With the rise of the internet, the Modern Method of Auction (MMoA) is becoming an increasingly popular route to buy and sell property.
Often described as eBay, but for houses, the modern method works very similarly traditional property auctions, with properties listed online. But with the very distinctive difference that bidding takes place over an extended period to drive the very best price possible for a property.
The Modern Method of Auction offers several key advantages over both estate agent sales and traditional auctions. However, it does also have its pitfalls.
In this guide, we explain how MMoA differs from traditional auctions, providing a step-by-step explanation of the steps behind it. We look at what kinds of property it is best suited to and examine the main pros and cons that this method of buying and selling property offers.
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- How does the Modern Method of Auction compare to a traditional property auction?
- How does the Modern Method of Auction work?
- What kind of properties suit the Modern Method of Auction?
- What are the Pros of the Modern Method of Auction?
- What are the Cons of the Modern Method of Auction?
- Who offers the Modern Method of Auction platform?
How does the Modern Method of Auction compare to a traditional property auction?
In a traditional property auction, properties are sold through a public bidding process, where potential buyers compete to purchase by raising their hand to offer increasingly high bids on a property.
Ultimately, the auction ends when no one is willing to offer more than (or to outbid) the highest bidder. When this happens, the highest bidder then pays a deposit and is legally obligated to buy the property. This fall of the auctioneer’s hammer (or gavel) effectively marks the legal exchange of contracts. After this point, either party can take the other to court for failing to complete the transaction.
When selling properties at auction, a Guide Price and Reserve Price are set in agreement with the seller. The guide price is what the auctioneer expects the property to sell for, while the starting price is what they will start the bidding off at. Reserve prices are set by the person selling the property and will be the minimum they are willing to accept for it. If bidding fails to reach the reserve price, the property remains unsold.
Traditional auctions typically take place at auction houses on prearranged auction days. Numerous properties will be sold on a single auction day, with the auction house promoting them in its catalogue beforehand. Since the Covid-19 pandemic, most traditional property auctions have featured an online live stream in addition to their physical event. This means that buyers can place bids from anywhere in the world without attending the traditional auction in person.
The Modern Method of Auction holds several key differences from a traditional property auction.
- While people still make offers to buy the property, known as bids, the process of bidding takes place over a set period, typically a month, rather than in a few minutes. Marketing continues throughout this entire period, with properties being sold via the MMoA route normally being listed on all the largest property portals. This takes place throughout the process, and often also directly marketed by a local estate agent.
- Auctions using the modern method take place entirely online using technology. As this is the case, bidders can make use of tools such as automatic, incremental, and maximum bids.
- Modern method auctions do not operate in the same way that traditional property auctions do. When a modern method auction finishes, the highest bidder is obligated to pay a non-refundable reservation fee, and negotiations on purchasing the property begin. This differs from a traditional auction, where the fall of the auctioneer’s gavel represents the buyer accepting the contract of sale.
- Modern method auctions offer more flexibility in completion timelines. While traditional auctions require the buyer to have their funds ready within a month, the modern method allows more time to raise the funds. This is typically two months, enabling buyers to make use of mortgage finance. This means that selling a property via the modern method opens up a property to a much larger pool of buyers who are looking to buy with standard mortgage products rather than specialist finance such as short-term bridging loans.
How does the Modern Method of Auction work?
In this section, we look at how the MMoA works step by step, following a single property through a ten-step process.
The MMoA starts when you, the homeowner, decide to sell your property through the modern method of auction and approach an auction house.
- Step 1: Property Appraisal:
The first step in selling your property using the modern method is a ‘desktop appraisal’ or valuation from the auction house. Nowadays, this can often be completed without the auction house representative even visiting your property, using the vast amount of information available on the internet. Once the appraisal is complete, the auction house will provide you with a guide price or estimate as to how much your property will sell for and ask if you want to proceed with the sale. At this point, the most important thing to consider is your Reserve Price. You should take time to reflect on what this should be remembering this is the least you are prepared to sell your property for. Set this too high and you risk your property not selling and wasting a good deal of time until the next auction comes around.
- Step 2: Agreement to sell:
If you’re convinced that selling through MMoA is right for you, the auction house will have you go through a process called onboarding. This involves you signing the auctioneer’s agreement, a document like an estate agent’s contract that outlines the terms by which the auction house will carry out the sale of your property. This contract details any auctioneer’s fees or charges, the reserve price, the duration of the auction, the sale procedure, and what will happen if your property fails to meet the reserve price.
- Step 3: Filling in the legal pack:
At this point, you’ll be asked to compile documents for a legal pack relating to your property. This normally contains a valuation report, floor plan, EPC certificate, conveyancing searches, details of the property’s fittings and contents, Land Registry documents, a survey from the Royal Institute of Chartered Surveyors, and the terms and conditions for the auction.
- Step 4: Preparing the Property Listing:
Once you have gathered the documents for your legal pack, it’s time to prepare your house for the market and organise an online listing. You should prepare your property taking particular to tidy gardens, fix minor issues, take photographs, and write descriptions. It’s critical to make sure first impressions are good, as they make the biggest impact on potential buyers.
- Step 5: Going Live:
After the listing is prepared, it’s time for your property to go live. Your property will be advertised across all the major property portals including Rightmove, Zoopla, Prime Location and the auction house’s own website. The auction house will then start contacting any buyers they have in their books who might be interested in your property. If someone expresses interest in your property, the MMoA company will help them arrange a viewing.
- Step 6: Viewings:
If a potential buyer likes what they see online, they will want to come to view your property and look at it in person. Some auction houses have the auctioneer conduct these viewings, while others use a professional known as a viewing assistant. Another option, which can sometimes help you save money, is for you to conduct viewings yourself, although most auction houses do not expect you to do this.
- Step 7: Bids:
If a potential buyer likes what they see during their viewing and after reading through the legal pack, they may place a bid. Expect a trickle of lower bids to start with, with the numbers increasing as the auction deadline approaches. If the bidding exceeds the reserve price, your property auction is a success, and your home is practically guaranteed to sell.
- Step 8: The Auction Deadline:
Provided bidding has exceeded the Reserve Price once the auction reaches its deadline, the highest bidder wins. They will pay a non-refundable reservation fee (typically around 5% of your property’s selling price) and have their solicitor begin the paperwork to buy your property. Note that this is not the same as an exchange of contracts, which happens later, during the agreed-upon completion period, and is not legally binding. While the non-legally binding nature of this agreement might seem worrying, the reservation fee means very few people drop out of modern method auctions.
- Step 9: The completion period:
The completion period is the term used for the time after the auction but before the transaction is completed. During this time, the winning bidder and your solicitors will work out the details of the transaction. The length of the period can vary. While typically this is set at 4 weeks long, if the buyer needs time to secure a mortgage, it can be extended to 8 weeks. This is in stark contrast to the traditional property auction route where contracts are exchanged on the fall of the auctioneer’s hammer and the buyer must complete their purchase typically in just 28 days. At the end of the completion period, the buyer’s solicitor will transfer the payment to your solicitor who will then pay off any mortgage on the property, take their fees, and transfer the remaining funds to you.
- Step 10: Moving out:
Once your property sale has been completed and the funds are in your possession you should immediately remove any remaining possessions from the property and pass the keys on to the new owner. They will then take possession of the property and their conveyancer will send the details of the transaction and the signed transfer deed to the Land Registry, who will then update their records to reflect the new ownership.
What kind of properties suit the Modern Method of Auction?
Traditional auctions have a little bit of a reputation for selling run-down, less immediately desirable properties than estate agents. This often means properties in repossession, un-mortgageable properties (due to structural issues or non-standard construction types). They can also include development opportunities with sellers looking to sell parcels of land with (or without) planning permission.
Modern method auctions do not suffer so much from this and instead often feature conventional family homes in good condition. And so, the MMoA route has become more mainstream for both homebuyers and sellers in recent years as acceptance has grown.
The main reason for the modern method of auction having grown in popularity is the longer completion period that is now available for everyday buyers using standard mortgages. As most people looking for more conventional residential properties will be buying using a mortgage, this makes the modern method of auction more suitable for selling conventional homes as it grants access to a far larger pool of buyers than the traditional method.
Another type of property the modern method suits are unique homes which are hard to value. For properties like converted commercial buildings or old listed properties, the amount of interest and the amount people are willing to pay can be unpredictable. Using MMoA can allow you to leverage a smaller number of extremely interested potential buyers to secure a higher sale price by making all the interested parties fight a bidding war over it.
Modern Method of Auction Pros and Cons
Unfortunately, like any process, the modern method of auction is not perfect. There are a couple of downsides worth considering before you decide to use this method to buy or sell a house.
What are the Pros of the Modern Method of Auction?
MMoA offers several distinctive advantages:
- Speed of Sale:
The Modern Method of Auction typically has a fixed timescale for the sale, providing a faster process compared to traditional methods. This can be advantageous for sellers who want to sell their property quickly.
- Fixed Timescales:
MMoA often has a set timeframe for the auction process, including a defined auction date and completion timeline. This can provide clarity and certainty for both sellers and buyers.
- Greater buyer reach:
Online auctions, a common format for the Modern Method, can attract a broader audience of potential buyers. This increased visibility can result in more interested parties and potentially higher bids.
The auction process is transparent, allowing sellers to see the level of interest and bidding activity on their property. This transparency can provide reassurance and confidence in the selling process.
- Competitive Bidding:
The competitive nature of auctions can lead to higher prices as interested parties bid against each other. This can be particularly beneficial for sellers looking to achieve the best possible price for their property.
- Reduced Fall-Through Rates:
The MMoA often requires buyers to pay a non-refundable reservation fee upon winning the auction. This can reduce the likelihood of a buyer pulling out of the sale, resulting in lower fall-through rates.
What are the Cons of the Modern Method of Auction?
While the Modern Method of Auction (MMoA) has several advantages, it’s important to consider the potential disadvantages before deciding to sell a property through this method. Here are some of the main drawbacks:
- Non-Refundable Fees:
Buyers participating in the MMoA are often required to pay a non-refundable reservation fee upon winning the auction. This fee can be a deterrent for some potential buyers and may limit interest in the property.
- Perceived Distress Sale:
Auctions can sometimes be associated with distressed sales or properties with issues. This perception may affect the perceived value of the property and attract buyers looking for bargains.
- Fixed Timescales:
While fixed timescales can be an advantage, they can also be a drawback. Sellers may feel pressured to complete the sale within a specific timeframe, which could be challenging if unforeseen circumstances arise.
- Potential Lower Sale Price:
The competitive bidding process in auctions can lead to a higher sale price, but there’s also a risk that the property may sell for less than its market value, especially if bidding is not as competitive as anticipated.
- Risk of Not Meeting Reserve Price:
If the auction does not attract bids that meet or exceed the reserve price set by the seller, the property may not be sold. This can lead to disappointment for the seller and may require them to reconsider their selling strategy.
- Limited Room for Negotiation:
The auction format may limit the negotiation process, as buyers are often making firm offers during the auction. This may be a disadvantage for sellers who prefer more negotiation flexibility.
- Potential Buyer Misunderstanding:
Some buyers may not fully understand the auction process, including the implications of the non-refundable reservation fee. This lack of understanding could lead to misunderstandings and disputes.
- Legal and Administrative Complexity:
The auction process involves legal documentation and administrative tasks. Sellers should be prepared for the associated complexities, and legal fees may apply.
- May not suit all seller situations:
The modern method will not suit all types of property sale. For example, vendors that need a very quick house sale for any reason such as to help with financial difficulties, the sale time could be too slow. In these cases, sellers would be better off aiming to get a fast house sale via a cash house buying company.
Who offers the Modern Method of Auction platform?
Here is a handy list of the current ten companies that provide a platform if you are looking to use the modern method of auction:
- SDL Property Auctions:
SDL Property Auctions is an online auction platform that specializes in residential and commercial property auctions.
- Auction House UK:
Auction House is one of the UK’s largest residential property auctioneers, offering online auctions alongside traditional in-room auctions.
Allsop is a property auction house in the UK that conducts both residential and commercial property auctions, including online auctions.
- Pugh & Co:
Pugh & Co is a property auction house that operates both traditional and online auctions, focusing on residential, commercial, and land properties.
Bidx1 is an online property auction platform that facilitates the buying and selling of residential and commercial properties.
- IAM Sold:
IAM Sold operates online auction platforms such as the Modern Method Auction and the Traditional Auction. They specialize in residential property sales.
- Network Auctions:
Network Auctions is an auction house that conducts live-streamed online property auctions, featuring a range of residential and commercial properties.
- Bond Wolfe Auctions:
Bond Wolfe Auctions is a property auctioneer in the UK that conducts both in-room and online auctions, featuring a variety of residential and commercial properties.
- Clive Emson Auctioneers:
Clive Emson Auctioneers specializes in land and property auctions, conducting auctions across the UK, including online auctions.
- John Pye Property Auctions:
John Pye Property Auctions is part of the John Pye Auctions group, offering online property auctions for residential and commercial properties.
Each of these companies vary in what they offer in terms of the prices they charge as well as the range of services provided.
The Modern Method of Auction presents a structured and accessible way of selling property, leveraging online bidding over an extended period to maximise potential interest in a property.
Its extended completion timeline, accommodating mortgage financing, makes it more accessible than traditional auctions and attracts a broader range of buyers, particularly those interested in regular, finished homes. Such properties are likely to do better using this method than they would at a traditional auction.
However, MMoA still represents a compromise. While it provides a degree of certainty and a fair chance at a satisfactory sale price, it will not match the speed of house-buying companies, the certainty of a traditional property auction, or compete with the higher on-average prices achievable through estate agents.
While MMoA is suitable for most properties and can lead to a good result when used to sell almost any home, it is only the best solution under specific circumstances.