Online Property AuctionsIn recent years online auctions have become an increasingly popular method for buyers and sellers to buy and sell land and property. The eBay style or live-stream auction process offers an alternative to often frustrating property chains and represents a new way of buying and selling property with speed and security.
In recent years online auctions have become an increasingly popular method for buyers and sellers to buy and sell land and property. The eBay style or live-stream auction process offers an alternative to often frustrating property chains and represents a new way of buying and selling property with speed and security.
However, despite their promise, online property auctions are a relatively new phenomenon, and it is therefore of the utmost importance that you understand them fully before engaging in them.
Guidance for Buyers
How does a property auction work?
In the case of eBay style online auctions, properties are displayed on an online auction house with an ‘auction timer’; auction timers are typically set for 30 days. In the case of live stream online auctions, an auction will resemble a traditional auction and will usually take place on a specified day. Buyers who are interested in making a bid on a displayed property must register with the relevant estate agent before they can place their bid. In most cases a buyer will be required to pay a ‘participating fee’, part of which is normally refundable.
When you place a bid the relevant estate agent and/or auction provider will ask you how you intend to fund your purchase. At this stage it is of the utmost importance that you are confident you have access to the necessary funds and are therefore able to shield yourself from financial problems in the immediate future.
It is usually possible to view properties either before the auction timer period expires, or before a specified auction day. Currently, because of the Covid-19 crisis, there is considerable uncertainty regarding the possibility of property viewings. However, many estate agents are confident that, in the near future, they will have the infrastructure in place to allow for safe viewings to proceed with appropriate social distancing measures in place.
It is also possible, and advisable, for you to instruct a surveyor to report on the condition of a property and to offer an independent valuation before bidding ends (or begins).
In the context of eBay style auctions, it is usually possible to bid 24 hours a day, seven days a week. At the end of the bidding period the highest bid wins. In order to secure the property, you will have to pay a non-refundable reservation fee immediately by debit or credit card or bank transfer. In most cases this fee will be at least 2.5% + VAT of the sold price. Once you have paid this reservation fee you are not legally obliged to proceed with the purchase, but if you pull out at this stage you will lose your reservation fee. On the other hand, if the seller pulls out you should be entitled to be refunded the reservation fee. For accurate details in your specific context you should consult the auction company and/or estate agent’s terms of the contract.
In the context of live stream property auctions buyers will be able to make bids via the following potential methods; ’proxy bidding’ (where your estate agent or an agent of the auction company bids on your behalf), ’telephone bidding’, or ‘remote online bidding’. For further details on bidding methods you should consult the relevant estate agent or auction company’s auction terms and requirements.
Things to consider
There are various pros and cons to buying property through online property auctions. The main positives of online auctions are their transparent nature, which allows you to view bidding as it progresses, and the fact that properties listed at online auctions tend to be priced realistically, and even below market value, in order to sell. In terms of logistics many online auctions have a longer completion timescale, this many give you, the buyer, an increased amount of time to organise finances (e.g mortgages). As mentioned above, online auctions do not subject buyers to the difficulties of property chains, and it is often the case that fixed dates for exchange and completion are set by both sides.
However, it is also important to consider potential draw backs. In some cases, online auctions will involve additional costs which would not arise in other contexts. For example, buyers and sellers may have to pay a share of the costs for a legal pack including documents like the title plan and register or evidence of title, local authority searches, water and drainage search, property information questionnaire, and a fixtures and fittings list. A buyer should also consider the benefits of having a legal adviser to look through the legal pack before the auction takes place as there may be issues with the property that are not obvious from purely viewing it. For example, a house may be a leasehold property and not a freehold property, or there may be no legal right of access to the property. The reservation fees mentioned above are also worthy of consideration. It is important to remember that administrative costs like reservation fees are upfront, you may, therefore, be unable to include them as part of your mortgage funds. Also, reservation fees are typically more than the standard cost of an estate agent’s commission or fixed fee to sell a property on the open market.
Guidance for Sellers
How do I sell my property through an online auction?
As a seller you, in collaboration with your estate agent and/or auction company, must agree a reserve price. A reserve price is the lowest price you would be prepared to accept. Typically, a reserve price is set below market value to encourage bidding. However, careful consideration of what you are prepared to set as your reserve price is of the utmost importance, and you should resist being pressured into setting a reserve price you are not comfortable with. Estate agents may push for a quick sale, but this is not the only thing worthy of consideration and ultimately the final decision as to a reserve price should be yours. Once a reserve price has been set it will be kept confidential and the only information available to bidders will be the bids themselves. As a seller you can benefit from the transparency of online auctions and watch bids being made.
Things to consider
On the positive side of things, online auctions are a very appealing option if you think your home may take a long time to sell on the open market (e.g. because of the ongoing Covid-19 crisis). Online auctions are also an attractive option in terms of their speed, so if you want to sell a property quickly they offer a unique appeal in this respect. As we have seen the selling process is particularly transparent, and a great deal of uncertainty is mitigated by fixed dates for exchange and completion set by both sides.
On the other hand, it is important to appreciate that in some cases property will sell for below market value and, as we have seen, there are various administrative fees to consider. It is therefore of the utmost importance to weigh up the various positives and negatives associated with online property auctions. More specifically it is important to consider reservation fees. If a buyer pulls out of a purchase, their reservation fee is generally paid to the estate agent and/or auction company, not to the seller. Sellers should also be aware that buyers often tend to work the reservation fee into the price they are willing to pay and bid accordingly.
What NRG Can Do To Help You
If you decide, as a buyer or seller, that an online property auction suits your needs, our experienced conveyancing team are more than happy to offer you the necessary services and guidance to ensure that you feel fully comfortable in what may be a new experience.
Chartered Legal Executive
Sarah is an expert in all matters relating to residential conveyancing and has over 21 years’ experience. She prides herself on providing a personable and attentive service and understands the nuances of the Bristol property market.