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The Two Main Types of Property Auction

Publish Date: 19 August 2024

By Jade Shrubsole

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Further reading

Properties that were sold at auction later sold private treaty

What is property auction finance?

There are two main types of property auctions: traditional property auctions and the Modern Method of Auction (MMoA). Both have distinct processes and appeal to different types of buyers and sellers. Here are the key differences:

Traditional Property Auctions

1. Process:
• Auction House: Takes place in a physical venue or more commonly nowadays, online.
• Auction Day: All bids are made on a specified auction day.
• Immediate Sale: If the reserve price is met, the property is sold to the highest bidder immediately.
2. Completion Timeline:
• Contracts Exchanged on Auction Day: The buyer and seller exchange contracts on the day of the auction.
• Completion Period: Typically, completion occurs within 28 days after the auction.
3. Deposit:
• Immediate Deposit: The buyer must pay a 10% deposit on the day of the auction upon winning the bid.
4. Buyer and Seller Commitment:
• Legally Binding: Both parties are legally bound to exchange and complete the transaction once the hammer falls.
5. Suitability:
• Types of Properties: Often used for properties needing refurbishment, unique properties, or those requiring a quick sale.
• Buyer Type: Attracts investors and cash buyers due to the need for a quick transaction and the ability to complete the purchase without mortgage delays.

Modern Method of Auction (MMoA)

1. Process:
• Online Platform: Typically conducted online.
• Auction Period: Bids can be placed over a longer period, usually 30 days.
2. Completion Timeline:
• Conditional Sale: Unlike traditional auctions, the sale is conditional, giving more time for completion.
• Extended Completion: After the auction ends, the buyer has 56 days (28 days to exchange contracts and another 28 days to complete).
3. Reservation Fee:
• Non-Refundable Fee: The buyer pays a non-refundable reservation fee (typically around 5% of the purchase price) to secure the property and take it off the market. This fee is separate from the purchase price and does not go towards it.
4. Buyer and Seller Commitment:
• Conditional Commitment: The reservation fee secures the buyer’s right to purchase the property but does not legally bind them to complete the transaction.
5. Suitability:
• Types of Properties: Suitable for a wider range of properties, including those that might appeal to owner-occupiers.
• Buyer Type: More accessible to buyers needing mortgage finance due to the longer completion timeline, appealing to both investors and residential buyers.

Summary

• Traditional Auctions: Quick, binding sales with immediate exchange of contracts, suitable for cash buyers and investors, and typically for properties needing quick sale or refurbishment.
• Modern Method of Auction: More flexible and accessible with a longer timeline for completion, a reservation fee instead of an immediate deposit, and suitable for a broader range of buyers including those needing mortgage finance.