Sometimes when you go onto Rightmove or Zoopla looking for properties you will see that a property has been sold subject to the modern method of auction. I am sometimes asked ‘what does that actually mean?’, which is a great question because it is kind of like a hybrid approach to a property auction.
First and foremost, the property is going to be marketed by a local agent and what they will probably do is that they will put the property onto their website.
They will invite people to go and view the property, you will do that and that may be as an individual or they may have group viewings. At some point they will invite you to make a bid on the property. You’ll bid through the website and there will be an auction timeline, for example for 4 weeks, and they will be inviting bids during those 4 weeks and usually on the website it’ll show what the current highest bid is.
They are looking for somebody to come along to give them what is essentially the reserve price, that’s the price at which they’ll be prepared to sell. You wont necessarily know what that is, but it is probably going to be within 10% of the guide price, if there is a guide price, because under the current way that things are done the guideline is that you should be within 10%.
You might have two weeks, or three weeks, or four weeks, or whatever the period is to put your bid in. If you bid the right amount then you will be expected to pay a deposit at that time. In a traditional auction when the gavel comes down it’s the same as exchanging contracts. It’s not the same for the modern method. It isn’t deemed to be like an exchange of contracts, you have to pay a deposit, and the deposit can be quite hefty.
I bought a property for £42,000 using modern method of auction and the deposit I had to pay to secure it was £6,000. I’m using the term deposit because that is what it quite often is described as, but it’s really a fee, and it’s a fee to the agent. It is a fee to the agent to take the property off the market.
The property which I was buying was probably worth around £48,000 and I knew that the £6,000 fee/ deposit, whatever you want to call it, was going to be payable which is why I ended up paying £42,000. You might want to take that into account. If I’d paid £48,000, I still would’ve been paying the £6,000 on top which meant in my mind I’d actually be paying £54,000 so you need to be careful of that. If the property doesn’t sell online, because maybe it doesn’t have enough bidders, or maybe nobody bids the right amount, then the auctioneer could put the property into a traditional auction.
What will often happen is if the property is still available you’ll see that it will be online for 4 weeks, but lined up to go into the traditional auction, the live auction where people gather and bid with their hands and do all that kind of normal stuff, perhaps just a couple of weeks after the modern method auction expires.
So, it is kind of like a hybrid. A bit like buying a property on eBay I suppose is the nearest equivalent, but with a few twists, and you have got to be very careful of the fees involved. Always check out what the fees are going to be because they can be quite hefty.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
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