding to bid to make sure that title to the property is sound and mortgageable. If it’s not you could end up losing your reservation if you find you are unable to proceed. It’s important to seek legal advice before participating in an auction to ensure that you are aware of your rights and obligations as a buyer.
While the modern method of auction is gaining popularity in England and Wales, it’s essential for buyers to familiarise themselves with the process and seek advice from professionals to ensure a successful transaction.
Overall, the modern method of auction provides a streamlined and efficient way for buyers to purchase properties, combining the convenience of online bidding with the transparency of a traditional auction. There are however many pitfalls to be aware of and entering into an online auction can be fraught with dangers.
If you are looking to sell and in need of conveyancing why not give one of Alexander JLO’s specialist property lawyers a call on 020 7537 7000 or email quote@london-law.co.ukfor a free, no-obligation quotation. Come and see what we can do for you.
This blog was prepared by Alexander JLO’s property partner Matt Johnson on the 15th January 2025 and is correct at the date of publication. Matt has many years of experience of dealing with property work and specialises in new build and shared ownership properties. His profile on the independent Review Solicitor website and be found Here