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What is the main differences between the Traditional Method of Auction and the Modern Method of Auction?
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Traditional Auction
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Modern Method Auction
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Where and when does it take place?
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A physical location at a specified time. The length of the auction will depend on how long buyers bid for.
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Online. Buyers can bid anywhere in the world online, 24/7 for the duration of the open auction. Auctions usually run for 14-21 days.
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When does exchange of contracts happen?
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Usually immediately
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Within 28 days of the lawyers receipt of contracts
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When does completion happen?
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Within 28 days
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Within 56 days
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Who can bid?
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Cash buyers only
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You can buy with a mortgage, but you need to have cash for your reservation fee (with easyProperty this is 2.5% plus VAT of the sale price)
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What are the advantages and disadvantages? Any controversies?
Advantages of Traditional Auction
- Exchange happens on the same day straight after successful bid.
- More chances of being sold.
- Cash buyers and people buying with bridging loans are in a stronger position, not mortgage buyers generally.
- Competitive live bidding.
- More chances of buying 'doer-uppers' at knock-down prices, also from sources such as probate sales, repossessions etc.
Advantages of Modern Method Auction
- More time for checks on the title
- This greater time for checks makes this method more favourable for mortgage lenders to wish to involve themselves
- More time to arrange a mortgage
- No need to visit a physical building to make your bids
- No stress from other human bidders in the same room - less scary!
- Higher reserve prices
In terms of normal estate agency sales, additionally a modern method auction has advantages such as no chipping away at the desired sale price, hugely less fall throughs from buyers (who don't face any penalties if they pull out before exchange in a normal situation).
Finally, the nature of the bidding process takes away any arbitrary undesirable control from an unscrupulous estate agent.
Controversy
Undoubtedly modern method auctions have increased in number in the UK although exactly how much they are increasing is a matter of argument.
Anecdotally the growth in popularity stated in some media reports is down to the greater amount of flexibility in general and that the auctions can embrace the kind of principles which have made eBay so popular. Like eBay, a modern method house auction also allows for a wider variety of payment methods.
There is considerable criticism however because the modern method effectively transfers virtually all of the auction fees over to the buyer rather than the seller and, despite these being non-refundable, in the case of a successful auction where the matter runs to completion, the total price is used in the calculation of any stamp duty tax liable.
Some critics have even summed the modern method auction up as the agent wins, whatever happens: there is undoubtedly some truth in this by the very nature of the operation.
A neutral view, however, is that any new market which introduces new methods and boosts overall sales volumes is to be welcomed, particularly at this point in time in the UK where a seemingly perennially sluggish housing market prevails.
Need legal help with your auction purchase or sale?
Whether it's a traditional or a modern method of auction, we can help prepare legal packs, have experienced RICS surveyors visit a property to check for defects and complete the required conveyancing.
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