How do logically people pay 30% fee for buying a house?

eloy7

Many properties are listed for auctions, thought they are sold in pre-auction during the listing. However, the real estate agent asks for the auction and administrative fees even if buying prior to the auction. Since this fee is subject to a minimum, I do not understand how does it work for CHEAP houses.

For example, a house (sorry, I cannot post link as new user) is offered for GBP 18,000, but the buyer must pay a GBP 6,000 fee in addition to the house price.

How is it logically possible. It is a basic math: whether buyer is buying the house 6,000 more expensive or the seller is selling 6,000 less (comparing with the same deal in open market).

In other words, the agent fee is 30-40% of the property price.

G_M

Firstly, when a seller puts a property into an auction, the intention is to sell it in an auction. It is rare for the property to be sold in advance (though it does happen, usually if an above guide-price offer is made).

It is likely to be the auction house that sells the property - not the [STRIKE]real [/STRIKE] estate agent.

The auction house overhead costs (and indeed the EA) are much the same for a £18,000 property and a £180,000 property. Hence the minimum fee.

You cannot compare auction guide prices and open market prices. Guide prices are rarely the same as the actual sale price. They are just a guide!

Yes, an £18,000 guide-price house (is there really such a thing? Does it have a roof?), if sold for that, would cost the buyer £24K. But much more on the 'open' market (assuming it was saleable).

Bear in mind, in the UK property is nearly always sold at auction for a reason. There is something wrong with it which makes it difficult/impossible to sell in the 'usual' way via an EA.

eloy7

G_M wrote: »

Bear in mind, in the UK property is nearly always sold at auction for a reason. There is something wrong with it which makes it difficult/impossible to sell in the 'usual' way via an EA.

Why a buyer is interested to buy a property in auction, but not in open market?

G_M

Most buyers at auction are developers- either professional or amateur.

They are often also cash-buyers (no mortgage).

They buy cheap properties in poor condition or with legal &/or structural problems, for cash (as banks will not give mortgages on these properties), and then they 'do them up', or knock them down and rebuild.

Of course, this is not always true, but it is a generalisation. In recent years, TV shows have made auctions look like a good place to get a bargain, so now lots of people go to auctions expecting to buy a good property for a cheap price.

They are usually disappointed.

jackomdj

The buyers often buy at a good price, where through an estate agent it would cost more.

We sold our old property via an estate agent before the auction date. The house had mundic (concrete cancer) so people wouldn't be able to get a mortgage. After a while we decided to auction it, we had an offer before the auction and we said if they can complete before the auction date they could buy it.

The sale went through very quickly, we were happy as the house was sold, the person buying was happy as they bought the property at a great price. He was a structural engineer so he knew what he was buying.

G_M

jackomdj wrote: »

We sold our old property via an estate agent before the auction date. The house had mundic (concrete cancer) so people wouldn't be able to get a mortgage. .

That is a typical example of why properties go to auction.

eloy7

G_M wrote: »

That is a typical example of why properties go to auction.

If the property was in the open market, professional and amateur developers would check the listings too.

Open market is like a long auction, as people make offers, until exchange of contracts, higher offered are considered.

I understand from buyer side that in the auction day, the competition is between people in the hall (or those who offer through proxy).

BUT why auction is interesting for sellers? A property is listed about a month before the auction day. Potential buyers can make offer, but they don't because they may buy it cheaper in the auction day.

So, why not offering a property for potential cash purchaser in open market?

Bossypants

An auction is interesting for sellers because it's a virtually guaranteed sale immediately once the hammer goes down. On the open market, it can take months and months before contracts are exchanged, before which the buyer can walk away for any reason with no negative consequences. With an auction, contracts are exchanged on the auction day, which means that the buyer is a lot less likely to drop out, because if they do they can be sued for breach of contract.