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The modern method of auction is a relatively recent development in property sales and should not be confused with the traditional auction process. While it retains some elements of a standard auction, it introduces key differences designed to make the process more accessible to a wider range of buyers, including those reliant on mortgage finance. This method is also sometimes referred to as a conditional auction.
When a bid is accepted or the auction closes with a successful buyer, the buyer is required to pay a non-refundable reservation fee to the estate agent. This reservation fee effectively secures the property for the buyer for a limited period and creates what is essentially an option to purchase, rather than an immediate binding contract.
This fee is paid to the agents and is separate from the purchase price of the property. It gives the buyer exclusive rights to proceed with the purchase within a set timeframe, which is often more generous than that allowed under traditional auction rules.
The amount of the reservation fee can vary depending on the agent, but it is typically calculated as a percentage of the final sale price, subject to a minimum amount. Buyers should always clarify the exact percentage and minimum fee with the marketing agent before placing a bid.
It is critical to understand that this reservation fee does not contribute towards the purchase price of the property. Buyers will still be required to pay a deposit – usually 10% of the purchase price – at the point of exchange of contracts. The remaining balance of the purchase price is then paid on completion.
Another thing to note, is that the reservation fee paid as part of a modern auction purchase is considered part of the total consideration for Stamp Duty Land Tax (SDLT) purposes. For example, if the agreed purchase price of a property is £250,000 and the reservation fee is £6,000, HMRC will treat the total consideration as £256,000 when calculating SDLT.
One of the key advantages of the modern method of auction is the more flexible timeline it offers. After the buyer’s offer is accepted and the reservation fee has been paid, the buyer is typically given:
This longer period allows time for buyers – especially residential purchasers who may need to secure mortgage finance – to complete the necessary legal and financial steps. By contrast, traditional auctions often require exchange of contracts immediately after the auction and completion within just 28 days, making them less accessible to buyers relying on lending.
Yes, sellers have the flexibility to extend the standard timeframes of 28 days to exchange contracts and a further 28 days to complete. If a buyer is experiencing delays, the seller may choose to grant an extension, helping to facilitate a smoother transaction and increasing the likelihood of a successful completion.
If the buyer withdraws from the sale, the transaction will not proceed, and unfortunately, the seller will not receive a deposit or any portion of the reservation fee. As normally, the reservation fee – paid by the buyer at the point of their successful bid at a modern auction – is typically retained by the auctioneer or estate agent as part of their terms and conditions.
Unlike in traditional sales where the seller typically pays the estate agent’s fees, under the modern method of auction it is the buyer who pays. The reservation fee goes directly to the agents and covers their costs.
This fee structure benefits sellers, as they are not responsible for the agent’s commission. However, it does increase the upfront cost to the buyer, who should be fully aware of this commitment before participating in the auction.
In addition to the reservation fee, buyers using the modern method of auction should be prepared for other potential costs. These may include:
These costs will usually be set out in the auction pack or conditions of sale, and buyers are strongly advised to review these documents carefully before placing a bid. It’s also wise to instruct a property solicitor to review the legal pack before bidding, as the terms can vary significantly between properties.
| Feature | Modern Method of Auction | Traditional Auction |
|---|---|---|
| Buyer Fee | Reservation fee (non-refundable) | None (seller pays agent) |
| Binding Contract on Bid? | No – creates an option to purchase | Yes – contracts exchanged at auction |
| Timescale to Exchange | 28 days from receipt of contract | Immediately at fall of hammer |
| Timescale to Complete | Additional 28 days post-exchange | Usually 28 days post-auction |
| Funding Flexibility | More suitable for mortgage buyers | Best suited to cash buyers |
The modern method of auction is designed to open up the market to a broader range of buyers by providing more time for financing and legal preparation. However, it comes at a cost – namely, the non-refundable reservation fee and potential responsibility for the seller’s legal and administrative fees.
Prospective buyers should consider:
Potential points sellers should consider:
As always, seeking independent legal advice before committing to any property purchase or sale is strongly recommended, especially where unique fee structures and contract terms are involved.
If you have any queries regarding this issue or any other property matter, please contact our Commercial Property or Residential Conveyancing teams on 01603 620508, or via our contact form.
This article was produced on the 23rd September 2025 for information purposes only and should not be construed or relied upon as specific legal advice.
