What is Modern Method of Auction (MMoA) and how does it work?

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Agents marketing properties under the Modern Method of Auction (“MMoA”) is gaining in popularity, probably as a result of the COVID-19 lockdown.

The idea of a sale by MMoA is not quite as modern as the title suggests the concept has been around since the 1990s, but it is not a process that everyone will have used.

Below is a summary of how a MMoA sale progresses, together with some words of caution for both sellers and buyers.

A property is marketed by an agent in the usual way with sales information being prepared and the property appearing on the agent’s website. The difference is that the seller, in conjunction with their agent, sets a reserve price (the minimum price they will allow the property to sell for) and an end date for the auction (usually 28 days or more in advance). Prospective buyers will need to register to take part in the MMoA. If there is high interest in the property, they will be competing against each other by increasing their bids until the auction expires.

Prospective purchasers are notified when a counter-bid on a property has been received, with those being outbid having the ability to increase their offer if they wish. Any subsequent bids must be increased by a minimum of £500. This could lead to a high level of bidding activity towards the end of the auction, and it is possible for the auctioneer to add extra time (typically an additional two days) to ensure the property achieves its top price.

If a bid is successful and the property ‘won’, the buyer will be required to pay a reservation fee. This will be a percentage of the purchase price and the reservation fee is often subject to a minimum figure both of these amounts should have been notified by the agent at the outset.

Although it is referred to as a reservation fee, it does not form part of the purchase price and must be considered more of an ‘option fee’. The reservation fee payable by the buyer is non-refundable and a successful buyer would need to pay Stamp Duty Land Tax on the total payable, this is comprised of the purchase price (the successful bid) and the reservation fee.

Once the bidding has ended, the buyer will sign an acknowledgement form and a Memorandum of Sale will be issued to all parties.

As the reservation fee does not contribute towards the purchase price of the property, a deposit of 10% of the purchase price will still be required on exchange of contracts and the balance of the purchase price is payable on completion.

Following acceptance of the buyer’s offer and payment of the reservation fee, the buyer is given 28 days to exchange contracts and then a further 28 days to complete. Searches, title and protocol forms should be provided by the seller so that a buyer’s solicitor can conduct their due diligence but the seller may be looking to be reimbursed for the cost of the searches. Although the MMoA is still a fixed timescale, this allows longer periods for exchange and completion to accommodate the residential buyer and seller over the traditional method of auction. This gives the buyer more time to arrange finance to complete the exchange and completion if the buyer is reliant upon a mortgage.

Buyers should be aware of the additional costs involved in buying a property via the MMoA method, with the addition of a reservation fee payable, reimbursement of the seller’s search fees, and additional Stamp Duty Land Tax payable.

As a seller of a property via MMoA you will not have to pay any agency fees, but you should be aware that potential buyers could be put off by the cost that they will incur by paying a reservation fee. A seller should discuss the sale of a property via MMoA with their agent in detail before agreeing to do so.

Further information

If you have any queries about the process or would like to instruct a solicitor to represent you on either a MMoA sale or purchase, please contact Clare Best on clare.best@ashtonslegal.co.uk.

We are able to assist you on any commercial property purchase, sale or dispute. Please contact our specialist commercial property team through this website or by calling 0330 404 0768.


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