If your local sold property prices are lacklustre or the market is sluggish, have you considered turning to online property auctions? Whether you're a property investor or a homeowner looking to sell your current home and buy somewhere new, an online auction may offer the opportunity either to snag a bargain or sell an otherwise tricky to shift property.
Television shows such as "Homes Under the Hammer" mean that you may well be familiar with the concept of selling and buying property via a traditional auction house. Perhaps you have attended an auction or even bought or sold through one. If so, you'll know that properties that come up for sale tend to fall into one of two broad categories:
-The owner is looking for a speedy sale.
-The property is unusual, somewhat dilapidated or hard to shift.
From a buyer's perspective, an auction house offers the chance of picking up a property for less than it would have fetched on the open market via an estate agent (although this is never a certainty).
Given these factors, why would an auction aficionado consider swapping to online auctions?
In order to answer this question, it is necessary to understand a little about the online auction process and, in particular, the inherent advantages and disadvantages for seller and buyer.
Online auctions - a brief explanation
Sometimes also known as "conditional auctions" or even the "modern method of auction", online auctions have some similarities with a traditional auction house. For example, they provide buyers with an opportunity to purchase properties speedily and without the potential entanglements of a chain. However, there are important differences - and, depending on your viewpoint, these could be advantages or disadvantages.
How an online auction works
1. The seller, their estate agent and the online auction company agree a reserve price. As in a traditional auction, this is the lowest price that the seller is prepared to sell the property for. It remains confidential, so bidders will not know until after the auction ends if their bid has met the reserve. Setting the reserve price can sometimes be tricky. The usual markers for assessing value, such as local sold property prices, are not always especially helpful, particularly if a property is unusual for the area or in need of considerable work. Moreover, unlike a traditional sale via an estate agent, the seller does not have the luxury of watching to see how much interest the property attracts before deciding whether they should accept a lowish bid or could hold firm in the hope of a higher one.
2. The seller, their estate agent and the online auction company agree the guide price. This may be up to 10 per cent lower than the reserve price, although it does not have to be. It is calculated carefully so as to attract as much interest as possible in the property. The auction company's knowledge of the pool of potential bidders may be crucial in determining the right guide price. A guide price that is too high may deter would-be bidders. However, setting it too low may leave bidders wondering what is wrong with the property, although it may also have the effect of driving up interest.
3. The property is listed in an online auction. It is accompanied by an auction timer, which displays how long the auction has left to run. Most online auctions last for 30 days.
4. Interested bidders register with the estate agent in order to place a bid. Bidders may be required to pay a participation fee. Part of this is usually refundable. Before bidding, a potential buyer may be able to view the property. Sellers who are serious about achieving a good price for their property should aim to facilitate viewings. At the very least, interested parties should make sure they read the property's particulars very carefully, so they can tailor any bid accordingly.
5. Before placing a bid, a would-be buyer is likely to have to satisfy the estate agent and online auction company that they have the financial wherewithal to complete on the property if the bid is successful.
6. Bidding is usually open 24 hours a day, every day of the week. The process is as transparent as possible, with both the seller and potential buyers able to watch the online bidding process.
7. When the auction closes, the highest bid wins. The successful bidder must immediately pay a non-refundable reservation fee in order to secure the property. They can do so via bank transfer or debit or credit card. The fee typically equates to 2.5 per cent of the sold price plus VAT. If this percentage equates to less than £6,000 including VAT, the buyer will usually be charged £6,000. Buyers should note that the reservation fee will increase the stamp duty bill. This is because, under current HMRC rules, fees that must be paid in order to acquire the property form part of that property's purchase price.
8. If a buyer pulls out of the purchase, they lose their reservation fee. This is paid to the online auction company and the estate agent, not to the seller - which some sellers may regard as a potential downside. However, the sheer size of the reservation fee demanded makes it less likely that a bidder would risk forfeiting it in order to pull out of the sale. Consequently, far fewer transactions at online auctions collapse than do purchases via an estate agent.
9. The parties to a successful bid usually have 56 days in which to exchange and complete on the transaction. This is longer than the timescale for a traditional auction, but still far shorter than the average time to completion for a property that is sold via an estate agent. From the buyer's perspective, an online auction can be preferable to a traditional auction thanks to the longer period of time over which finances can be arranged. The two sides agree fixed dates for exchange and completion, giving mutual certainty to both parties.
10. The online auction company may demand that buyer and seller must each pay a share of the cost of the legal pack for the property. Also called the auction pack, it currently costs around £200. In other circumstances, this is a cost that would be borne by the seller. Both the seller and the buyer should also make sure to check with the online auction company whether any other costs are to be passed on to them.
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