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Eddie_George

"the Modern Method Of Auction" Anyone Heard Of It Before?

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The Modern Method of Auction is a flexible buyer friendly method of purchase. Upon close of a successful auction or if the vendor accepts an offer during the auction, there is no fee taken by the auctioneer however the buyer will be required to put down a non-refundable Reservation Fee of 3.5% + VAT subject to a minimum of £5000 + VAT (£1000) = (£6000) which secures the transaction and takes the property off the market.

Fees paid to the Auctioneer may be considered as part of the chargeable consideration for the property and be included in the calculation for stamp duty liability. Further clarification on this must be sought from your legal representative. The buyer will be required to sign an Acknowledgement of Reservation form to confirm acceptance of terms.

Copies of the Reservation from and all terms and conditions can be found in the Legal Pack which can be downloaded for free from the auction section of our website or requested from our Auction Department. Please note this property is subject to an undisclosed reserve price which is generally no more than 10% in excess of the Starting Bid, both the Starting Bid and reserve price can be subject to change.

Terms and conditions apply to the Modern Method of Auction, which is operated by iam-sold Ltd.

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Defo avoid it, sold my dads retirement flat using this method (3 years ago when I was a lot more naive about property, learnt a hell of a lot since then!)... it sold for EXACTLY the reserve that I'd set (very, very low), which just seemed a little too coincidental for my liking.

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It's not actually an auction. The property is marketed as usual by an estate agent and sold/offered on as usual.

The difference is that the agent fees are paid by the buyer.

It's no surprise that properties sell for "reserve" as it's not intended to be a competitive auction process. The first acceptable bidder gets the property.

There may be an element of tax dodging too. SDLT is paid on sale price, but this implicitly includes vendor's agent fees. By explicitly moving agent fees to the buyer, there may be less SDLT (no idea how HMRC see this, but savings are unlikely to be large, and with the risk of HMRC pursuing this as aggressive avoidance, I'm not sure I'd like to try it).

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It's not actually an auction. The property is marketed as usual by an estate agent and sold/offered on as usual.

The difference is that the agent fees are paid by the buyer.

It's no surprise that properties sell for "reserve" as it's not intended to be a competitive auction process. The first acceptable bidder gets the property.

There may be an element of tax dodging too. SDLT is paid on sale price, but this implicitly includes vendor's agent fees. By explicitly moving agent fees to the buyer, there may be less SDLT (no idea how HMRC see this, but savings are unlikely to be large, and with the risk of HMRC pursuing this as aggressive avoidance, I'm not sure I'd like to try it).

Maybe it's changed since I did it but from what I can remember of the process the property was marketed conventionally on RM, Zoopla etc for a few weeks then the actual ''online auction'' ran for 24 hours.

There were 5 interested parties who were registered to bid and they did all make numerous bids (I could follow the progress online), but, mysteriously none of them were prepared to go higher once my ''confidential'' reserve was reached.

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Maybe it's changed since I did it but from what I can remember of the process the property was marketed conventionally on RM, Zoopla etc for a few weeks then the actual ''online auction'' ran for 24 hours.

There were 5 interested parties who were registered to bid and they did all make numerous bids (I could follow the progress online), but, mysteriously none of them were prepared to go higher once my ''confidential'' reserve was reached.

Yeah, here's an example:

http://www.rightmove.co.uk/property-for-sale/property-35092224.html

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I see a lot of these auctions in the North East (I think I remember reading that this is where this innovation originated somewhere). Usually for lower priced properties.

I'm at a loss why people would choose to sell in this way but plenty seem to get sucked into it. It seems the estate agents sell the idea on the basis of it being more attractive to buyers because the auction terms are different and they don't need to complete within 28 days so it gives them more time to deal with mortgages etc (though sellers could specify similar terms for a regular auction sale easily if they wanted to as far as I know). Plus they say there are no seller fees. Which might be technically true.

What they possibly don't draw so much attention to is that any sensible cash buyer is going to consider that £6K+ in fees (and £6,000 is the minimum) to be gone from the pot they have to bid from, Even if they don't have a fixed budget, they're not going to want to pay out £66K for a property that they think is only worth £60K either. They're going to be reluctant to bid much over £54K for such a property as they have £6k in auction fees to pay. But hey, that's OK because the seller hasn't paid any fees. They've just sold for £54k instead of £60k.

I can't see how it'd work so well for people buying with mortgages either. Particularly for lower priced properties. As unlike a regular auction where you might be asked to pay a 10% deposit on winning that goes towards the value of the property, that £6k+ in these modern auctions isn't a deposit. It's just a big fee that you're paying to the auctioneer and estate agent, which as far as I know, many banks won't want added onto the mortgage (as it's not part of the value of the property). So that's a minimum of £6k less you have to put down as a deposit, and I would imagine in some cases having a substantially lower deposit, would mean you'd be able to borrow much less (and therefor bid significantly less), and perhaps borrow at a higher rate.

I can't see that there are many winners here, apart from the auctioneers making £6K instead of a few hundred. And maybe the odd cash buyer who's coming along and snapping up properties that might otherwise have gone for much more sold in the usual way or at a regular auction, because the fees are putting some fo the competition off. I'd be very surprised if that's not happening. I've seen places go for much less at these modern auctions than comparable places on the same streets that were sold more traditionally.

t's no surprise that properties sell for "reserve" as it's not intended to be a competitive auction process. The first acceptable bidder gets the property.


I haven't bid on one of these yet, but I think it's still intended a competitive process, and I've seen properties where they have several bids on them before it even gets to the auction day.

I think often they go for the reserve price because that's all bidders are prepared to pay in many cases, when they're imagining throwing £6k or more down the toilet in fees before they even place a bid.

I might be missing something, but this was my take on it anyway and it seems to be backed up by the prices you see some of these 'modern auction' properties sell for in relation to others on the same streets.

Edited by RandomFactor

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When I did it my reserve was supposed to be confidential and the bidders weren't supposed to be aware of what it was.

Did you set the reserve yourself or were the estate agents advising what to set it at?

If it's the latter I'd guess they'd suggest what they think is the regular auction market value - minus £6k (or whatever the buyers premium is) to help ensure a sale. Maybe I'm wrong, but that's what I'd do if I was them and there was £6k minimum waiting for me for any succesful sale. It's an incentive to sell quickly at any price. So that might explain why bids matched the reserve very closely. People bidding what they thought it was worth - minus their £6k or whatever costs.

Usually auctions have a guide price, and I think the reserve price has to be legally within 10% of that guide (may be wrong - but that's what most of them seem to specify so I'm guessing it's a legal obligation). I've always assumed that the reserve price is probably exactly or very close to 10% higher than the guide in most cases as they'll want to put the lowest guide on it they can get away with to attract interest. As many people are looking for a bargain at auction, my guess is that they'd bid a max of whatever the guide is plus 10%, then if they don't get it move onto the next one. So if your guide was exactly 10% less than the reserve, then that could explain it too?

Edited by RandomFactor

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From the latest Modern Auction sale I tracked... seemed okay to me. (Although I would have to do proper indepth research, if serious about it.)

I would hand over a £6K fee to an EA, if I was saving big sum on the house itself. If seller wants rid of it quick.

http://www.rightmove.co.uk/property-for-sale/property-33587013.html

Sold for £250K, June 2015. http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=33587013&sale=54238208&country=england

From an email re the above.

That's partial value against the wider market. Not HPC value but against current market. Although it needed serious money spent on it and in my opinion bit of a creepy looking house.

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I set the reserve myself, had no input from the EA and it didn't have a guide price as such, just a start price, but I'm pretty certain the 'within 10% rule' didn't apply as the reserve/final price was actually >10% above that start price,

Even though the final figure was >10% above the start price it was still an incredibly low amount for it to achieve, especially considering there were supposedly 5 seperate parties bidding on it..

and it didn't reach close to the reserve it reached EXACTLY the reserve.

Having said all this I don't regret getting rid of it when I did, I view any inheritance money as 'bonus money' regardless of how much it is, I'd had a horrible couple of years previously to it dealing with my terminally ill dad and just wanted shut of the property and to get on with my life.

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Resurrecting this thread. I have seen lots of these popping up on my search area, the first seemed too good to be true. Knowing nothing about it, I did a google search and read a couple of hours worth of various forum pages.

From what I can surmise, it seems like:

  • A way for an EA to guarantee a 5K fee, for a property that would raise half of that if sold traditionally.
  • The EA convinces the seller to use this method to push the fees on to the buyer. The "successful" seller does not pay estate agency fees but sells the property at way below market rate / previously sold prices. 
  • The buyer can "seal the deal" by paying a 6k (including VAT) fee directly to the Estate Agent and purchase a property substantially below 'market rate'.
  • Estate Agent buys a new shiny suit and a tub of hair gel on completion of sale. Cava all round on the Friday. Potentially happy HPCer, bagging a bargain (South East 2004 prices), albeit gifting the Estate Agent 5K. Vendor blissfully unaware that they have been played by the Estate Agent. 

I am interested to hear of people's opinions and experiences. 

 

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Seen this from a repeatable agent in Oxford. They seem to be listing prime oxford ex btl flats mostly and they do get bid-up but still about 15-20% bellow market value. Its really just for people who need shot of a place fast, S24 ?. The real risk is you have to pay the non refundable deposit before instructing solicitors or mortgage people, so if you find out any nasty's like the house is build over a well or the next door neighbour has mental health issues and bangs your door at 3 in the morning or you can't get finance you loose 6k + and the agents laughing. A very high risk way of buying imo

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It’s a way to get a £5k when you would otherwise get £1k max in the north east.

my reaction to all such properties is to keep as far away from the garbage houses sold this way as possible 

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I used to bang / date a girl who was a flower vendor she went to Holland to buy her stock at these Dutch auctions where there is a countdown clock like on countdown except it’s price so it starts at thirty krona a bulb for 200 bulbs or whatever then it starts ticking down (although I pictured it in my minds eye as a sweep hand rather than ticker) from thirty slowly all the way down to zero. First bidder wins the lot. The opening price is kind of irrelevant just any old figure plucked out of the air.

Of course I never knew back then that twenty years later they’d be selling new builds in battersea in exactly the same way.

 

she still sells flowers btw 

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