A prominent estate agent has warned buyers and sellers about the perils of the controversial Modern Method of Auction.
MMA is now used by several hundreds of estate agency branches and is offered to agents via partnerships struck by Rightmove and Zoopla.
The method has in the past been described as “murky” by the consumer group Home Owners Alliance; the same group, in 2018, suggested some agents were “milking buyers for profit” through MMA because of high fees and alleged lack of transparency.
Now Richard Copus - a Fellow of the National Association of Valuers & Auctioneers and the NAEA, and founder of property-redress.co.uk - has spoken out on the shortcomings of MMA in an article on the HOA website.
He says: “My advice to buyers is: Only use the Modern Method of online property auctions when the reservation fee is low and the property is your dream home, and be very wary of the terms in the contract. For sellers, my advice is: Don’t be seduced by the offer of not having to pay any commission; there is no such thing as a free lunch.”
Copus says some estate agents are using it to “prise” extra fees from buyers and “entice” sellers to part with homes on a no fee basis.
Many agents are now familiar with MMA although only a small minority use it. For those unfamiliar, 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.
Sellers are attracted because the online auction happens with minimal cost and disturbance to them. Although the sold price achieved at auction may often 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.
In 2018 the HOA wrote in a story linked to by Copus in his new article: “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.”
In his new article, posted on the HOA site in recent days, Copus says this scale of fee incurred by buyers is “way above the traditional buyers’ administration fee” at old-style auctions.
He adds: “Unlike traditional auctioneers who are qualified professionals and who carry out their own marketing, the Modern Method is often run by tech platforms who work with estate agents to offer this service, and in return, these estate agents receive a large chunk of the fee. This fee varies between a third and half the total amount paid by the buyer; about double what they would earn through selling a house normally.”
Copus says that high fees for buyers are not the only peril faced by purchasers.
“One of the main complaints buyers have with the Modern Method is not being able to recover their reservation fees when the seller has been unable to exchange contracts within the given timescale, usually between 28 and 56 days, and when the agent has not provided enough information about the property to enable the buyer to exchange in time. For example it is not uncommon for the full details of the leasehold title to be missing in the legal pack. Through no fault of their own, the buyer is suddenly out of pocket to the tune of thousands of pounds” he writes.
Copus adds that: “Agents rarely give buyers their money back in such cases because they say the contract states that it is only the buyer who is bound by those terms and not the seller. However, a contract is a two way agreement and one which is weighted unfairly against the consumer is often unenforceable.
“In addition some agents have failed to provide the information they are required to do by law which has caused the delay. However, the buyer is usually told categorically that his fee is non-refundable ‘because that is what it says in the contract’ and they walk away penniless.”
In the past Jamie Cooke, chief executive of MMA operator Iamsold, has called for all firms in the sector to adhere to “clear, robust and transparent guidelines.” In 2019 his firm created a best practice guide about MMA for agents and suppliers.