Property auctions are growing in popularity. They can help sellers get a faster sale, and give them a better chance of selling. Let’s quickly recap typical auction fees, then we’ll get into why they’re so high:
- Fees with Estate Agents are usually 1-1.5%+vat, which is payable on completion of the sale.
- Fees with Traditional Auctions tend to be around 2%+vat when the property sells, in addition to around £500 in up-front costs.
- Fees for Modern Auction are higher though. They average 3-4%+vat, and are subject to a minimum fee of £5,000+vat. Although the buyer usually pays this fee, it comes off what they’d otherwise be able to offer. This means the seller still ultimately foots the bill.
So why are property auction fees so high?
- Property auctions offer a faster and more convenient way to sell compared with going through an estate agent. They also give you a much higher likelihood of success. It’s normal to expect to pay a higher price for better results, so a higher price is justified.
- Because the service is more niche, auction companies tend to have higher costs too. This means they need to charge higher fees in order to make a profit.
Let’s cover some of these points in more detail, and recap some of the arguments for and against property auction fees.
1. Auctions: A higher price for a premium service?
When we think about “good” service vs “bad” service in house sales, what do we mean?
It comes down to three things.
- Speed. How quickly did it happen?
- Certainty. What was the likely success rate?
- Convenience. How easy (or stressful) was the experience overall?
In short, a quick, convenient, and certain sale is the best level of service you can hope for when selling a home. Auctions provide each of these things far better than a sale via an estate agent is able to.
1.1. Speed: Auctions are a faster way to sell
The time to sell with auctions is faster. Auctions last 3-4 weeks. At the end of the auction a buyer pays either a 10% deposit (traditional auctions) or a hefty reservation fee (modern auctions). This commits the buyer to the purchase and means it has a very slim chance of falling through.
When selling through an estate agent, buyers are only committed to the purchase when exchange takes place. According to data from TheAdvisory.co.uk, an advice and support resource for home sellers, this takes between 14-23 weeks.
The Advisory was formed by Gavin Brazg MSc Dip Arch, a serial property seller, and the data is from their “Time to sell” benchmark study.
So auctions are certainly a faster way to sell, and for many sellers this alone will be worth the cost.
1.2. Certainty: Auctions have a higher success rate
The chance of success also plays an important role when selling your property.
- Essential Information Group (EIG) are the industry standard for auction information.
- We analysed data from their last 12 monthly newsletters.
- This shows that Auctions average a success rate of 78%.
In other words, almost 4 out of 5 properties that go to auction sell successfully.
Estate Agent Sales
Jefferies analysed sales data for over 7,000 estate agency brands, and found that estate agents sold only around 51% of the property they took on.
1.3. Convenience: Auctions are just easier
It’s easy to just think about cold, hard figures when selling a property: Price, time to sell, and success rate. But convenience is an important consideration as well.
Selling your home through an estate agent is a notoriously difficult and stressful experience. Because there are no set timeframes, things can drag on indefinitely. To avoid this, sellers usually need to chase their estate agent and solicitor to make sure that things are progressing.
This can result in a very difficult, drawn-out and stressful sale.
Fixed timeframes reduce stress and chasing
By comparison, auctions have fixed timeframes and demand financial commitments from buyers up-front.
For a seller, this just makes the experience a lot easier. Everyone knows what they need to do and by when, and a commitment is made to this up front.
This means auction sales happen in a much more organised way, with much less chasing required from the seller.
This isn’t just about convenience, it’s about reducing stress and making the whole sale more straight forward.
This is a particularly important consideration for home sellers with a unique set of circumstances. For example, those who have inherited a property, have relocated, or are going through a divorce may especially value the convenience of selling by auction.
Auctioneer experience with “Problem Properties”
“Problem properties” in particular can cause huge amounts of stress for homeowners. They can also mean sales take longer and are more likely to fall through.
Because “problem properties” are quite rare, they can be especially difficult to sell with estate agents.
Auctioneers, on the other hand, have much more experience here. This is because more of their time is spent dealing with them, meaning they’ll gain experience with them over time.
This alone can help to justify a higher auction fee.
1.4. Price should also be considered
While we’ve covered the benefits of selling by auction, it’s important to consider one of the drawbacks too. (It’s not just that the fees are more expensive).
You may sell for a lower price if you go for auction. Properties at auction may sell for 20% less than they could get if you went through the longer process and sold with an estate agent.
This isn’t always the case, and largely depends on the type of property you’re selling.
Some properties do better at auction than others.
For example, Auction House are one of the largest property auction companies in the UK. They tell homeowners that "problem properties will often achieve higher sale prices through auction than they will through estate agents".
We’ve written more about this topic here:
A faster sale could save money
Auction sales can also help reduce your costs though. Even if a seller does achieve a lower price selling through auction, they may save money elsewhere.
For example, a seller could save 6 months worth of auction payments, council tax, and utility bills by achieving a faster sale. If you're considering selling by auction then it's important to consider the broader picture, and not just focus on the fees.
2. Why are modern auctions more expensive than traditional auctions?
At the top of this article we compared the fees for estate agents, traditional auctions, and modern auctions.
- Traditional auctions are more expensive than estate agents (typically 2%+vat rather than 1-1.5%+vat)
- However, fees for modern auction are higher again. (Typically 3-4%+vat, with a minimum fee of £5,000+vat).
Why is this?
One of the main reasons is how Modern Auctions get their business.
Whereas established traditional auctions have a steady stream of business based on their reputation, Modern Auction companies have mostly grown through partnerships with estate agents.
2.1. The estate agent takes a fee too
Modern Auctions have teams of sales people who work to build partnerships with estate agents.
Once a partnership is secured, estate agents will then refer suitable properties to the modern auction company they work with. Typically these will be their existing customers who they may be struggling to help sell.
The estate agent’s involvement won’t stop there though. They’ll continue to:
- Assist with the marketing of the property,
- Conduct the viewings with interested parties,
- And encourage offers.
Of course, the estate agent expects to be paid for their work once the sale completes.
The estate agent’s share of commission
The estate agent doesn’t charge an additional fee. They take a substantial amount of the auctioneer’s overall fee instead. The estate agent’s share will typically be 30-50%.
This covers their usual commission, but typically includes a bonus on top. This “bonus” creates an incentive for the estate agent to refer properties to auction.
Without that incentive, the modern auction companies know the referrals might not happen.
This was reflected by the one of the modern auction companies themselves.
IAmSold are one of the largest property auction companies by market share. They're also actually the company who coined the term “modern method of auction”.
“In general, auction fees are higher than in private treaty, as in IAmSold’s case…
"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.”
3. Conclusion: Auctions charge more because they can
In a nutshell, the reason auctions charge more is because they can. Their fees are higher, and in spite of this they’re still growing.
This is especially true for modern auctions. They provide value to every party involved in the transaction.
3.1. How sellers benefit from modern auction
For sellers modern auctions provide:
- A quicker sale,
- A higher likelihood of success,
- A more convenient option.
Although this comes with higher fees and a compromise on the price, many sellers still decide modern auction makes sense for them.
3.2. How buyers benefit from modern auction
For buyers, modern auctions provide:
- Properties available for a discount,
- A way to buy property more quickly than through estate agents,
- They're happy to buy through modern auctions because they struggle to find these properties elsewhere.
3.3. How estate agents benefit from auction
For estate agents, modern auctions provide a way to:
- Sell properties they’re otherwise struggling to,
- Increase their earnings with higher commissions,
- Offer their customers a solution to their problem.
So modern auctions help estate agents to satisfy more customers whilst earning more money.
Ultimately the reason auctions work is because of the service they offer. The service allows them to attract home sellers who can afford to work with a lower price in exchange for quicker, more certain and more convenient sale.
This allows buyers to buy at a discount, while still freeing up surplus funds to earn a commission for themselves, and compensate the estate agent for the introduction.
Although auction fees are higher than estate agent fees, it's difficult to argue with success. There are still problems to iron out, but collectively “the market” is arguing that auction fees are worth the money.
Read More: 17 Benefits Of Selling A House By Auction
By Matthew Cooper, Founder of Home Selling Expert