RE: Buying a House at Auction (Modern Method of Auction)

PierremontQuaker03

Hi, I have seen a house that I am potentially interested in, been to view and the auctioneer is going to ring me today. Of course I am only interested if the price is right, then I read this bit on the advert.....


"The property is for sale by the Modern Method of Auction which is not to be confused with traditional auction. The Modern Method of Auction is a flexible buyer friendly method of purchase. We do not require the purchaser to exchange contracts immediately, but grant 28 days to achieve exchange of contracts from the date the buyer’s solicitor is in receipt of the draft contracts and a further 28 days thereafter to complete. Allowing the additional time to exchange on the property means interested parties can proceed with traditional residential finance. Upon close of a successful auction or if the vendor accepts an offer during the auction, the buyer will be required to put down a non-refundable reservation fee of 3.5% subject to a minimum of £5,000 + VAT (£1,000) = £6,000 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 Acknowledgment of Reservation form to confirm acceptance of terms prior to solicitors being instructed. Copies of the Reservation from and all terms and conditions can be found in the Buyer Information 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 The Great North Property Auction powered by iam-sold Ltd"


Basically am I reading this right - its 6k "admin" fee to buy the house (there will be no stamp duty)?
I think an older person lived at the house - so I presume the owners have been left it in in a will and are letting the auctioneers deal with it - hence the rip off fees!

LandyAndy

The 'admin fee' is essentially a down payment on the house price and taken into account as part of that price for SDLT purposes. You should therefore factor it in to the total price you are prepared to pay.


SDLT will be payable in the normal way.

stator

Stay away, it's a complete rip off.
You pay a massive admin fee and if something goes wrong, like the house isn't mortgageable you will lose it and get nothing.
If you are desperate for the house then spend money before the auction, getting surveys and a mortgage offer in place. If you can't do this then you are taking a massive risk with that £6k

eddddy

PierremontQuaker03 wrote: »

Basically am I reading this right - its 6k "admin" fee to buy the house (there will be no stamp duty)?

That's correct.

So, for example, if you're prepared to pay £100k for the property, you should only bid up to £94k (and the fees of £6k will be added).

And if you need a mortgage, the purchase price will be considered to be £94k. i.e. The £6k has to be cash and cannot be added to the mortgage.

As you say, quite a few people consider £6k fees to be a rip-off.

You also have to consider other risks. e.g. If you win the bidding, but need a mortgage and can't get one, you lose the £6k.

ReadingTim

It's not really an auction, it's a money-making scheme the estate agent has come up with to increase their profit. It is not in your interests to pursue this purchase.

I suggest that when the "[STRIKE]auctioneer[/STRIKE]" Estate Agent calls, explain how you were interested in the property, but won't be making an offer on account of your disagreement with the method of sale.

NaughtiusMaximus

ReadingTim wrote: »

I suggest that when the "[STRIKE]auctioneer[/STRIKE]" Estate Agent calls, explain how you were interested in the property, but won't be making an offer on account of your disagreement with the method of sale.

Out of interest are EAs ever amendable to changing the selling method in those circumstances?

eddddy

ReadingTim wrote: »

I suggest that when the "[STRIKE]auctioneer[/STRIKE]" Estate Agent calls, explain how you were interested in the property, but won't be making an offer on account of your disagreement with the method of sale.

Frankly, the EA might not care too much.

If the OP doesn't bid, it means that somebody else might get the property more cheaply.

So...
- The OP loses out on the chance of the property
- Somebody else gets a bargain
- The vendor gets less money
- The EA still gets their £6k

The only losers are the OP and the vendor.

(But maybe you'd argue that the vendor deserves it, for signing up to this method.)

NaughtiusMaximus wrote: »

Out of interest are EAs ever amendable to changing the selling method in those circumstances?

Typically, the 'sole selling rights' contract used by these auctioneers allows the following...

A buyer can make an offer before the auction, and say that they won't pay the fee.

If the seller accepts the offer, the contract says the seller has to pay the £6k fee.

PierremontQuaker03

Thanks for the comments everyone - I think I will sit tight and say that I am interested but don't agree with the method of auction (I may offer the starting price less the 6k just to be cheeky).
But effectively buying it this way I am giving away a years rent income from the house to the auctioneer.

Thrugelmir

ReadingTim wrote: »

It's not really an auction, it's a money-making scheme the estate agent has come up with to increase their profit. It is not in your interests to pursue this purchase.

Only if the property sells. When one buys at auction for other items, There's often a buyers premium of 15% to 20%. An auction house as a business has to pay it's overheads.

eddddy

PierremontQuaker03 wrote: »

But effectively buying it this way I am giving away a years rent income from the house to the auctioneer.

No you're not.

Like I say, you just decide the total amount you want to pay for the property - and you only bid up to £6k below that amount.

Everyone else at the auction will be doing that, so you're not disadvantaged in any way.

Realistically, the only person that's disadvantaged is the vendor. They 'lose' £6k to the auctioneer, when a regular EA might only take £1k or £1.5k.

NaughtiusMaximus

eddddy wrote: »

Realistically, the only person that's disadvantaged is the vendor. They 'lose' £6k to the auctioneer, when a regular EA might only take £1k or £1.5k.

......and quite possibly have to either accept a lower price in the first place or have the house on the market for much longer because a lot of buyers won't go anywhere near a modern auction.