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Agents slammed for "milking buyers for profits" via online auctions

A consumer group says agents are securing increasing income from online auctions, but it warns that for buyers there are pitfalls - and the group says the growing sector is “murky”.

The HomeOwners’ Alliance says the new online auctions - frequently called the Modern Method of Auction by online operators keen to sell access to their platforms to estate agencies - are capitalising on the current poor private treaty market which around a third of sales fall through for a range of reasons.

MMA allows buyers to bid on a property online with a long completion timescale - rival purchasers may have up to 30 days before the end of the bidding - giving the buyer time to sort mortgage finance. However, once the online hammer falls, the buyer must pay a substantial non-refundable reservation fee. 


Then the sale has 56 days in which to exchange and complete, allowing purchase with a mortgage if required. This is a much longer timeframe than with a traditional saleroom auction and is billed as one of the plus-points, says the HomeOwners’ Alliance.

Sellers are attracted because it happens with minimal cost to them. Although the sold price achieved at auction will generally be less than on the open market, the outlay is shouldered by the buyer, who may overlook this aspect at the prospect of a bargain.

HOA claims MMA is beginning to gain traction in some parts of the country in particular - it cites the North East, the West Midlands and parts of inner London where properties are sticking on the market.

However, a research document issued by the consumer group says the system is under fire because “it allows estate agents and auction platforms free rein to set the reservation fee.”

It continues: “Our investigation suggests some high-street agents are still getting to grips with how this [reservation fee] works. This must be paid upfront by the winning bidder at the auction’s close by debit or credit card or bank transfer and can be anything upwards of 2.5 per cent + VAT. There is usually a minimum reservation fee of at least £5,000 + VAT.”

The HOA says this fee must be budgeted for by the purchaser and cannot be part of any mortgage borrowing by that purchaser because of the time-scale. It’s non-refundable if the buyer decides to withdraw. 

More significantly, perhaps, the HOA says: “And it [the reservation fee] doesn’t usually form part of the overall price paid; it’s an add-on which goes straight to the auctioneers and estate agent.”

It says buyers who think they’re getting a bargain may find themselves “stung to the tune of several thousand pounds when they realise that paying the reservation fee is not like putting a deposit on a holiday.” 

Mark Hayward, chief executive of the National Association of Estate Agents, says in a statement regarding the HOA research: “A reservation fee needs to be transparent and while there is no limit, it would need to be ‘reasonable’.”

The HOA says that the reservation fee - even if shared equally between an estate agent and an auction platform - the agent stands to receive more from the buyer than it would from a seller when using a traditional commission basis, particularly on lower-price properties. 

“At HOA we think that many buyers and sellers aren’t aware of this.  Ironically, there is potentially less work for an estate agent as there will be no chain involved” the group’s research continues.

“We’re concerned that estate agents are milking buyers for profit” it concludes.

Paula Higgins, chief executive of HomeOwners’ Alliance, says: “We’re concerned that estate agents and online platforms are using the modern auction method to pull the wool over homeowners’ eyes and get commission up to 10 times what they would charge selling the traditional way. There is nothing wrong in principle with the modern auction, but it needs better regulating to ensure it works for the benefit of homebuyers and sellers rather than against them.”

The HOA research - which also involves input from the IAMSold auction operator - then looks at a number of specific examples which it suggests proves its case. You can see the report here.

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    About time this was looked at. Why would an agent suggest the open market when, by going down this route, they can earn substantially more? Vendors need to wise up and realise that, although there is no commission payable, buyers will factor in the substantial and unavoidable reservation fee and bid accordingly.

  • Chris Arnold

    Why would an agent? Because they're lazy and their first concern is a fee.
    There should be a government wealth warning. Auctions are where the professionals find bargains.

  • Richard Copus

    The Modern Method of auction smells very badly and it is hardly surprising that trading standards are currently looking into it. The sooner it dies a death the better. There is nothing wrong with online auctions in principal and we are currently setting up an online auction method where the buyer's premium is reduced dramatically with a proportion of that reduced pre-exchange deposit going to the seller in the event of non-exchange rather than to the plethora of non-auctioneer sub-agents who have multiplied like locusts since the Modern method was set up. The premium that the buyer has to pay under the The Modern model is extortionate and it is clear from surfing the net that many bidders reduce their bids accordingly or simply don't bid at all. The vendor is not told that these premiums may reduce the maximum price obtainable for their property, is not told that they reduce the number of bidders, is not told that the reduced interest may result in their property not selling and is not told that the auctioneer's legal duty of care shifts from the seller to the buyer if the seller is paying nothing.

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    Agents are being squeezed left right and centre with the tenants fee being banned and sales commission at less than 1%. Now people want to take away the one reasonably profitable income stream we have!


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