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Have you heard of the Modern Method of Auction - or MMA?

It's intended to combine the best of two methods of selling property: the marketing skills and local knowledge of an estate agent and the certainty and speed of auction house sale.

Before looking at MMA in a little more detail, let's consider the other ways of selling a residential property in England and Wales: private treaty sale, traditional auction sales, and sale by tender.

Private treaty sale

Most residential properties in England and Wales are still sold by the process known as private treaty sale. In this context, an estate agent prepares a description (the "particulars") of the property and circulates it to potential buyers (usually via online, print and shop-front advertising). The property is usually advertised at a fixed price and potential buyers are free to offer this price or one of their own choosing. If more than one buyer is interested, the estate agent may invite them to make "best and final offers". Once the seller has accepted an offer, the agreement to buy remains subject to exchange and completion of a formal contract between the parties in a process that may take several months.

Traditional auction sales

Auction sales are obviously faster than private treaty sales. The property is listed in the auction catalogue and interested buyers may choose to view it either in-person or online. This is also the time at which a potential buyer must arrange any necessary finance and, if they so choose, have the property surveyed. The potential buyers then attend a competitive auction, which is traditionally an in-person event but which sometimes may be held online or as a hybrid affair. They bid against each other until only one is left. Provided that any reserve price has been reached, the auctioneer will then drop their hammer and declare the property sold. At this point, the bidder is legally bound to buy the property. They are obliged to pay a 10% deposit on the day of the auction and must then complete on the sale within a prescribed time period (usually four weeks). Although the speed is an obvious advantage for a seller in a hurry, sold property prices at a traditional auction are less predictable, especially when the property for sale is expected to attract considerable interest, is unusual in some way or is in poor condition.

Sale by tender

Properties may also be sold by formal tender or informal tender. Less common among private sellers, tender is a method that's most frequently used by local authorities and government departments. It requires a would-be buyer to place one bid on the property, usually in a written document, before a specified closing date. A formal tender is a legally binding act, and exchange of contracts is deemed to have occurred at the moment the bid is accepted. For this reason, all bids must include a banker's draft covering the deposit.

As its name suggests, informal tender is a less complex process. However, interested buyers must still make a sealed bid before a closing date, although their offer is not legally binding and any acceptance remains subject to contract. Formal tender is used only rarely but a seller may choose informal tender if they are keen to have a specific closing date and / or if they anticipate considerable competition from buyers. Properties requiring modernisation are usually considered more suitable than so-called turnkey homes.

MMA

Sometimes known as a conditional auction, the MMA differs in several ways from a traditional auction. However, there are also a number of similarities. Broadly, the process works as follows:

1.      The seller sets a reserve price. This is usually done following advice from the auctioneer and is based on the property's current market value.
2.      The seller sets an auction end date. Auctions usually last for at least 28 days.
3.      An estate agent markets the property and conducts viewings for prospective buyers.
4.      Prospective buyers bid against each other in an online auction. Each has until the auction end date to submit their final bid.
5.      At the end of the auction, the successful bidder reserves the property by paying a non-refundable reservation fee to the agents. Essentially, this is an option to purchase. The total fee paid varies between agents but, crucially, does not go towards the purchase price of the property. This makes selling via MMA more lucrative for agents. The fee is refunded if the sale falls through due to the vendor. Conversely, it is not refunded if the sale collapses due to the buyer.
6.      The buyer pays 10% of the purchase price on exchange of contracts. The balance is payable upon completion. The buyer has 28 days in which to exchange contracts and a second 28-day period in which to complete the transaction. This is double the amount of time available to a buyer through a traditional auction.

Advantages of selling via MMA

1.      Reserve prices tend to be higher for properties up for sale via MMA when compared to similar properties listed for sale via a traditional auction.
2.      Buyers have less control over final sold property prices. In a sale conducted by an estate agent, it's not uncommon for a buyer to chip away at the original offer price. Often this is done in response to information disclosed in the survey or searches. However, it can sometimes also happen just prior to exchange when the seller is more likely to agree to a reduction in order to ensure the sale goes ahead.
3.      The seller does not need to rely on a single buyer as they would do in a sale through an estate agent. Instead, multiple potential buyers will bid against each other.
4.      If a property attracts significant interest and results in several would-be buyers bidding against each other, the auctioneer has the discretion to extend the auction period to maximise the chance of the property attaining its top price. In this situation, an auction is usually extended by two days but it may be more or less than this depending on the particular circumstances.
5.      The longer time period allowed for exchange and completion means that the MMA may have more appeal to buyers needing to arrange a mortgage than the shorter timescale allowed by a traditional auction.
6.      The seller has the comfort of knowing that the buyer cannot walk away from the transaction without incurring considerable financial loss.

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