The BBC radio programme You and Yours examined the ‘modern method of auction’ yesterday – with criticism that agents were not transparent with the costs.
The programme featured a listener, Keith Squire, who had been told by an agent of a property for sale through the method.
He said that charges of 4.1% or a minimum of £6,000 were mentioned but that the agent did not explain whether these were included in the price or would be charged on top.
He said that the agent would have received a considerable sum of money “for not doing very much”.
One property auction supplier, Scott Werran of Whoobid, said his own firm charged less than other firms but agreed that some fees were “astronomical”.
He also agreed with the presenter that if a buyer were to go through an agent in the normal way, the buyer would not have to pay the agent anything.
Paula Higgins of the HomeOwners Alliance – which has called the world of modern method of auctions “murky” – was also featured on the programme.
She said that if buyers were paying the minimum £6,000 on a modestly priced house, the fee would work at more than 4.1%.
She was critical of non-refundable minimum fees and said agents needed to be more transparent with both sellers and buyers.
She said sellers should be told that savvy buyers will factor in the fee to their offer price, and that sellers should also be aware that there is a big incentive for agents to offer the modern method of auction as a sales route, rather than private treaty.
Werran said he absolutely agreed that there should be more transparency, and said his own firm was pressing for this.
The programme referred to The Property Ombudsman’s advice to agents that they should explain the pros and cons of the modern method of auction.
The item can be heard about 21 minutes in:
I turned the radio on purely by chance and caught this interview on Radio 4. Werran spent a lot of time apologising for the faults in the system and said that more transparency was needed which was hardly an endorsement of the so-called “Modern” method. When you are a venture opportunity with no previous property experience in most cases using estate agents to do your work for you, you have to charge at least double to make the method profitable for everyone concerned (bar the buyer and seller). And – hang on – we’re talking about 3 times what the average seller pays to sell his house by traditional auction, 80% to 100% more for the buyer, and that massive buyer’s premium is added to the purchase price of the property for stamp duty purposes (the sting in the tail). That’s the “Modern” method in a nutshell. Werran is right in saying that some people prefer the more relaxed way the “Modern” method is run; there is most definitely a case for this method of sale where a buyer is prepared to take a risk or has not the time to buy under conventional auction conditions, such as when the buyer has a firm sale arranged and has not yet exchanged or where the monies are in an account which require a month or so to liquidate, but not at the premiums that are being charged. However, traditional auctions are completely transparent, the auctioneer takes either no or a nominal admin fee from the buyer of a few hundred pounds and a higher price for the seller is realised as a result. Most people these days do not have a problem with open auctions having been brought up with programmes such as Homes Under the Hammer or QVC and other auction channels on t v. Sellers are still not being told that they will realise less for their properties under the “Modern” method, in spite of the revised TPOS code and this is another PPI scandal waiting to happen.
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I wonder how it would play if a potential buyer went to the agent offering a property by the Modern Method and said: ‘I am not prepared to deal through that method or pay a buyer fee but here is an offer of £X for the property, please put it up to your vendor.’
Discuss?
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Very interesting question.
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I am currently house hunting myself and did exactly that with a property I wanted – I advised I wanted to buy the house but was not prepared to deal with all this auction malarkey and certainly not interested in paying a fee for it. To be fair they have backed off, will not be charging me any ridiculous fees and the sale will happen along more traditional lines 🙂
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Ah! There’s a question! In a traditional auction auctioneers invariably include a clause saying “unless sold previously” which means SOLD not SALE AGREED with contracts exchanged almost immediately under the auction contract. This can be useful if an offer is made much higher than what is expected to be achieved in the room. But, of course there is much more money at stake in the “Modern” method for the provider and agent so although this could be done in theory by lifting the property out of the auction, if the wording of the contract so allows, it is highly unlikely to happen, especially where the seller is paying nothing.
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Suspect MMA has kept the lights on in many offices this year.
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