Cost to Sell a House Using Online Auction?
Online property auctions are becoming very popular and can be a good way of selling a property quickly for a fair price. This guide explains the costs for selling your property using an online auction.
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This article explains the costs involved with selling a property using online auction. If you are looking for information about the costs of selling at traditional/conventional auction please see this separate article about the cost of selling at traditional auction.
There are two different approaches that online auction companies take when charging for their services. Some auction companies charge the seller a percentage commission of the final sale price, only payable upon successful sale. But it’s becoming increasingly common not to charge the seller anything whatsoever, and to only charge the buyer! Charging the buyer (and not the seller) can seem like a perfect arrangement from the seller’s perspective. Who can argue with selling for free? But as detailed in point 2 below, the buyer will take into consideration the commission they have to pay when calculating their offer. The final sale price will be lower because the buyer will deduct any costs/commission from their offer amount. The two different approaches are outlined here:
Just like an estate agency sale or a traditional auction sale, commission at a rate of between 2%+VAT to 3%+VAT of the final sale price will be charged to the seller. The commission is taken out of the proceeds of sale, so only paid by the seller upon successful sale.
There may also be an upfront “entry fee” of around £400+VAT payable by the seller before the sale. Although some online auctioneers will be prepared to accept payment only upon successful sale (no sale no fee).
Sometimes an additional fee is also charged to the buyer, usually called a “buyers administration fee” – to cover the legal and administration costs of processing the buyer’s transaction, handling the contract of sale, verifying ID etc. This will typically be anything from £500 to £1,000.
EXAMPLE: Assuming a property sells at auction for £200,000 the total fees paid to the auctioneer by the seller (and buyer) would be:
Entry fee: £400+ VAT
Commission at 2.5%: £5,000 +VAT
Buyers administration fee: £1,000 +VAT
TOTAL: £6,400+VAT (paid to the auctioneer between the seller and the buyer)
When the buyer pays the auctioneers commission, known as the “buyers premium”, the seller receives the full sale price without any deductions. On first impressions this sounds very appealing for a seller. But bear in mind the buyer will usually take into consideration the commission they have to pay to the auctioneer when calculating their offer amount. So, the buyer will deduct the commission amount from the top amount they’re prepared to pay. Some argue that buyers don’t pay too much attention to the buyers premium, they just enter the bidding frenzy and the commission becomes an afterthought. Judging by some of the impressive sale results we’ve seen, we think this may be true! But maybe not in all cases.
Buyers premiums are anything from 3%+VAT to 5%+VAT depending on the location and value of the property. The commission is higher compared to the model where the seller pays the commission but bear in mind the “buyers administration fee” is included in the buyers premium amount and there are no entry fees for the seller. Auctioneers who only charge the buyer will usually appoint a local estate agent to carry out the marketing in addition to their own marketing, this can make a significant difference to the level of interest that’s generated. Obviously the estate agent will need paying for their services, and they will receive a share of the buyers premium on successful sale. Hence why the overall fee to the auctioneer can sometimes be higher with this approach, compared to the seller being charged.
EXAMPLE: Assuming a property sells at auction for £200,000 the total fees paid to the auctioneer by the buyer would be:
Entry fee: £0
Sellers costs: £0
Buyers premium at 3.5%: £7,000 VAT
TOTAL: £7,000+VAT (paid to the auctioneer by the buyer, no costs charged to the seller)
The legal pack contains all the documents prospective buyers will want to inspect before placing their bids. Our article about auction legal packs explains more about why they’re required for an auction sale and what documents need to be included.
For a freehold property the auction legal pack will cost around £300 or more. And for a leasehold property you might need to pay around £500 or more, including the cost of the management information pack from the freeholder. These are costs you will have to pay sooner or later, however you choose to sell. With an estate agency sale these costs come at a later stage of the sale, but with auction everything needs to be prepared in advance of the sale – that’s because prospective buyers are bidding to buy and are assumed to be aware of everything before they bid. With an estate agency sale buyers are putting in an offer subject to contract, subject to survey, subject to satisfactory legal documents etc.
If you’ve been trying to sell your property through an estate agent and had a sale fall through, your solicitor might have some of the documents for the legal pack already. So make sure you ask your solicitor because that could save you some money.
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