Traditional Auction Vs Modern Method of Property Auction

Are you looking to sell your home quickly – maybe because your sale has fallen through, and you want to keep your chain intact, or you are divorcing and want to free up your cash? If so, then selling your property at auction could be the answer. Understanding the different options and how a traditional in-room or online auction differs from the modern auction method is vital.

While selling your home via a modern property auction follows the same principles as putting it under the hammer, there are differences to be aware of too. We look at what precisely a modern property auction is and the pros and cons of using it versus traditional property auctions.

What are the different types of property auctions?

There are two different types of property auction:

• Traditional property auctions

These can take place in person in an auction house or, more conveniently, online.

• Modern property auctions

Modern property auctions take place online and have quite different rules and timescales from the traditional method. Some people don’t think they should be called auctions at all, instead referring to them as a modern method of selling.

Why do properties go to auction?

There are many reasons why properties are sold at auction rather than in the usual way. A good estate agent may recommend this as the best way to take your property to market to achieve the highest possible price. Often it is because the home is hard to sell for some reason – it may be in a poor state of repair, have been repossessed by a bank or represents a development opportunity. Sometimes auction properties are hard to mortgage, attracting only cash buyers. However, people needing a quick sale or whose properties aren’t shifting via the estate agent method also look to auction their homes.

How does a traditional auction work?

In a traditional auction, several properties are sold in turn on a set day. There is usually a starting or guide price and a reserve price, which must be met for the home to sell. All bids taken are legally binding. If you are the highest bidder, and your bid exceeds the reserve amount, you will exchange contracts and pay a 10% deposit immediately. If you change your mind, you will lose the deposit and may be liable for further costs. Traditional auctions attract all kinds of bidders, including professionals who understand the system and are confident in making bids. Interestingly, we have noticed increased female bidders since moving to online auctions. Buyers must complete the purchase within 28 days – a quick turnaround for anyone looking to secure a mortgage, which is also why they tend to attract cash buyers.

How does a modern auction work?

Modern auctions operate online – in much the same way as eBay auctions. With modern property auctions, winning bidders pay a 5% reservation fee and must exchange contracts within 28 days – not immediately, completing within 56 days of the auction. The longer timeframe means this method may attract a wider pool of buyers and is more likely to include those who need a loan to fund the purchase. However, if the buyer fails to secure a mortgage, they will be unable to exchange and complete, and so will lose their 5% reservation fee. Estate agents rather than property auctioneers often arrange modern property auctions.

What are the main differences?

The main differences between a traditional and modern method of property auction are:

• Traditional auctions tend to attract cash buyers, as purchases must be completed rapidly (within 28 days). Participants of modern auctions have longer to complete, and so the pool of buyers is more likely to include those who need a loan.
• Traditional auctions are more likely to include hard-to-mortgage properties, whereas modern auctions may attract a wider variety of homes.
• Traditional auctions take place on a set day. Modern auctions can begin anytime and last for 30 days or longer.
• With traditional auctions, you must exchange and pay your deposit on the day, giving buyers and sellers more certainty. Modern auctions give you 28 days to exchange and pay your deposit, increasing the likelihood that the sale may fall through.

What are the pros and cons of auctions?

Pros

• Traditional and modern property auctions usually mean a quicker sale than the estate agent route, and you’ll generally achieve a higher price for the home than from a house-buying company.
• They are easy for both the inexperienced and professional bidder, particularly if they take place online, as many people are already familiar with using auction sites such as eBay.
• They attract more cash buyers than selling through an estate agent, and sellers tend to achieve higher sale prices.
• Buyers may get estate agent support.
• Buyers typically have their finances in order before the auction, reducing the likelihood of the sale falling through.

Cons

• There may be fees involved in taking your home to auction in this way.
• If you opt for the modern method of auction, there is still a possibility of your buyer pulling out.

Which type of auction is best for me?

Choosing the best auction type will depend on your circumstances and motives for using an auction to sell your home. If you want to repair a broken chain or need the cash urgently, the traditional auction is more definite and binding.

If you’re looking to sell your home in North Wales, talk to us. We can advise you whether selling in the usual way or by auction will work best in your circumstances. As a start, why not book a no-obligation market appraisal today?