Property auctions that are open to everyone - how the new modern method of auction could work
If you are considering selling your home and perhaps have done a little research, you may have come across the Modern Method Of Auction as a way to get your home sold.
But what is the Modern Method of Auction, and how does it differ from the traditional auctions we see on Homes Under The Hammer?
If you are considering selling your home and perhaps have done a little research, you may have come across the Modern Method Of Auction as a way to get your home sold.
But what is the Modern Method of Auction, and how does it differ from the traditional auctions we see on Homes Under The Hammer?
A traditional auction is set on a specific date at a large venue. Many properties will be sold from all over the country on the same day. The key features of a traditional auction are that there is no upper limit to the possible price a property could sell for, and when the hammer falls, the sale is legally binding. The buyer will have to pay the exchange monies and a buyer premium on that day. They will then have a limited amount of time (usually 14 to 28 days) to pay the remaining balance on the purchase price before they are given the keys. But crucially, they are contractually obliged to buy the property and pay the total balance on that day. Otherwise, they risk losing the amount already paid for exchange and the buyer's premium.
There isn't really enough time to source a mortgage, and it is pretty tight to arrange bridging finance. Because there is such a need for readily available cash to pay for the property on that specific date, the properties are often purchased by cash buyers. This reduction in potential buyers could adversely impact the possible sale price, even though there is competition and transparency between the bidders and their bids on the day.
You will see lots of developers attending property auctions, as properties that sell at auctions are often dilapidated and run down. They are sometimes even unmortgageable and can only be purchased by a cash buyer.
So how does this modern method compare?
Like a traditional auction, there is a reserve price set by the seller, with no upper limit on the potential price that could be achieved for the property.
In contrast, there is not a physical event but a deadline for when the auction ends online. So, more like an eBay auction, bids can be made any time up until the auction ends. The offers are transparent, so bidders know what price they are outbidding and if they are the lead bidder at any particular time.
Also, once the auction ends, the successful bidder will be similarly financially committed with a buyer's premium payment. Still, at this stage, there is no need to exchange contracts or have an expedited completion. This allows mortgaged and cash buyers to purchase a property in this way, opening the sale up to a broader market.
The key features of the modern auction method are the speed and transparency of the offers. The deadline for ending the auction creates urgency, and the transparency of the bids creates competition. These are all critical factors when selling a property for the highest price.
In the same way a standard property sale works, an estate agent will facilitate the property's marketing and viewings. But, the negotiation is removed from the situation because the bids are submitted online. Once the auction has ended, the highest bidder is financially committed, just like in a traditional auction, so that there is less risk of the sale falling through, which is something that a standard property sale can not do.
And the best part is that there is usually ZERO cost to the seller! No estate agent's fees! This is because the buyers' premium is used to pay for marketing and selling the property, so you don't have to cover that cost.
The intention behind the modern auction method is to remove the inefficiencies in the traditional home-selling process whilst ensuring that the sellers achieve the highest possible price for their homes.
This option has the best of both worlds - the speedy sale from the urgency and competition created in property auctions, with the marketing abilities and broader selection of potential buyers of standard property marketing.