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TODAY'S OTHER NEWS

Warning over reservation fees in the Modern Method of Auction

A member of a prominent legal network is warning buyers and their conveyancers to be ”wary” of the Modern Method of Auction because of the fees attached to the process.

A member of the Bold Legal Group - an information exchange service whose members conduct around a third of all property conveyancing in the UK - has issued the warning.

It says: “We are coming across more and more properties being dealt with in this manner and there are a few well known estate agencies where this is becoming the norm. 

“Clients and their lawyers really need to be wary as buyers pay a non-refundable ‘reservation fee’ – usually a percentage of the purchase price. 

“Many clients do not realise this is an extra payment on top of what they have agreed to pay for the property and I suspect nearly all will not realise that this sum will need to be taken into account in the calculation of the stamp duty payable.”

The warning appears from the unnamed conveyancer in a BLG newsletter to members.

Modern Method of Auction 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 eventual buyer time to sort mortgage finance. 

However, once the online hammer falls, the buyer must pay a substantial non-refundable reservation fee: this can be several thousands of pounds and can, depending on the property price, attract stamp duty.

This fee, hitherto attracting little publicity, has prompted a number of concerns from consumer bodies and some agents.

The HomeOwners’ Alliance has written a major report on the process, describes the world of online auctions as “murky” and says the reservation fee - which it claims can be £5,000 - is little-known and “goes straight to the auctioneers and estate agent.”

IAM Sold, the country’s largest MMA operator which works with 1,900 estate agency branches, says the HomeOwners’ Alliance report highlights “confusion from buyers and sellers, and evidently, not enough transparency from some agents.”

Late last year IAMSold revealed that on a £19m turnover in the financial year to the end of October it generated £10.6m for agent partners based on 3,300 completed sales. 

It also said its annual customer survey showed an 87 per cent recommend rating from consumers and an average nine out of 10 in its annual service review by partner estate agents.

Poll: Modern Method of Auction - are the fees clear enough to buyers?

PLACE YOUR VOTE BELOW

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    Modern Method of Auction is likely keeping a number of High Street agents afloat. Why offer a NSNF full service for a grand when you can get minimum £2500 via auction? Pretty soon most of these auctions will go online only (virtual room auctions), agents should then be asking why the supplier gets £2500 when all they do is stick the property online.

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    As I have mentioned before, the TPOS, Powys trading standards and their legal department are currently looking into the so-called modern method. Their main concerns are as follows:
    1. The auctioneers/sub-agents taking instructions, whilst negotiating a low or no vendor's fee are not making it clear that such a high buyer's premium will adversely affect to a material degree the amount a buyer is prepared to pay for the property and they will receive less than they would do with none or a nominal buyer's admin charge payable as is traditionally the case;
    2. The auctioneers/sub agents are not making it clear that some would-be bidders will not participate in auctions with high buyer's fees (see blogs online to see what people really think about this and their reactions) which means that there will often be fewer bidders resulting in a lower price being obtained and that the property is less likely to reach the reserve price.
    3. They are concerned that the non-refundable buyer's fee is extortionate in many cases and is clearly high to pay for the non-auctioneer sub-agents who often carry out all the marketing.
    4. They are concerned that buyers feel forced into paying these high premiums or they will lose the property they have set their hearts on.

    So far, there would appear to be no contractual bar to what "modern" method are doing. However, from a practice viewpoint it is clear that (1) and (2) above are not being complied with in most cases when taking instructions which is a breach of the Provision of Information Regulations and they are looking at whether the amount of the buyer's premiums should be reduced to a more fair and acceptable level.

    If there are any solicitors reading this, please could you get in touch with me via Estate Agent Today.

    PS: Property Pundit: There's nothing wrong with online auctions, we all do it, just the way it is being done. Conditional auctions run alongside Traditional auctions all the time, it is just the way the "modern" method (which should more accurately be called the "alternative" method) runs which is in question. The elephant in the room is: Why do Modern Method auctioneers need to get others to gain their instructions when traditional auctioneers have no problem doing it themselves?

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    Maybe we should just call it the 'large non-refundable reservation fee method of auction'. Agree 100% with your post.

     
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    I tried to buy a property through IAM Sold recently.
    To their credit I knew the fees beforehand, and were non refundable.
    But, the vendor had lied on the form, we asked them to rectify this, which seller eventually did months later. Meanwhile during that time other major issues surfaced.
    We backed out of the deal and tried to get a refund, as we had clearly been mis sold.
    IAM Sold did not want to know. Even though we had tried to accommodate the vendor in the beginning, because of their circumstances.
    I’ve taken legal advice, but it is now weighing up is this worth pursuing? Or would any refund be lost on legal fees?
    So my advice to anyone who is thinking of dealing with them, be careful, do plenty of due diligence on the property before. As it would have been cheaper for me to have done the full search’s on this property, then paid the auction fees.

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    Hello Amanda.
    Please give me a call and I can point you in the right direction for redress. If you contact Estate Agent Today they will give you my contact details.
    Richard Copus

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