New Buying Method Doubles Conveyancing Transaction Process
A new way consumers could buy a home means that conveyancers will have to endure twice as long transaction process.
The new modern eBay-style online property auction, which is meant to cost buyers thousands of pounds in extra fees, grants a much longer transaction timeframe.
The winner of the auction has a 28-day exclusivity period in which to exchange contracts and 56 days in which to complete the purchase. While, traditional property auctions the winning bidder exchanges contracts on the day and has to complete in 28 days.
This longer time period is sold as a benefit of modern auctions. But it is believed most buyers will have to pay extra costs and face more of a risk when using this buying approach, along with conveyancers being faced with a much longer transaction process to complete.
More and more estate agents are collaborating with auctioneers to sell a property by this “modern method of auction”.
The selling point to buyers is that it gives them more time to arrange a mortgage due to the much longer completion timescale given by the new online auction. But Homeowners Alliance has advised this kind of property buying can be complex and involve huge fees.
On the flip side, the estate agents will benefit greatly as they could earn a much higher commission in selling this way and sellers save money too.
Homeowners Alliance Chief Executive Paula Higgins said:
“Although we think the modern method of auction could be an exciting way forward, we aren’t impressed with the hefty fees being charged.
“Meanwhile, the process can be complicated, and buyers and sellers are not always fully aware of what they are letting themselves in for.”
When the bidding hammer falls in a new modern auction, the winning bidder must pay a reservation fee set by the estate agent or auctioneers.
IAM Sold Auctioneers typically charges a reservation fee of between 2.5% and 4.2%, with a minimum of £6,000, although it says vendors can choose to pay the fee instead of the buyer.
Jamie Cooke, Managing Director of IAM Sold, said:
“In general, auction fees are higher than in private treaty, as in IAM Sold’s case.
“It’s not just about technology, the seller is receiving a service from two professional companies which results in the property getting sold in a timeframe that suits their needs at a price that they are happy with.”
The reservation fee must be paid immediately and does not form part of the final selling price. However, for tax purposes it is counted as part of the purchase price – so stamp duty will need to be paid on it.
If the buyer was to pull out of the sale, they will lose the reservation fee although they would get it back if the vendor drops out.
Homeowners Alliance says what is of great concern is that the fee is divided between the auction house and estate agent.
Even though it is shared equally, it is believed that estate agents will make more of a profit than they would by selling on a traditional commission basis.
Higgins of Homeowners Alliance said:
“In our recent investigation we found properties being advertised where the achievable commission would be more than 15% due to the low guide price.
“This fee is not part of the overall purchase price – it goes straight to the estate agent and auctioneers, yet buyers will be liable for stamp duty on it.”
As a conveyancer, what do you think of this new modern method of buying? Do you think it will take off? How will it affect your transaction workload?