Traditional auctions Vs Modern Method of Auction

  • 6 months ago
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The popularity of property auctions has seen a steady rise in recent years. Househunters and investors are becoming increasingly attracted to the speed of sales, security they offer, and bargain prices some lots go for.

And, thanks partly to an explosion of online auctions fuelled by the pandemic, it’s fair to say that their popularity is only going to increase.

Sellers look to achieve three main tasks when selling their property via auction.

Speed Sell in the shortest possible time frame. Whether this method has been sought out only after other options have been explored or that timeframe is their first priority, with auction as the first point of call, a transparent timeframe is expected with motivation levels already heightened.

Security People turn to auctions with the understanding that this method of sale eliminates all risk of fall throughs, but do they? With a mighty 25% of Connect UK Auctions Sales coming from previous private treaty sellers in 2020, it is clear that the increase in fall throughs through estate agency sales is causing seller frustration and thus directing them to seek out alternative solutions.

Highest Price No matter the circumstance and reason for sale, a client’s first thought will be the maximum price the property will achieve.

The word ‘auction’ to many still raises an element of the red flag however most in the business know this will be due to lack of understanding. Once understood, the method of auction is one of speed, ease and enormous opportunity.

What are the differences between the two types of auction?

Speed – In terms of speed, the traditional method of auction says that your property or land will be auctioned ‘in room’ to bidders as well as other sources including internet bidders, telephone bidders and bidders via proxy. Once the gavel falls to the highest bidder contracts are exchanged immediately with completion just 28 days later.

The modern method of auction is different and shares similarities with ‘eBay’ style bidding where buyers bid online only and once a bid has been accepted the buyer has 28 to exchange and a further 28 days to complete. We must understand that exchange is not immediate as it is with the traditional method of auction meaning the timeline is increased. In fact, the general timeline for the MMoA is 56 days.

Security – Many people turn to auction after experiencing a fall through or even numerous fall throughs. Anyone who has been in this situation knows the journey can be extremely stressful. Time is a precious commodity, something we are all learning through this pandemic, just how precious it is.

The traditional method of auction states that once the gavel falls contracts are exchanged immediately and the sale is legally binding meaning neither the buyer nor seller can pull out. The risk of fall through is eliminated. If there are breaches, post exchange, the breacher will undertake serious penalties. Such situations are very rare.

While using the modern method of auction a physical auction does not take place. Once a bid has been accepted the buyer still has 28 days to exchange. Although the buyer may have paid a reservation fee to the agent, they are still able to pull out anytime within these 28 days as there is no legal obligation to complete. This means fall throughs are still a possibility once a bid has been accepted. However, if a reservation fee has been paid, we can hope this will minimise the fall through rate.

Price – Sellers will be looking for a maximum sale price while buyers will always look for a steal in order to maximise their value. Now both methods of sale will look to satisfy the client needs but the traditional method of auction states that no fee is paid by the buyer until the fall of the gavel and the exchange has taken place.

The modern method of auction differs here and states that a reservation fee is paid – prior to exchange – generally up to 5% of the purchase price and is non-refundable. This fee is also included in the buyer’s stamp duty calculation.

With either method being pursued by a client the key is to provide clear, transparent information and fees so that each client can fully understand and evaluate their decision. Customer service given can be tip top but if a client doesn’t understand what is required of them then the frustration will be felt.

Remember – Frustration will always be remembered over good customer service. Eliminate frustration and a positive customer journey will prevail.

Which method is ‘better’?

At a glance, the sale speed from the moment a sale is made is 28 days for traditional auctions and 56 days for MMoA.

Traditional auctions secure the sale at exchange and the sale is legally binding. The Modern Method of Auction requires a buyer’s reservation fee to commit them to the sale however, they are able to pull out during the 28 days un up until exchange after confirming their winning bid with the only penalty being the loss of the fee paid.

And lastly, price. Both options look to secure the best price for the seller while charging the buyer separate fees and different stages of the process.

Generally, an option chosen will be based on client needs and also the recommendation of those around them.

Zad Siadatan, CEO of Connect UK Auctions, concludes: “Traditional auctions and specifically Connect Realtime© can provide a larger customer experience in a shorter space of time. Although MMoA provides great potential, the clarity surrounding them is somewhat unclear. If transparency of the process and fees are not understood by a client then the general stigma of the MMoA will grow. Auctions make up only a small fraction of the property market but are increasing year on year. Now is the time to provide value to the client in order to grow.”

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              Buyer FAQs

              Do I need to register to bid?

              Yes – You have three options when it comes to bidding and each will require its own bidding process.

              If you are joining us in the room, we can register you on the auction day, at the auction venue. Just ensure you bring along 2x proofs of ID and proof of funds. Please call us if you are unsure on what to bring.

              What if I want to bid but can’t make it on the day?

              You can choose from two options; bid via Connect Realtime© or via Proxy/Telephone. Both registrations are swift and straightforward and will ensure your ability to bid on your chosen lot.

              What ID must I provide?

              By law we will require two proofs of ID – one photographic and the other proof of address less than three months old. Proof of funds will also be asked for at the time of registration. Without the above you will not be able to bid.

              What is a buyer’s premium?

              A buyer’s premium is payable on all property and land lots. This will be payable upon the fall of the gavel as contracts are exchanged. This will be paid at the same time as the deposit if you are the highest bidder on a lot, before leaving the auction venue. The amount payable will be specified in the lot description.

              How much is the deposit?

              The Purchaser shall pay a deposit of 5% and buyer’s premium of 2.2% inclusive (with a minimum of £5,000.00) and contracts are exchanged. The purchaser is legally bound to buy and the vendor is legally bound to sell the Property/Lot.

              Can I buy with a mortgage?

              Of course. Some clients like to arrange their mortgage valuation prior to auction day and others after. Either way, completion can be set at 42 days (6 weeks) from exchange, rather than the normal 28 days, or in fact, anywhere in between. As long as all parties are notified, your timeframe is paramount. Auction offers immense opportunity and allows one to buy, through some lenders, with only a 15% deposit.

              Can I make a pre-auction offer?

              Yes. Any offers made before the auction will always be put to the vendor. If you are really interested in a lot then of course a pre-auction offer is a good idea. Ensure you have thoroughly read the legal pack before offering and if the offer is accepted the sale will exchange before the auction and will proceed under the same, auction conditions.

              What is a Proxy Bid?

              Here you will advise a representative as to your maximum bid by completing our Proxy Bidding form and the auctioneer will bid on your behalf up to your maximum. They will always endeavour to secure the property for you, either at, or below your maximum bid if possible. If the bidding in the room exceeds your maximum, then you proxy bid would end.

              What is a Telephone Bid?

              Here you will be asked to complete a telephone bidding registration form. This will be based on a first-come, first-serve basis and a representative will bid on your instruction. You will be able to hear the auctioneer in the background and will also be able to watch the auction live in action through our live stream via Connect Realtime©. A representative will call you a few minutes before the specified lot so please ensure you are ready and waiting.

              What is Connect Realtime© Bidding?

              Connect Realtime© is our live streaming of the auction you will access via our website. Giving you the ability to bid from anywhere in the world, in real time. You will create an account with us, login, then register to bid on your chosen lot(s). Once registered, we will send over the necessary documentation for you to complete before approving your bidding. Once approved, come auction day, just login to your account and watch the auction unfold and bid on your chosen lot(s).

              What is an open house viewing?

              These viewings are scheduled in by our team and give you a chance to view the lot and fully inspect your potential purchase. You can choose to bring someone along with you, a builder, or someone who may have extensive property knowledge if you are unsure yourself. A team member will conduct the viewings so there will always be someone there if you have any questions while your there. If the viewing days have finished but there is still a lot of interested, the team will schedule a further viewing.

              What happens if I’m the highest bidder?

              In the room

              After the fall of the gavel you will be asked to sign the contracts. This will be sent to both your solicitor as well as the sellers’ solicitors.

              After providing your solicitors and personal details you will be asked to pay the deposit and buyer’s premium on the specific lot. At this point you are legally bound and the amount will be payable by debit card or bank transfer.

              Completion will usually take place 28 working days later (or as varied by the Special Conditions of Sale) under the supervision of your solicitor. As soon as the gavel falls, there is a binding contract of sale. The property is at your insurable risk from this point.

              Via Connect Realtime, Proxy or Telephone

              You will have already signed to say that you are happy for us to sign the memorandum of sale on your behalf to allow the exchange of contracts after the fall of the ‘virtual gavel.’

              After this has been done one of our team will be in touch once the auction has finished to take payment of the lot deposit and buyers’ premium. Once this has been completed contracts will be sent to your solicitor as well as the sellers with completion usually to take place 28 working days later (or as varied by the Special Conditions of Sale) under the supervision of your solicitor.

              As soon as the hammer falls there is a binding contract of sale. The property is at your insurable risk from this point.

              What makes a property un-mortgageable?

              There are a few reasons for this and the most obvious include the following:

              • Properties without a kitchen or bathroom.
              • Properties with any kind of structural defect, damp, dry or wet rot.
              • Properties close to mining works, areas of landfill, areas of recent flooding or subsidence.
              • Leasehold properties with a short lease, typically less than 70 years, or a defective lease.
              • Where there are boundary disputes or where planning applications have not been applied for correctly.
              • Derelict property or where part of the building is in severe disrepair and needs demolishing.
              • Properties of non-standard construction. Standard construction has brick or stone walls with a roof made of slate or tile, so anything that differs from this will be classed as Non-Standard.
              • Some properties with sitting tenants or regulated tenancies.
              • All properties with a value below a threshold, sometimes stated as £40,000.
              What is Due Diligence?

              This means that you have done everything you can, in terms of research, before committing to a property or land purchase. This may include viewing the property, commissioning a survey, asking a solicitor to review the legal pack etc.

              What payment methods do you accept?

              We take debit card or bank transfers.

              What happens if I cannot complete on a purchase?

              If you don’t exchange on the date set you will be given what’s called ‘Notice to Complete’ – This will last for 10 days and will incur a daily charge, of which the amount can be found in your contract. Failure to complete at all with result in a forfeit of your deposit as well as your buyer’s premium plus any shortfall once the property or land is re-auctioned and sold.

              What is auction finance?

              Auction finance is a service provided by specialist lenders to auction buyers. We have an in-house specialist who can provide advice and finance on the following:

              • Short-term finance
              • Funding for residential, commercial and land purchases
              • Funding for non-standard construction
              • All income types considered
              • Up to 70% loan-to-value
              • Monthly interest rates from 0.55% (other fees and charges apply)
              Do I need to do a survey on the property I’m interested in?

              A survey isn’t compulsory, but if you are unsure about the structure or condition of the property then you might wish to instruct a surveyor, an engineer, or a builder for some advice.

              But remember, as soon as the gavel falls there is a binding contract of sale. The property is at your insurable risk from this point.