Modern Method of Auction explained

As the ‘modern method of auction’, also known as conditional auctions, becomes a more common way of selling property, we look at what sellers and buyers need to beware of.

Angela Kerr Director, Editor

What is the Modern Method of Auction?

The Modern Method of Auction is a type of property auction you can use to sell or buy a house. Buying and selling with online property auctions offers some advantages on both sides.

Sellers benefit from online property auctions because a substantial reservation fee must be paid upfront by the purchaser so there’s far less chance of them pulling out than with the traditional no sale no fee route. 

It gives buyers the chance to purchase a property quickly and with no chain. But there are some major potential pitfalls for buyers and sellers to consider. Read on for more.

Modern Method of Auction vs traditional house auctions: What’s the difference?

There are a number of key differences between the Modern Method of Auction and a traditional house auction:

1. Conditional vs unconditional: A traditional auction is an unconditional sale process; once the hammer falls you’ll need to exchange contracts and usually pay a 10% deposit. You’ll then usually need to pay the rest a month later. By comparison, Modern Method of Auction is a conditional sale process. The winning bidder pays a reservation fee at the end of the auction. This gives them an exclusive period in which to buy the house but it’s not legally binding. They’ll have 28 days to exchange contracts and a further 28 days to complete.
2. Longer bidding period: Unlike a traditional auction where bidding happens on a fixed date and time, with the Modern Method of Auction, properties are advertised online, often for around 30 days. Buyers can usually bid online at any time within this period, just like eBay, with the highest bid at the end of the auction winning.
3. Mortgages: It’s easier to buy a house via the Modern Method of Auction with a mortgage, as assuming there aren’t any problems, you’ll have longer to arrange your mortgage

Buying a house via the Modern Method of Auction and need a mortgage? Speak to our partners at fee-free mortgage brokers L&C.

Who pays Modern Method of Auction fees?

Modern Method of Auction fees are paid by the buyer of the house. If an online auction house is working in partnership with an estate agent, they will usually split the fee between them, although you should check this. By comparison, with a traditional house sale, the seller pays the estate agent’s fees.

Selling via online property auction: How it works

Chances are, you have already appointed an estate agent and they have suggested you use the Modern Method of Auction to sell your house. Agents increasingly have partnership deals with online auctions houses such as iamsold.com as it’s a way for them to make more money from the selling process than from you paying a commission fee of say 1%.

This is the process involved:

1. Setting the price

If you’re selling by the Modern Method of Auction, the auctioneer should visit your property then give you an ‘Auction Appraisal’, which will contain information including the suggested guide price. You’ll also need to decide on your reserve price; this is the lowest you’re prepared to accept. It will be kept confidential. The only prices anyone else sees are the starting and actual bids. 

Remember, your property may end up selling for less than the price it’s marketed at. So you need a very clear sense of what you are prepared to part with it for. You should resist pressure to set the reserve too low simply to achieve an easy sale.

Want to sell your house via an online auction? Check out our guide to the best online property auctions in the UK.

2. Getting prepared

You’ll need to take the usual steps when selling a house such as liaising with your estate agent about photographs and a floor plan. You’ll also need to make sure the house has an Energy Performance Certificate.

But when you’re selling via the Modern Method of Auction, you’ll also need to get a legal pack prepared and this can cost up to £450. However, some or all of this cost is sometimes passed onto the buyer, so check the contract for details of this.

The Modern Method of Auction legal pack may include:

• The Title Register and Plan from HM Land Registry
• Conveyancing searches
• Any special conditions of sale, such as any of the seller’s legal fees or disbursements payable upon exchange or completion.
• Property information forms: The TA6 form,the TA10 form and TA7 form, if the property is leasehold. For leasehold properties you may need to provide a management pack.

The auction house site you use may recommend that you use its in-house conveyancing team. But it’s worth shopping around to see if you can find a conveyancer that offers a better or cheaper service.

You’ll need to instruct a conveyancer to look after the legal side of selling your property, so you may feel it’s best to get them to prepare the legal pack too.

3. Marketing and viewings

You’ll also need to confirm the details of the auction listing. The property should be listed on all the main property portals including Rightmove and Zoopla.

The estate agent or auctioneer will usually host viewings and open days of your property.

4. Watch the bids come in

With the Modern Method of Auction, bidding periods are often around 30 days but could be just a few days or even a few hours. You can watch bids being made online so the process is very transparent.

At the end of the auction, the house will be sold to the highest bidder, as long as they’ve met the reserve price. The buyer will have to pay the non-refundable reservation fee. This is in addition to the price of the property and is paid to the estate agent and online auction company, not you.

With many auction house sites, if a bidder places a bit in the last two minutes, the timer will reset to two minutes to allow everyone the chance to increase their bid if they wish.

5. The sale completes

The winning bidder will have 28 days to exchange contracts and a further 28 days to complete with the Modern Method of Auction.

Find your own conveyancing solicitor to act in your interests – get quotes today.

Pros and cons to selling with an online property auction

So what are the Modern Method of Auction pros and cons for sellers?

Pros of selling via online property auction include:

• Less chance of the sale falling down: In the normal selling process, a buyer can pull out at any point until exchange of contracts, penalty-free. But if a buyer pulls out of a Modern Method of Auction sale they will forfeit their reservation fee which is likely to be thousands of pounds.
• Lower selling costs. Sellers benefit from selling with minimal cost to them. Although the sold price achieved at auction will generally be less than on the open market, the outlay is shouldered by the buyer, who may overlook this aspect at the prospect of a bargain.
• The process is transparent so you don’t need to wonder if the estate agent is always telling you about offers you receive.
• Quick sale. May be an attractive option if you have a property which needs to be sold quickly, perhaps for probate or relocation reasons. It may also be an appealing option if you think your home may take a long time to sell on the open market; flats with short leases or properties requiring serious renovation, for example.
• Speedier completion: There are fixed dates for exchange and completion set by both sides. You should complete within 56 days. This takes away the uncertainty and time-lag often associated with usual sales. Even if you allow for a 30 day bidding period, the timescale is significantly faster than the average time from listing to completion of 207 days, according to data from TwentyEA Insight.

Cons of selling via online property auction:

• Lower sale price. The sold price achieved at auction will generally be less than you would achieve on the open market. Broadly speaking, the price at a traditional auction may be around 20% lower than if it was sold via the normal process, while Modern Method of Auction sales may sell for around 10% less. However, you won’t have selling fees to cover.
• Off-putting to buyers. Expect that many buyers will be put off by the requirement to pay non-refundable reservation fees up-front. Your pool of buyers may shrink significantly.
• Are you really saving money? While you think you’re not paying the selling fees, you may be by default because most savvy buyers will work the reservation fee into the price they are willing to pay. So if they are bidding on a house worth £280,000, they may only bid £274,000 if they need to pay a reservation fee of £6,000. So while it looks like the buyer pays all the fees, you are likely to be losing out too. The estate agent and auctioneer split the reservation fee no matter what price you achieve.
• Skewed agent incentives. A knock on effect of this is that your estate agent won’t necessarily be incentivised by your purchase completing as they’ll get to keep the reservation fee either way.
• There are still fees. There may be other administrative fees passed on by the auction house or estate agent – ask for a list of all of these.

Modern Method of Auction vs selling in the traditional way with an estate agent

Modern Method of Auction reviews

Make sure you read reviews of house auction sites before deciding to sell your home through Modern Method of Auction. There are important factors to consider.

For example, you should compare how much house auction site charges in reservation fees. Just because it won’t be you paying it as a seller doesn’t mean it’s not important. If the reservation fees are too high it could mean the buyer offers less for your property or may not bid at all.

You should also check their local expertise, especially if you’re not using a house auction site in conjunction with an estate agent. For example, Auction House has a network of traditional auction houses around the UK and its experts will advise you on the guide price and the selling process. So check the credentials of the house auction site before signing up.

Check out our guide to the Best online property auctions in the UK

Buying via online property auction: How it works

If you want to buy a house that’s being sold via the Modern Method of Auction, here’s how it works:

Register

You’re likely to find a property on Rightmove or Zoopla and only when you’re reading the description find it is being marketed using Modern Methods of Auction. These properties are displayed online with an auction “timer”, usually set for 30 days. Register with the estate agent or auction house and place your bid. You may have to pay a participation fee, part of which is usually refundable.

Arrange your finances

The estate agent and/or auction provider will ask you how you intend to fund your purchase. You need to be confident that you have the funds otherwise you could be out of pocket. See our guide to getting a mortgage on an auction property.

Take into account the substantial reservation fee you will need to pay if your bid is successful.  This fee will be added to the price you eventually pay raising your stamp duty bill.  Speak to our fee-free mortgage partners at L&C to see how much you can afford.

View properties

It’s usually possible to view properties either in person or virtually.  You should also make sure you get the legal pack about the property and price accordingly.  The pack should contain the title plan and register or evidence of title, local authority searches, water and drainage search, property information questionnaire and a fixtures and fittings list. A short lease or sitting tenants can substantially reduce the market value. 

At this stage, your conveyancing solicitor can raise queries with the auction house site and they will liaise with the seller’s conveyancer.

Arrange a survey

It’s advisable to arrange your own house survey to report on the condition of the property and offer an independent valuation before bidding.

Find a qualified surveyor to report on the condition and offer an independent valuation before bidding.

Bidding

You can usually bid online, 24 hours a day, seven days a week. You’ll be able to see if any other bids have been made and how much they are. However, note that rival bids aren’t necessarily being made by another potential buyer.

For example, in its terms and conditions, one auction house that works with estate agents up and down the country, Iamsold.co.uk, says ‘Where there is a reserve price the Seller may bid (or ask us or another agent to bid on the Seller’s behalf) up to the reserve price but may not make a bid equal to or exceeding the reserve price. You accept that it is possible that all bids up to the reserve price are bids made by or on behalf of the Seller.

At the end of the auction period, the highest bid wins. To secure the property, you must pay a non-refundable reservation fee immediately by debit or credit card or bank transfer. The sale usually has 56 days in which to exchange and complete.

How much are Modern Method of Auction reservation fees?

Modern Method of Auction reservation fees are usually at least 2.5% + VAT of the sold price, or a minimum of £6,000 inc VAT. So on a £275,000 property you would pay an additional fee of £8,250 (incl VAT). Your stamp duty bill would also increase from £1,250 to £1,662.

However, these fees can be much higher. For example, in one case, a buyer agreed to go into a reservation agreement to buy a house after an auction had ended and paid a reservation fee of £13,650 on a £325,000 – 4% of the purchase price. They later pulled out and lost the reservation fee they had paid; they complained to The Property Ombudsman but it did not support her complaint.

What happens to my reservation fee if I pull out?

With the Modern Method of Auction, if you ‘win’ the auction you aren’t legally obliged to proceed with the purchase, but if you don’t, you will lose your reservation fee.

If the seller pulls out, you should be refunded the reservation fee. But a word of warning, carefully check the terms of the contract  before you sign up. We have heard of buyers not being refunded if the delay is caused by the seller.    

Online property auctions in the press

‘Paula Higgins, CEO of HomeOwners Alliance appeared on BBC Radio 4‘s You and Yours programme speaking about how they work and what you need to watch for. Click below to listen.

Pros and cons to buying with an online property auction

Pros of buying via online property auction:

There are some advantages to the Modern Method of Auction for buyers. Pros of buying via online property auction include:

• The buying process is transparent, so you can see immediately how bidding progresses.
• Properties are priced realistically to sell, so you could net a property for below market value.
• Unlike buying a house at a traditional auction where contracts are exchanged on the day; online property auctions give the buyer time to sort mortgage finance.
• There are fixed dates for exchange and completion set by both sides and no risk of gazumping.

Cons of buying via online property auction:

But there are major disadvantages to you as a buyer, including:

• When you’re buying property in the traditional method, it’s rare that you would be asked to pay a reservation fee, unless you’re buying a new build, in which case the fee will go towards the purchase price. But if you win the bid in the Modern Method of Auction, there is usually a minimum reservation fee of at least £5,000 + VAT or around 4% of the purchase price. If the property you are buying is less than £143,000, you will be paying more than 4% in fees to the estate agent. Read more about this in our guide Modern Method of Auction: Pitfalls for buyers.
• You’ll need to decide whether to get a survey. If you do, you’ll be spending money on a house you may not get to buy if you’re outbid. But if you don’t get one before bidding, then later find out it has major issues, you won’t be able to renegotiate the price and you’ll lose money if you pull out of the sale. The issue of surveys is one of the major downsides of this auction process for buyers. Find more information in our guide Modern Method of Auction: Pitfalls for buyers.
• Extra stamp duty liability: You will pay more in stamp duty as HMRC will charge stamp duty on the final price agreed plus the reservation fee.
• Depending on the terms of the house auction site, buyers and sellers may have to pay a share of the costs of the legal pack.  It’s also known as the auction pack, buyer’s pack or seller’s pack and typically costs up to £300.
• You’ll need to have the reservation fee ready and waiting; it can’t be part of your mortgage funds because of the need to pay it instantly once you’ve won the auction. It is non-refundable if you decide to withdraw.

For more information, read our guide on Modern Method of Auction: Pitfalls for buyers.

You will need a conveyancing solicitor to do the legal work for your purchase. Get conveyancing quotes now.

How to buy a house at auction with a mortgage

If you’re buying via the Modern Method of Auction, you’ll have 56 days to complete. That should be long enough to arrange a mortgage in most cases but you should still move quickly. And you’ll need to do your homework before bidding. You’ll need to be confident that you’ll be able to borrow enough to buy the house. So speak to a fee-free mortgage broker in advance to find out what deals you may get access to before bidding.

You’ll also need to consider whether the property will meet the lender’s requirements before bidding. And consider what you would do if the mortgage lender doesn’t think the house is worth the amount you’ve agreed to pay for it. This is known as a ‘down valuation’. The lender may offer to lend you less or even pull out.

For more information, read our guide on Modern Method of Auction: Pitfalls for buyers.

How to find house auction sites selling property

We have pulled together a simple table so you can compare online property auction providers, their size, their fees and their customer reviews.

There are plenty of specialist online property auction sites that come up from a  quick search online which conduct online auctions on behalf of estate agents.

Some estate agents advertise online auction properties themselves. You can find these on their website or take a look on Zoopla and Rightmove using the keyword search function to filter the properties selling through auction.

Alternative methods for selling your home

Before committing to selling via online property auction, it is worth considering your options as it may cost you more if you achieve a lower asking price than you would by selling your home through a high street or online agent.  For other tips on reducing the cost of selling, see the cheapest way to sell a house.

See our advice on how to find the best estate agent and compare online estate agents — a cheaper alternative.

Frequently Asked Questions