Modern method of auction explained
Modern method of auction is an online conditional sale. The buyer pays a non-refundable reservation fee, typically 4 to 5% plus VAT, on top of the purchase price, and gets around 56 days to exchange and complete rather than binding exchange on the fall of the hammer. Sellers get no certainty until exchange, and buyers carry the fee cost, which can reduce what they are willing to bid.
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What is modern method of auction?
Modern method of auction, sometimes called conditional auction, is a sale format run mostly online where the highest bidder does not exchange contracts immediately. Instead, they enter a reservation agreement with the auctioneer, pay a reservation fee, and then have a set period to complete the legal process through their own solicitor. It differs from traditional auction in one key respect: there is no binding exchange the moment the gavel falls or the online countdown ends.
How the reservation fee works
The buyer, not the seller, pays the reservation fee. It is commonly quoted at 4 to 5% of the agreed price, plus VAT, often with a minimum amount stated in the auctioneer's terms. On a fee shown as £5,000, VAT at 20% adds £1,000, making the real cost £6,000. This fee is separate from the purchase price and is generally described as non-refundable once the reservation is confirmed, even if the sale later falls through. Some agreements allow it to be offset against the final price at completion, but the terms vary between providers, so read the specific auctioneer's published conditions before bidding.
Because the buyer carries this extra cost on top of the price, it can reduce how much they are prepared to bid in the first place. A buyer working to a fixed budget has to account for the fee inside that budget, which effectively lowers the net amount available for the purchase price itself.
What is the timeline after the auction ends?
Once a bid is accepted, the buyer typically has around 56 days in total, commonly structured as 28 days to exchange contracts and a further 28 days to complete. This is far longer than traditional auction, where exchange happens immediately and completion follows in around 28 days. During those 56 days the sale is not legally binding in the way a traditional auction exchange is, so either side can, in practice, still see the deal collapse before exchange, subject to the reservation agreement's own terms.
How is Stamp Duty Land Tax affected?
HMRC's general approach treats the reservation fee as part of the total consideration given for the property, not a separate service charge. That means SDLT is typically calculated on the purchase price plus the fee. On a £250,000 sale with a £6,000 reservation fee including VAT, SDLT would usually be worked out on £256,000 rather than £250,000. This is a general description, not tax advice, so confirm the current HMRC position and how it applies to your purchase with a solicitor or accountant before relying on it.
Why has modern method of auction attracted criticism?
Consumer groups and trade press have raised transparency concerns about modern method of auction since at least 2019, focused mainly on how clearly the reservation fee and its non-refundable nature are disclosed to buyers before they bid. Critics argue the format can function more like a fee-generating mechanism for the auctioneer than the binding certainty a seller associates with the word "auction." That is a fair point for sellers to weigh: modern method of auction does not give you the same exchange-day certainty as a traditional auction, even though it is marketed under the same banner.
How does it compare with traditional auction and a cash offer?
| Modern method | Traditional auction | Cash offer (us) | |
|---|---|---|---|
| Binding point | After 28-day exchange window | Fall of the hammer | On exchange, after survey |
| Buyer reservation fee | 4 to 5% + VAT, non-refundable | None | None |
| Typical timeline to completion | Around 56 days from acceptance | Around 28 days from exchange | As little as 7 days, or your date |
| Price certainty for seller | Not fixed until exchange | Fixed at the hammer | Fixed in writing after survey |
| Risk of buyer withdrawal before exchange | Present, until exchange | None, exchange is immediate | None once offer accepted and survey done |
| Best suited to | Sellers wanting online reach, buyers with time | Unusual properties, development sites, competitive bidding | Sellers wanting speed and certainty |
Where does auction, of either kind, genuinely win?
Real competitive bidding, in a traditional auction room or online, can beat market value on development sites, unusual properties, and plots with planning potential, where several buyers are chasing the same asset for different reasons. Traditional auction's binding exchange on the fall of the hammer is also a genuine advantage over modern method of auction, because it removes the 56-day window in which a buyer can still walk away. If your property fits that profile and you can tolerate the marketing costs and the risk of it not selling, an auction route deserves serious consideration.
Where does a fixed cash offer serve sellers better?
If you need a guaranteed price and a set completion date, without paying legal fees or waiting through a reservation period that might still collapse, a fixed cash offer removes that uncertainty. We assess your property, arrange an independent survey, and give you a price in writing, typically 75 to 80% of the assessed market value, with no fees and your legal costs paid. Completion can happen in as little as 7 days or on a date you choose, and we buy as-is, including contents and with tenants in place if that applies.
Common questions
- Who pays the reservation fee in modern method of auction?
- The buyer pays it, on top of the agreed purchase price. It is commonly quoted at 4 to 5% of the price plus VAT, so a fee shown as £5,000 is actually £6,000 once VAT is added. Check the auctioneer's own terms for the exact figure and any minimum fee before bidding.
- Is the reservation fee refundable?
- Generally no. It is described as non-refundable once the buyer's reservation is confirmed, even if the buyer later pulls out within the 56-day period. It is usually deductible from the final purchase price at completion, but confirm this against the specific auction terms.
- Does modern method of auction affect Stamp Duty Land Tax?
- HMRC's general position treats the reservation fee as part of the consideration for the property, so SDLT is typically calculated on the price plus the fee. On a £250,000 sale with a £6,000 fee, SDLT would usually be worked out on £256,000. Confirm the current HMRC position and your own liability with a conveyancer before bidding.
- Is modern method of auction the same as a traditional auction?
- No. Traditional auction exchanges contracts on the fall of the hammer, binding both sides immediately. Modern method of auction is a reservation agreement, not an exchange, and gives the buyer roughly 56 days, commonly split as 28 days to exchange and a further 28 to complete.
Want a guaranteed price instead of a guide price?
No reserve, no lot fees, no risk of the lot going unsold. You know the figure before you commit to anything.
Related guides
Auction alternative hubHow selling at auction works for a seller, the costs and unsold risk involved, and how a fixed-price cash sale compares as an alternative.
Pros and cons of auctionA balanced look at the pros and cons of selling a house at auction, who it genuinely suits, and who is usually better off with another route.
Cost to sell at auctionAuction seller costs broken down: entry fee, commission, legal pack and unsold fees, with an illustrative total on a £200,000 sale.
What if it doesn't sell at auction?What happens when a lot is passed or withdrawn at auction, the fees already spent, and the options after an unsold auction property.