According to Wikipedia – the development of the internet has led to a significant rise in the use of auctions, as auctioneers can solicit bids via the internet from a wide range of buyers in a much larger variety of commodities than was previously practical.
The property market has also moved into the online realm and so have the property auctioneers. Our partner auctioneers, Whoobid, are one such auctioneer. For many people faster timescales to sell a home is a crucial factor. The convenience of being able to access an auction online and being able to show your home to potentially thousands of buyers that can offer on your home is a fantastic way of truly getting your home its true value.
But did you know that there are few different methods of auction. We offer two types of these auctions and here are the two differences.
The Traditional Method
**If you have any knowledge on how an auction works the Traditional Method is most likely what you’re imagining. The method is as old as auctioning itself. How it works online and through our website isn’t too different from how an auction would be held “in-the-room.”
When a property is to go to auction under the traditional method it will first go through a marketing period. We will market the property on our website and on a number of properties selling portals, such as Rightmove. We will also feature the property within our catalogue and emails that we regularly send out to our extensive database of buyers looking for properties. The property will also be marketed through the seller’s estate agent in their usual methods. This two-pronged approach should give the property maximum expose to all potential buyers.
The property is advertised with a Guide Price. A guide price is NOT what the auctioneer expects the property to sell for. The guide price acts as an indication as to what the sellers’ minimum expectations are for the property to sell. The guide price will be within 10% of the seller’s Reserve Price. The reserve price is the minimum price that the property can sell for at a live auction event.
For example, if a sellers property goes to market and they set a reserve of £100,000 it can be advertised with a guide price as low as £90,000. A lower guide price is used to increase the interest in a property as buyers are always on the lookout for a bargain.
Another example was when we were selling a property in Margate which had previously been on the market with another Estate Agent in Margate was advertised with a guide price of £500,000 and sold for £555,000.
During the marketing period the property being auctioned will have an auction pack produced. The pack may take a week or so depending on the property. The pack includes all the necessary documents required for a buyer to legally purchase a property through auction and will detail all the fees involved with the sale. It is strongly advised that all buyers who are serious take time to consider the auction pack in detail and seek legal advice. We also strongly recommend viewing the property and conducting you own investigations before placing a bid.
To bid on an auction a buyer must first register an account on Whoobids site. Once the account is set up, the prospective buyer is happy with the auction pack and they are ready to place a bid on a property, all that’s left to do is wait for the auction date. The auctions are tailored to the property and seller’s needs, so unlike some other auction houses, each property will have its own auction date.
The date may change during the marketing period depending on the seller’s needs or if there are delays in producing the auction pack. The auction may also close early if a buyer’s pre-auction offer is accepted by the seller, for this reason we suggest you register your interest in the property with us so that we can notify you of any changes and allow you a chance to counter-offer if an offer is made.
When the auction goes live there will be a 3-hour window in which buyers can bid on the property. Like in the 17th century when a candle was used to prevent bidders sniping the sale at the last minute Whoobid have their own tool in place. Any bid made with the final minute of the auction countdown will automatically increase the timer by three minutes allowing any other buyers to respond with a counter bid. This will continuously extend the timer for every subsequent bid made in the final minute until the timer is left to fully run down to 00:00.
The bids that are placed during an auction are legally binding if they are the winning bid by the end of the auction and have exceeded the seller’s reserve price. It is advised that you consider the fees payable when determining your maximum bid as any fees due will be charged in addition to the sale price.
In the Traditional Auction once a buyer has become the winning bidder, the auction fees are automatically taken from their chosen account and the contracts are immediately exchanged. The buyer and seller will then have 28 days to fully complete the sale.
The Modern Method
**The Modern Method of Auction is different from the traditional method in a few crucial ways. The traditional method is an incredibly fast process, which gears it more toward investors and cash buyers. The modern method has slightly longer timescales than the traditional method but can still be leagues ahead of the private treaty method of sale.
This makes the modern method of auction ideal for a lot of buyers, as it pairs the faster timescales of auction with the ability to purchase the property with a mortgage. It’s also advantageous for sellers who are most often drawn to auction for the speed and security of a sale under auction terms but can get turned off by limiting their market to only investors and cash buyers.
The traditional method is perfect for selling quick and getting paid quicker, but you limit your buyer pool to those who are savvier with their property purchases. Many of these buyers will be looking for ways in which they can make money off their purchases. For this reason, to achieve the most success at a traditional auction, these properties will need to be what people often consider as “auction” properties; properties that need improvements; land that needs development; or properties that have good rental prospects.
The modern method still benefits from quicker sale times, when compared to private treaty, but it benefits from still being open to everyone. Where investors will always have an eye on their profit margins, at a modern method of auction you’ll find buyers looking for their forever home. These buyers are the buyers that are going to drive the price up beyond what an investor will pay, getting the best price for the property.
For this reason, the modern method breaks all the notions that people have about what is an auction property. Using the modern method you can sell and buy any kind of property in any condition, with properties that are ready to move in doing just as well if not better than if they were sold through private treaty. Selling and buying under auction terms filters out the kind of buyers and sellers that withdraw from deals that see as many as 3 in 10 private treaty sales fall through. Like with the traditional method, it eliminates any gazumping, gazundering or gazanging. Any bid that is made during the auction or any offer made pre/post-auction is a legally binding offer, that once accepted, ties both the seller and buyer to the exchange of the property.
How a modern method auction works is much the same as the traditional method. The property will undergo the same marketing strategy, being advertised with a Guide Price that is an indicator of the seller’s Reserve Price; an auction pack will be produced containing all the documents that are needed for a buyer to legally purchase the property; the property will be given an auction date; buyers will need to register and account with Whoobid; and once the auction is live it will be open for a minimum of 3 hours and then extended as necessary by the anti-sniping tool.
Where the modern method differs is that when the auction ends, and the winning bidder has successfully bid over the seller’s reserve price (or a pre/post-auction offer is accepted) the property does not instantly exchange. In the modern method of auction, a successful buyer essentially wins exclusivity rights to buy the property at the winning price. The buyer then has 28 days to reach the point of exchanging contracts. This approach allows more time for buyers to arrange the appropriate finances, which is more difficult to achieve with the traditional method of auction.
Once again, bids made during the modern method of auction are legally binding and made in addition to the auction fees so buyers should consider this when making any bid or pre/post-auction offer. Once a bid or offer has successfully won the property the auction fees are due immediately. This ensures the security of the sale for both buyer and seller.
Sellers know that a buyer won’t likely pull out of the sale because they’ve made a financial commitment to the purchase and buyers who have made that financial commitment have purchased the exclusivity which ties the seller to that purchase for the 28-day period.
Once the sale has reached the point of exchanging contracts there is then a further 28-day period in which both the buyer and seller can reach completion. **
Summary
Traditional Auction
- Fastest Timescales
- Security of Sale
- High completion rate
- Large Investor Base
Modern Method
- Open to Mortgage Buyers
- Faster Timescales
- Security of Sale
- High Completion Rate
If you are looking at selling your home, land, commercial unit or want any advice and you are in Margate, Ramsgate, Thanet or East Kent Call gardners to discuss you needs and see if the auction route is right for you.
**Original Source and Article Whoobid June 2022 Blog
