24/07/2019
Modern Method of Auction - Good or Bad?
I am going to detail two types of buyer and their situation when it comes to their cash and where it will go.
If a cash buyer, be they investors or homemakers, wants to buy your house and they have a budget of say £60,000, then that's their budget and what they will pay. Unless of course, they see a property with a auction fee of £5,000 plus £1,000 VAT then the amount they be willing to offer is £54,000 plus the fee.
If buying with a mortgage and the lender is willing to lend 75% of the purchase price. On a standard £60,000 house they will lend £45,000 and the buyer funds the remaining £15,000 as their deposit. With a modern method of auction sale the lender would lend 75% of the £54,000 being £40,500 and the buyer would need to find the remaining £13,500 plus the £6,000 fee (Inc VAT). If they had £19,500 cash available, at 75% Loan to Value they could increase their budget to £78,000 and be looking at nicer houses in a nicer area.
Buyers buying cash as not affected in the short term, in the long term they have a £6,000 gain that might be liable to CGT dependant on their circumstances.
Buyers using a mortgage, which makes up the majority of people, will be worse off as they will need more cash upfront to buy the property and this will likely limit the amount they pay or the amount able to purchase it.
Sellers lose out in both situations as all offers on their home have been reduced to factor in the fee to the buyer.
The only winner is the agent, who managed to sell such an agreement. The majority of the time the people signing these agreements are people desperate to sell. Whether it be through divorce, inheritance/probate, relocation, the owner going into a care home etc etc. They are the people losing out.
If you want the best offer for your home without big agent fees then you should speak to buyers directly. These can be found via FB groups, Google or speaking to people you know.
