Warnings raised over ‘murky’ online property auctions

Estate agents are pocketing massive fees from selling properties via auctions, but are buyers and sellers getting a fair deal?

As anyone who has ever watched any of BBC1’s daytime programming will tell you, property auctions are potentially a rich source of interesting properties to buy.

They aren’t just for investors either, but also an opportunity for those looking to pick up a home to live in, albeit likely one that needs a little work done before you can move in.

Recent years have seen the emergence of a host of online property auctioneers.

It’s not difficult to see the selling point – you get all of the benefits of a normal property auction, but without needing to attend the auction in person.

Instead, you can bid and perhaps secure your dream property project without having the leave your sofa.

The process isn’t really that different to a physical auction either. A catalogue of lots is produced a month or so in advance of the auction. You have to register with the auction site, and you’ll then have the chance to carry out your due diligence on the property.

That means arranging a viewing and checking the buyer's information pack that is generally produced by the auction site.

When the auction rolls along, you place your bids, and the highest wins the property. You’ll have to pay a reservation fee at that point, and you’ll then have around 56 days in which to exchange and complete.

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Are buyers and sellers being taken advantage of?

The campaign group the HomeOwners Alliance have warned that while these auctions look great in theory, in practice they are more than a little ‘murky’, with buyers and sellers being taken advantage of.

It all comes down to that reservation fee. It doesn’t go to the seller – it’s an additional fee that goes to the estate agent and the auctioneer, and it can be set at whatever level they like.

This could leave buyers walloped with a massive outlay on top of the actual purchase price, and it’s money that they have to be able to produce on the day.

What’s more, those reservation fees are being set at levels much higher than the commission that estate agents would make from selling a property the old-fashioned way.

For example, the HomeOwners Alliance cites a studio apartment in Dudley, West Midlands which is being auctioned off with a starting bid of £48,000.

There is a mandatory reservation fee of 4.2%, but it has to be a minimum of £6,000. In other words, if it sells for its guide price, the agent and auctioneer are pocketing a shared commission of a massive 12.5%.

This is by no means an isolated example either.

Pushed towards auctions

Given the massive sums that agents are able to pocket from these auctions, rather than having to put in the actual work involved with selling a property the traditional way, the HomeOwners Alliance is understandably a little concerned that sellers are being pushed towards auctions.

It argues that as buyers have to budget for that massive reservation fee, they will, therefore, have less to spend on the actual property itself, which could dent the sale price, leaving sellers worse off.

Add to that the fact that if a sale falls through – and it could - the next buyer knows exactly what the seller is prepared to accept.

What’s more, the seller also has to pay for an auction pack, which covers things like the title plan and register, various searches and a fixtures and fittings list. This can run into hundreds of pounds.

Paula Higgins, chief executive of the HomeOwners Alliance, said: “We are concerned that estate agents and online platforms are using the modern auction method to pull the wool over homeowners’ eyes and get commission up to 10 times what they would charge selling the traditional way.”  

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What’s the answer?

Having the option of buying a property online is, in my view, a good thing. There’s no reason that this shouldn’t be an area that appeals to buyers and sellers alike.

But clearly, in its current state, it is open to abuse by firms that aren’t overly focused on doing the right thing for their clients.

We don’t have proper regulation of estate agents at the moment, though the government is now going to force them to take proper, professional qualifications and be more transparent about the fees they receive.

That’s a start but until the sales process is properly overseen by a regulator then unscrupulous firms will continue to find new ways to milk buyers and sellers.