What is a modern property auction
More people are looking at different options for buying and selling a property, and one route is via a property auction.
The auction process differs from a standard sale arranged through an agent working for the seller. Property auctions fall into either the traditional auction process, which we cover in a separate guide, or the modern method.
The modern method is less familiar than the traditional option, which tends to be better known through home renovation television series.
Whether you opt for the traditional or modern route, buying or selling at auction is quite different from a standard sale, with a shorter timescale and real implications for how you finance the purchase. It's worth understanding what the process is, how it operates, what to look out for, the costs involved as a buyer or seller, the legal considerations and the benefits and drawbacks of choosing a modern auction.
How the modern property auction process works
The modern method takes its name from the way it distinguishes itself from the more familiar traditional process. Where a traditional auction is "unconditional", the modern method is often called "conditional", since it gives the buyer more flexibility and more time between the winning bid and completion.
It's also run entirely online rather than at an auction house, working in a similar way to sites like eBay. The auction typically runs for a month, and throughout that period you can monitor the current bid and place a bid of your own at any time.
Where a traditional auction requires a percentage deposit and immediate exchange of contracts the moment the hammer falls, the modern method works differently. The successful bidder pays a reservation fee to the auction house, a percentage of the winning bid with a minimum set by the auction house, and then has 28 days to exchange contracts with a 10% deposit. A further 28 days follows before completion, 56 days in total, which makes the modern method considerably less pressured than the traditional route.
The timeline for a modern property auction
The timeline for a modern auction is more relaxed than the traditional route, but there are still key legal milestones that need proper preparation.
2 to 4 weeks pre-auction
The seller's conveyancing solicitor prepares the seller pack, covering the title deeds, TA6 property information form, the contract, searches, the TA10 fixtures and fittings form and any specific conditions attached to the sale. This needs to be ready before the property goes live. For a leasehold property, the seller may also need a management pack from the freeholder or managing agent.
The auctioneers begin marketing the property while the pack is being prepared, then list it live once everything is in place.
Auction period
Typically 30 days, though this varies by auction house and seller. Use this window to research the property properly, and to line up your solicitor and surveyor in case your bid succeeds. Set a maximum price beforehand and be prepared to walk away if bidding goes past it.
Day 1: auction ends
The highest bidder when the clock runs down wins the property, and pays a reservation fee to the auction house there and then, usually 2.5% to 5% of the winning bid, subject to a minimum set out in the auction house's terms. This fee is non-refundable.
Days 1 to 28
Instruct your conveyancing solicitor, arrange a survey, and confirm your mortgage or other funding. Exchange of contracts happens at the end of this window, with a 10% deposit due at that point. Once exchanged, you're legally committed to completing.
Days 29 to 56
Your funds are finalised and transferred on the completion date, at which point you become the legal owner and can collect the keys. Your solicitor arranges payment of stamp duty (or land transaction tax in Wales), calculated on the hammer price plus the reservation fee, and handles the transfer of title with HM Land Registry.
Costs of modern property auctions for buyers
The reservation fee is the main cost specific to this method, usually 2.5% to 5% of the hammer price with a minimum charge (often around £6,000 including VAT). It's paid on top of the purchase price rather than counted towards it, and it's non-refundable even if the transaction later falls through, so it needs factoring into your maximum bid from the outset.
Exchange of contracts brings a non-refundable deposit, usually 10% of the hammer price, due within 28 days of the auction ending. From that point you're legally committed to completion.
The seller's information pack usually carries its own fee, typically £300 to £500, covering the legal documents and property information you'll need before bidding.
A survey is worth commissioning for any property you're seriously considering, and you'll need a separate one for each property you bid on.
You'll also need a conveyancing solicitor to review the information pack and carry out the standard searches. If an issue comes up in the pack, survey or conveyancing process, additional work from third parties may be needed and charged as disbursements.
Mortgage arrangement fees may apply depending on your lender and loan product.
Finally, if your winning bid crosses a stamp duty or land transaction tax threshold, this is payable within two weeks of completion. The calculation includes the reservation fee on top of the hammer price, even though that fee isn't part of the property's equity.
Costs of modern property auctions for sellers
Some auction houses charge an entry fee to list the property, usually a few hundred pounds, worth checking as part of your budget planning.
Your conveyancing solicitor charges separately for preparing the information pack, typically £200 to £500. This is required whether or not the property goes on to sell.
Because the buyer covers the reservation fee that funds the auction house's costs, sellers rarely pay a separate commission under the modern method. Where a fee does apply, it tends to be low.
Conveyancing fees, on top of the pack preparation, cover your solicitor's work managing completion and the transfer of ownership.
The modern property auction legal pack
The seller's solicitor prepares the legal pack ahead of the auction start date. Unlike a traditional auction, where the buyer commits to the pack's contents the moment the hammer falls, the modern method allows 28 days between the winning bid and exchange of contracts, giving the buyer and their solicitor more room to review the pack and investigate anything that needs a closer look.
The legal pack typically includes:
- Title deeds, confirming current ownership and the property's boundaries
- Special conditions and covenants the buyer must adhere to as part of the sale
- Local searches, covering council responsibilities, council tax, planning history and any nearby projects that could affect the property
- Lease and tenancy agreements, where the property is leasehold, covering ground rent, service charges and any rules that apply to the leaseholder or tenant
- Property information forms (TA6) and fixtures and fittings forms (TA10)
The pros and cons of a modern property auction
Advantages
Speed is a benefit shared with the traditional method, since completion is legally required within 56 days of the winning bid.
Access to mortgages is easier than with a traditional auction, since the 28 days before exchange gives buyers time to arrange suitable finance, opening the process up to a wider pool of buyers.
The non-refundable reservation fee gives both parties more confidence the sale will complete, since the buyer has a real financial incentive to see it through.
Sellers rarely face a separate commission charge, since the buyer's reservation fee covers most of the auction house's costs.
The range of properties suited to a modern auction is wider than the traditional route, taking in everything from homes needing significant renovation to those that are close to move-in ready.
Buyers and sellers can also follow the bidding online throughout, which gives a clear, real-time view of how a sale is progressing.
Disadvantages
The sale isn't fully binding until exchange. Because the modern method is conditional, there's a four-week window after the auction during which the transaction can still fall through, even though the non-refundable reservation fee gives buyers a strong incentive to see it through.
The reservation fee itself is a significant additional cost on top of the hammer price, typically with a minimum of around £6,000 regardless of how cheap the property is, and it counts towards stamp duty or land transaction tax without contributing to the buyer's equity.
If the sale falls through in the 28 days before exchange, whether due to a failed mortgage application or an issue found during survey, the buyer loses the reservation fee entirely. Doing the groundwork on finance and the property's condition before bidding matters more here than in most other routes to buying.
Hammer prices tend to run lower than buyers expect, partly because experienced bidders set firm limits, and partly because buyers factor the reservation fee into what they're prepared to bid.
As with any auction, there's a risk of being outbid once you've reached your limit, with no room to negotiate further.
Online bidding also brings the risk of sniping, where another bidder waits until the last moment to place a higher bid.
Some estate agents are involved in publicising auction properties and may be inclined to steer sellers towards the modern method, since a portion of the buyer's reservation fee is typically paid to them. This isn't universal, but it's worth being aware of when weighing up advice from an agent involved in the sale.
Who the modern property auction suits
For buyers, the structure of the modern method, along with the wider range of properties available, particularly suits first-time buyers and anyone who needs the hammer price confirmed before they can finalise their mortgage. The transparency of watching bidding progress online also appeals to buyers who want a clear picture before committing.
For sellers, the non-refundable reservation fee offers confidence that a sale will complete, and the ability to watch the auction unfold helps gauge whether the guide price was pitched correctly. It particularly suits sellers wanting a faster, more secure sale, especially chain-free sellers who want the buyer to cover most of the associated costs.
Ready to buy or sell via modern auction?
Our specialist team handles auction property conveyancing for both sides of the transaction, from information pack review through to completion. Call us on to talk it through.
Frequently asked questions about modern property auctions
Is the reservation fee refundable?
No, not in normal circumstances. Once you've won the bid and paid it, the fee is forfeited if you decide to withdraw, even before exchange of contracts. It's only likely to be refunded if the sale falls through due to a fault on the seller's side.
Does the reservation fee count towards my mortgage?
No. Lenders base their mortgage on the purchase price alone, not the purchase price plus reservation fee, so you'll need to fund the fee separately from your deposit and loan.
Does the modern method make it easier to get a mortgage?
Yes, generally. The 56 day window, roughly double a traditional auction's 28 days, gives most standard mortgage applications enough time to complete, which is why this route suits a wider range of buyers.
What happens if you withdraw before exchange of contracts?
You lose the reservation fee, but you're not in breach of contract the way you would be after exchange. There's no further financial penalty beyond the fee itself.
Does the reservation fee affect stamp duty?
Yes. HMRC treats the reservation fee as part of the total consideration for stamp duty or land transaction tax purposes, so it's added to the purchase price when working out what's owed.
Who receives the reservation fee?
It goes to the auction house or estate agent handling the sale, not the seller. It's a fee for the service rather than part of the purchase price.
Can you view the property before bidding?
Yes. As with a traditional auction, viewings are usually arranged in the weeks before the auction closes, so it's worth booking one alongside reviewing the legal pack.