A number of our clients have recently enquired about the “modern auction” method and whether it is suitable for their land or property sale. Although there has definitely been an increase in the number of these sales taking place, there are significant differences that both buyers and sellers need to be aware of and feel comfortable with.
Traditional auctions, such as those conducted by ourselves, result in a commitment between the buyer and seller. When the hammer falls, there is a legally binding contract in place. A deposit is paid and completion usually takes place within 28 days (or a different period as determined by the seller).
With the “modern auction” method however, when the auction takes place the buyer secures a period of exclusivity of 28 days in which to sign. There is no legally binding contract at this stage. The buyer is charged a fee by the selling agent for this exclusivity, which can be in the region of £5,000 or more, which they forfeit if they do not sign the contract within that period. The seller has no guarantee that the sale is confirmed until contracts are signed and if not, they may not receive all or any of the exclusivity fee that has been charged by the agent. If the buyer changes their mind, the seller needs to start the process all over again.
Whilst the “modern auction” method can appear attractive to buyers (as it can give them more time to secure funds for instance or research the purchase further), a potentially greater risk falls on the seller. The sale of their property may be delayed, they may miss their opportunity with a buyer who can fulfil their financial commitment and if their purchase of another property depends on the sale of their own they may miss out on this too.
People may assume that ‘modern’ must equal more efficient but there are associated risks and it is for this reason that we continue to use the traditional transparent method, just as we have since 1871.