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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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    I too have had misgivings with regard to the modern auction method. I understand the fee but don’t know how they arrive at a figure. My purchase was with Iamsold for a fee of £5000 plus Vat, the property was under 90k.
    I do not think this is a clear and transparent way to conduct business from a consumers point of view. I was told that the fee included all searches once my Solicitor told me there were two other searches one environmental and another. After confronting Iamsold they said this was not a lenders requirement and was probably at the Solicitor request. This was not the case it was my mortgage lenders requirement and I had to pay £104 extra for the privilege.
    I do think this modern auction practice serves no real benefit to either the purchaser or the seller only lining the pockets of both the Auction House and the Estate Agent?
    Would love to here your views

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    Hello Christine,
    Trading Standards and the Property Ombudsman are monitoring this method of sale at the moment. If you feel that you have been misled, I advise you to contact Andrew Coulter or James Munro at Trading Standards in Powys (which covers the whole of England & Wales in this respect) and the deputy ombudsman at The Property Ombudsman in Salisbury.
    Best wishes,
    Richard

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    I am trying to buy a property with my daughter from Leaders/ IAmSOLD.
    I paid £6000 reservation fee but gave been unable to complete as
    1. The tenant refused to vacate so the sellers are pursuing possession via the courts
    2. My solicitor identifies an undisclosed land charge and have had no replies from sellers solicitors re getting it removed prior to purchase
    3. The searches in the pack was out of date and more were required ( and I paid for them).
    4. Our mortgage offer has now expired after 6 months due to delay not of our making .
    I have asked for a refund but had no reply . Previous conversations keep stating due diligence and payment to reserve the property. However the property is not sellable atm to me or anyone else and meanwhile IAmSOLD have had my £6000 and the interest it could have earned for 6 months. What can I do ?

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    Hello Julie,

    Ask I Am Sold or Leaders (whichever company signed the contract) in writing what their complaints procedure is. They will have to meet and listen to your complaint. If you are not satisfied, check what redress scheme they belong to (probably The Property Ombudsman) and make a complaint to them. You can also complain to Trading Standards at Powys who oversee the industry in England & Wales and go to the press. I don't know the full facts of your case, I Am Sold may well be within the terms of your contract with them and this is the main problem with this new method of sale. It needs more complaints from people like you to stamp out the iniquitous practice of high buyers' premiums.

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    Thank you , my complaint/ request for a refund has gone to the regional manager so I await the decision . I will keep the forum informed . Thank you for your advice.

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    Please can someone advise asap?
    I paid £5000 deposit to Purple Bricks for online auction, but, received Surveyors Report after deposit paid, Surveyors Report has stated that many Specialists will need to be employed for many varying degrees of problems, some crucial to standard. In order for me to now afford all of this work, am I still able to ask seller to drop price/am I now tied? For me to afford the changes, I need the price to drop/I will have to walk away and loose my deposit, can anyone help me please, many thanks, Giselle

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    Hi Giselle, did you ever get a resolution? I'm about to enter an agreement with them and I want to make sure my offer has appropriate caveats such as coronavirus delays and building surveys.

    My estate agents response to whether it's refundable is "I'm sure it is if there's significant issues" which doesn't really provide me with anything to go back on.

     
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    Hi I have one of these cases against a MMOA going to court. Any testimonials will be appreciated and anyone else I should complain to. I took it to TPOS but they can not say the terms of the auction are unfair. This is clearly a one sided contract.

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    Hi! I've just try to get back my reservation fee from I AM SOLD, of course they don't want to refund it back. We bid for a property and we had problem with the valuation, the seller needed to remove the second d kitchen and it took couple of weeks to convince him to do it so basically we were out of the 28.days to sign the contract and we were advice not to do it until we don't know we can get 100% sure a mortgage for the property. We couldn't get mortgage within the 56 days, we got 2X extension on the completion day as the seller was abroad until mid Feb so he was quite generous with the extension. Our latest reservation period ended on 29th of February, on 24th of February we got a new application, that was very promising, and on 26th of February we had finally a successful valuation. I wrote an email to the seller about the successful valuation and ensure him from now 100% we will get the mortgage and the broker at the bank told us we will get the mortgage offer on 28th of February or at latest 2ND or 3RE of March, on 28th of February I let also I AM SOLD knows that we had finally a successful valuation and we need just wait for the mortgage offer in writing. On 26th of February the seller replied to my email as he need to know as soo .as possible we can get 100% the mortgage or not because he paid the fee for Purple Brick for an advertisement, what going online on Monday 02/03, after our reservation period finished (29/02) but it will not keep us to purchase the property.
    On 03/03 we got the mortgage offer from the bank and I wrote to the seller that we have it and he said he sorry but he got much higher offer already on the property and if we can't offer more money (£18000 more on a property what we bid and accepted the offer before ended the bidding on
    Period for £207000).
    So I've checked zoopla, right move and Purple Bricks and the advertising went online on 26th of February, I have print screen about these , which was within our reservation period which is a breach for our reservation period contract with I am Sold me and the seller as there is a point between the seller's obligation not advertising, showing nor negotiate about the property just with the buyer within the reservation period.
    Yesterday the seller told me he is willing to go through with the purchase with me if I pay 250000 for the house instead of 207000.
    So I told I am sold I wish to go with my purchase on the agreed price, I have finance in place , if the seller doesn't honour it, just pay back the reservation fee as when he started to advertise property however he knew finally we had successful valuation, he broke the contract and basically withdrawn from selling his property to me. And the reservation fee is refundable when the seller is withdrawn. I told them to refund d and chase the seller for any loss, as he was he broke the contract.
    They refuse to pay back the money and their answer: it doesn't matter the seller broke the contract, I wouldn't made the payment on time.
    Please let me know what do you think about our case, where we could get help to get back at least our almost £10000 reservation fee.

    Thank you

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    Hello Timea,
    These contracts are draconian. On the face of it, there is probably nothing you can do if the wording was clear in the contract and you caused the delay. This is simple law of contract and is why Trading Standards and The Property Ombudsman cannot do anything about the basic contracts. However, there are lots of cases where the "auctioneer" or agent are glossing over the terms to encourage buyers who have had no experience of this novel method of auction to sign up and this is what will probably be the next PPI scandal in a few years time.
    But, if the agents breached the terms of your contract by advertising the house for sale again BEFORE the end of your exclusivity term, they are probably in breach of contract and you may have a case. It is irrelevant that they thought you "might not have made the payment on time". You might have made it on time. If this is correct, simply write to them pointing out this fact and stating that is a breach of the contract they had with you and on this basis you would like the return of your reservation fee or you will take legal action against them. If you would like any advice, please contact me via Estate Agent Today.

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    • 16 March 2020 09:39 AM

    Hi Richard Copus & all on this forum. I'd just like to say a massive thanks for the superb, accurate & concise information listed. Everyone involved in a property purchase, either for business or domestic, should know about this. The misery of individuals listed here is such a profound warning to the rest of us. I have for some time thought that there's a very nasty smell attached to the MMOA practice & that it is wholly unnecessary, unfair & immoral & as Richards says may well be the next 'PPI style' scandal. The sooner the law & trading standards outlaw this underhanded business practice, the better. I certainly have not bid on any properties being sold in this manner & this therefore has a negative impact to vendors, limiting bids & therefore final sums achieved. Thanks again for your clarity & reports & I hope that all who are living the stress from this nightmare can find resolution at the cost to the operators of MMOA.

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