There are two main types of auction methods, Traditional Auction (Unconditional) and Modern Auction (Conditional). Each have pro's and con's, and it is therefore important to consider which method is best for your circumstances.
We have seen a large increase in auction sales and many sellers have now made it their preferred method of selling. There has also been an increase in the quality of properties being sold at auction. Many high-street estate agents are now moving into the auction market due to the increased demand and are therefore making it increasingly accessible.
Traditional Auction
With the Traditional Auction method firstly, the seller sets a minimum price and if the property is being submitted to a live auction then they will set an auction date on which the auction house will attempt to sell the property. The solicitors will prepare the auction pack which will be available for any potential buyers to view. Potential buyers bid on the property with the highest bid winning and then the buyer pays a deposit to the seller, and an unconditional contract is exchanged. This makes the sale legally binding, giving both parties on average 28 days to finalise the transaction (otherwise known as completion). The number of enquiries the buyer’s solicitor can raise is limited as contracts have already exchanged.
Advantages
As the contracts have already exchanged, the buyer is legally bound to complete. This offers the seller a higher amount of security that the sale will complete and if it doesn’t the buyer forfeits the deposit they have paid.
Contracts are exchanged to complete within an average of 28 days. This binds the buyer into completing within the agreed timescale.
The seller can insert into the special conditions of sale, that the buyer will be responsible for the sellers’ legal costs and disbursements, so the seller retains more of the purchase price.
Disadvantages
Having to complete within quick timescales can often rule out using a standard mortgage. This can reduce the amount of applicable buyers to only cash buyers or those willing to use more expensive bridging finance.
Whilst a minimum price is set, it is uncertain what the final sale price will be.
You may achieve a lower sale price than a sale on the open market.
Modern Auction
The second type of auction is the Modern Auction. Again, the solicitors prepare the auction pack, which the potential buyers will be able to view. With this format the auction is usually open to bidding for a period of time (around four weeks but it varies). Once the highest bid is won, the buyer will pay a reservation fee to the auction house. Once a contract pack is sent to the buyers solicitors they usually have five days to raise any enquiries on the property. In standard timescales the buyer then has 28 days to exchange and then a further 28 days to complete the purchase or earlier by mutual agreement.
Advantages
The longer time of auction can allow more potential buyers to bid. Additionally, due to the increased length of time, the sale can attract both cash and mortgage buyers.
Modern auctions still offer greater certainty of sale compared to normal sales due to the reservation payment the buyer makes.
Disadvantages
Increased timelines make them unsuitable for urgent sales.
Compared to traditional auctions there is less certainty as contracts are not exchanged when the bid is accepted. Whilst the buyer would lose the reservation fee, they are not bound to complete the sale.
If you are looking to sell residential or commercial property at auction call 0345 900 5401, email enquiries@sweeneymiller.co.uk or v isit sweeneymiller.co.uk.
