Modern Method of Auction Explained

What is the Modern Method of Auction?

The modern method of property auction is a slower-paced auction method that takes place online rather than in person. They are also known as conditional auctions, and potential buyers bid for properties online during a fixed time period, much like an eBay auction. This helps to drive the very best price for a property and gives buyers a chance to weigh up the pros and cons of a property before deciding whether to bid or not. 

The properties offered at the auction are marketed during the auction bidding period by the estate agent and are often listed on property websites. Bidders can place automatic, incremental and maximum bids, much like on eBay. Once the bidding is over, the successful buyer has to pay a non-refundable reservation fee, and then they have 28 days to exchange contracts on the property and another 28 days to complete, twice as long as traditional property auctions. This gives buyers more time to arrange funding for the property. The reservation fee gives the buyer an exclusive period to complete the sale on the property, but it’s not legally binding like a traditional auction is. If the buyer does not complete the transaction, they will lose the reservation fee.

The main differences between modern and traditional auctions are the extended bidding period and the non-legally binding reservation fee. 

What is the Traditional Method of Auction?

The traditional method of property auction usually takes place on one day, and buyers must attend in person to place bids on the properties, although some auction houses will accept online bids made during the auction if it is live-streamed online. The highest bid on the day of the auction wins and a 10% deposit is required by the winning bidder on the day. The contracts between the buyer and seller are also exchanged on the same day, and completion must happen within 28 days of the auction. The buyer’s deposit will be forfeited if the sale does not go through, and they may be subject to penalty fees. It can be hard to obtain a mortgage for a property bought at auction, and many auctions offer properties for cash sales only. For these reasons, traditional auctions come with a high risk of overbidding, and some sellers try to offload properties in need of extensive renovations, knowing that they would not pass a mortgage valuation survey.

Can you get a Mortgage on a Modern Auction?

Modern auctions give the buyer more time to arrange a mortgage during the extended completion time following the end of the auction. The usual mortgage stipulations will apply, and you may need a mortgage valuation survey on the property before a mortgage will be offered by the lender.

Should I Sell My Property at a Modern Auction?

Like traditional property auctions, you can sell your property faster than relying on an estate agent. It can be completed in 56 days from the date of the auction, rather than the average 6 months it usually takes from listing a property for sale to completion. Modern method auctions also include more residential properties, whereas most traditional auctions are limited to commercial properties, land, development opportunities and problematic properties. Modern method auctions can encourage more bids as potential buyers have 30 days to place bids, and the property can still be advertised during this time. Depending on your goals as a property seller, a modern method of auction could be suitable for you.

Should I Buy a Property at a Modern Auction?

Much like a traditional auction, a modern auction can give buyers the chance to pick up a property for as much as 10% less than the market value of the property. You will also benefit from the faster completion period compared to buying a house from an estate agency and you will have some time to arrange a mortgage if required. As with all property purchases, doing research on the local property market and the property offered at auction will help you identify the best deals.