Modern method of auction
Discussion
I viewed a property listed as modern method of auction this week. The auction fee was 4.2% and subject to a minimum of £6000 inclusive of VAT. The property is a small studio apartment and was listed at £37500, incidentally that's about £6000 under what next door sold on the open market last month.
When I viewed, the agent explained that it was modern method of auction due to the vendor not having the funds available to list on the open market. I've never paid up front for selling a property and have always paid on completion but perhaps these agents do it differently.
I'm really interested in the property and it'd make a decent investment however the sums don't add up for modern method of auction to work for investors even if the overall price to purchase it is the same as a normal sale. For example, if the overall purchase price inclusive of SDLT for both properties was £44805 an investor may pay a 25% deposit of £10875 and then SDLT of £1305. A total of £12180 initial investment. However, the same priced property under modern method of auction would be £6000 fee to agent. SDLT on the whole amount, £1305. 25% mortgage deposit £9375 (I appreciate this may be too low for a mortgage but the maths are an example).
That makes the overall cost for both £44805 but under MMoA £16680 initial investment vs £12180 initial investment for a straight sale for the same priced property. I may be completely wrong but I don't see why any investor would invest more capital to get the same return. The agent was adamant it was listed as MMoA to suit investors and the vendor as opposed to get the agent £6000 for selling a £45k property.
Is there something I've completely overlooked in this? It does't seem to make sense at all. Incidentally the auction ended yesterday and it's not sold.
When I viewed, the agent explained that it was modern method of auction due to the vendor not having the funds available to list on the open market. I've never paid up front for selling a property and have always paid on completion but perhaps these agents do it differently.
I'm really interested in the property and it'd make a decent investment however the sums don't add up for modern method of auction to work for investors even if the overall price to purchase it is the same as a normal sale. For example, if the overall purchase price inclusive of SDLT for both properties was £44805 an investor may pay a 25% deposit of £10875 and then SDLT of £1305. A total of £12180 initial investment. However, the same priced property under modern method of auction would be £6000 fee to agent. SDLT on the whole amount, £1305. 25% mortgage deposit £9375 (I appreciate this may be too low for a mortgage but the maths are an example).
That makes the overall cost for both £44805 but under MMoA £16680 initial investment vs £12180 initial investment for a straight sale for the same priced property. I may be completely wrong but I don't see why any investor would invest more capital to get the same return. The agent was adamant it was listed as MMoA to suit investors and the vendor as opposed to get the agent £6000 for selling a £45k property.
Is there something I've completely overlooked in this? It does't seem to make sense at all. Incidentally the auction ended yesterday and it's not sold.
I agree with your view sebdangerfield
The only minor benefit to a VAT-registered investor over a private buyer is that the VAT element of the fee may be recoverable but that reduces the c.£4k extra cash required by only £1k.
An additional downside is having to pay CGT or Corporation Tax (or both) on the 'increase' in value of the property, accounted for by the fee.
The only minor benefit to a VAT-registered investor over a private buyer is that the VAT element of the fee may be recoverable but that reduces the c.£4k extra cash required by only £1k.
An additional downside is having to pay CGT or Corporation Tax (or both) on the 'increase' in value of the property, accounted for by the fee.
We attempted to sell our property via the ‘modern auction method’ after failing to sell via the normal estate agent route. Attractive to us as sellers tue to no fees and hopefully lots of new interest due to a low guide price.
In practice it didn’t work, we ended up with a single bid so the close date was set (usually left open until they have one or more bids on the table). Then the day before the auction ended that bidder pulled out… leaving us with a closed auction and no sale.
To make matters worse we then went back on the open market but the person now buying the property was originally introduced via the auction so they wanted us as sellers to now pay the £15,000 fees. We ended up negotiating a better rate to get the sale done.
Can’t say I would recommend this route for sellers or buyers (unless there was a good discount against market price).
In practice it didn’t work, we ended up with a single bid so the close date was set (usually left open until they have one or more bids on the table). Then the day before the auction ended that bidder pulled out… leaving us with a closed auction and no sale.
To make matters worse we then went back on the open market but the person now buying the property was originally introduced via the auction so they wanted us as sellers to now pay the £15,000 fees. We ended up negotiating a better rate to get the sale done.
Can’t say I would recommend this route for sellers or buyers (unless there was a good discount against market price).
harrycovert said:
Is the auction fee paid on exchange of contracts or is it paid before, if before what`s to stop the seller pulling out of the deal?
This is the pasted from the property listing...listing said:
This property is sold subject to payment of a non-refundable reservation fee of 4.2% to a minimum of £6,000.00 including VAT.
Any successful purchaser will pay this to secure the sale. The reservation fee is in addition to the purchase price. Please take this into account when bidding.
A reservation fee is payable by the buyer only when the seller pays no fees to sell. As sellers pay no fees to sell, this is usually taken into account with a lower reserve price.
This property is being sold under the Modern Method of Auction, which requires the completion of the purchase to be within 56 days, although all reasonable endeavours must be made to exchange contracts within 28 days following the Draft Contract being received by the Buyer's Solicitor.
A non-refundable Reservation fee must be paid by the buyer within 2 hours following the conclusion of the auction or acceptance of an offer. This must be paid by cleared funds to the auctioneer who will issue an acknowledgement of reservation and purchase agreement in the 28 day period following the auction or the date of acceptance of the offer.
Buyer Information Pack
If the Buyer Information Pack has been produced and provided by iamsold any successful purchaser will be required to pay £300.00 (including VAT) towards the cost of the preparation of the pack. These can then be used by your solicitor to progress the sale.
So a minimum of £6000 payable upon the acceptance of an offer and then a further £300 for the buyer pack. Doesn't appear to be anything stopping the seller pulling out. Any successful purchaser will pay this to secure the sale. The reservation fee is in addition to the purchase price. Please take this into account when bidding.
A reservation fee is payable by the buyer only when the seller pays no fees to sell. As sellers pay no fees to sell, this is usually taken into account with a lower reserve price.
This property is being sold under the Modern Method of Auction, which requires the completion of the purchase to be within 56 days, although all reasonable endeavours must be made to exchange contracts within 28 days following the Draft Contract being received by the Buyer's Solicitor.
A non-refundable Reservation fee must be paid by the buyer within 2 hours following the conclusion of the auction or acceptance of an offer. This must be paid by cleared funds to the auctioneer who will issue an acknowledgement of reservation and purchase agreement in the 28 day period following the auction or the date of acceptance of the offer.
Buyer Information Pack
If the Buyer Information Pack has been produced and provided by iamsold any successful purchaser will be required to pay £300.00 (including VAT) towards the cost of the preparation of the pack. These can then be used by your solicitor to progress the sale.
The property I was referring to has since been marked as sold and removed from rightmove a day after the auction ended. The agent said they'd not consider selling outside of the auction (as they'd lose £6k) and I was still being pestered to bid up to 10 minutes before the auction ended so I assume it's been sold under private treaty after the auction ended.
CantDecide said:
We attempted to sell our property via the ‘modern auction method’ after failing to sell via the normal estate agent route. Attractive to us as sellers tue to no fees and hopefully lots of new interest due to a low guide price.
In practice it didn’t work, we ended up with a single bid so the close date was set (usually left open until they have one or more bids on the table). Then the day before the auction ended that bidder pulled out… leaving us with a closed auction and no sale.
To make matters worse we then went back on the open market but the person now buying the property was originally introduced via the auction so they wanted us as sellers to now pay the £15,000 fees. We ended up negotiating a better rate to get the sale done.
Can’t say I would recommend this route for sellers or buyers (unless there was a good discount against market price).
I can't see it being that attractive as a seller though. I appreciate you're not paying the fee but as that fee is then passed to the buyer and is 4.2% or a minimum of £6000 the buyer will surely offer less as a result. Particularly as that fee is then considered part of the stamp duty calculation. So really you end up paying for it as a seller anyway, probably more.In practice it didn’t work, we ended up with a single bid so the close date was set (usually left open until they have one or more bids on the table). Then the day before the auction ended that bidder pulled out… leaving us with a closed auction and no sale.
To make matters worse we then went back on the open market but the person now buying the property was originally introduced via the auction so they wanted us as sellers to now pay the £15,000 fees. We ended up negotiating a better rate to get the sale done.
Can’t say I would recommend this route for sellers or buyers (unless there was a good discount against market price).
sebdangerfield said:
Particularly as that fee is then considered part of the stamp duty calculation.
This seems to be the fundamental problem with charging fees on the buyer's side. You pay SDLT on them and you can't borrow against them as they aren't considered part of the value for the mortgage LTV.There’s nothing modern about the “modern method of [none] auction”. It’s just a scheme that agents use to make more money and/or tie property owners up on exclusivity clauses within their small print.
Use a proper auction if you need to sell fast or the standard open market route if you want to maximise price.
Use a proper auction if you need to sell fast or the standard open market route if you want to maximise price.
You’re missing one important part of this - “auction fever”. The phenomenon known as wanting something you can’t have, means this method of sale generates a much higher price for the vendor than a normal listing.
Sold house prices are public information, if you don’t believe me, look up the sold price of some of these this year - they went for WAY higher than the normal market price
Sold house prices are public information, if you don’t believe me, look up the sold price of some of these this year - they went for WAY higher than the normal market price
Edited by JezHill on Sunday 28th November 15:30
Edited by JezHill on Sunday 28th November 15:31
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