Traditional Auctions vs. Conditional Auctions

Auctions have long been a popular way to determine value through competition in buying and selling. Two primary types of auctions often come up in the property or high-value asset world: traditional and conditional. While they share similarities, their structure, process, and legal implications can vary greatly.

In this article, we will explore the key differences between traditional auctions and conditional auctions to help potential buyers and sellers understand which might suit their needs best.

1. Traditional Auctions

Traditional auctions, also known as unconditional auctions, follow a straightforward process that has been used for centuries. The sale is immediate and final, with binding legal implications the moment the hammer falls.

Key Features of Traditional Auctions:

• Immediate Sale: Once the auction ends and the highest bid is accepted, the sale is legally binding (provided the seller’s confidential reserve price is met). The buyer must pay a deposit (typically 10% of the purchase price) immediately, with the remainder usually due within 20 working days.
• No Cooling-Off Period: In a traditional auction, there is no room for negotiation or reconsideration after the bid is accepted. The buyer is legally obliged to complete the transaction.
• Faster Process: Since there’s no conditional period, traditional auctions are ideal for sellers who want to achieve a swift sale and for buyers who are ready to act quickly.
• Financing Must Be Prearranged: Buyers must ensure that they have financing in place before bidding, as the quick completion timeframe leaves little room for securing funds afterwards.
• Lower Risk for Sellers: Sellers benefit from the security of knowing the sale is binding and cannot fall through due to financing or other contingencies.

Example: A traditional auction might be the right choice for sellers looking to sell a property quickly and for buyers who are ready to move fast, such as investors or developers.

2. Conditional Auctions

Conditional auctions, sometimes referred to as modern auctions, offer more flexibility for buyers and whilst it commits the buyer to pay a reservation fee and adhere to the conditions of the reservation contract, it does not fully oblige the buyer and seller to purchase the property. The advantage of this is that it allows the buyer more time to raise finances should they need to purchase the property, but the disadvantage is that the sale is not legally binding. If you are a seller of an unmortgageable property or you need a fast and certain transaction, then the traditional online auction is the way to go.

Key Features of Conditional Auctions:

• Conditional Sale: Unlike traditional auctions, the sale is not legally binding immediately after the auction ends. Instead, the buyer enters into an exclusivity agreement, typically giving them 20 working days to exchange. .
• Longer Transaction Time: After winning the auction, the buyer typically has 20 working days to exchange and a further 20 working days to complete the purchase. This extended time frame allows for more flexibility in securing financing.
• Lower Immediate Risk for Buyers: Since the sale is conditional, the buyer is not legally obliged to complete the transaction, although buyers should be aware that the reservation fee is non-refundable and payable even if the buyer withdraws from the process.. This flexibility and additional time can be particularly appealing for first-time buyers or those needing to raise finance.
• More Buyers are Attracted: The added flexibility makes conditional auctions more appealing to a wider pool of buyers, including those relying on mortgages or other forms of financing.
• Reservation Fee: Instead of a deposit, buyers pay a non-refundable reservation fee to secure the property during the exclusivity period. If the buyer withdraws after this, they lose the fee, but they are not liable for the full deposit as in a traditional auction.

Example: Conditional auctions are an attractive option for buyers who need time to arrange a mortgage or complete legal checks, while sellers benefit from the certainty that they can move forward with the highest bidder, but with slightly less pressure than a traditional auction.

3. Comparing Traditional and Conditional Auctions

Legally Binding Transaction

• Traditional: Immediate, once the timer reaches zero, provided the seller’s reserve price is met or exceeded
• Conditional: Buyers must pay a reservation fee which gives them a 20 working day exclusivity period in which to exchange.

Amounts payable at the end of the auction

• Traditional: A deposit of 10% of the purchase price, payable immediately, as well as any associated buyer fees
• Conditional: Non-refundable reservation fee payable immediately at the end of the auction

Timeframes

• Traditional: Typically 20 working days after the end of the auction
• Conditional: Typically 20 working days to exchange and 20 working days to completion

Financing Requirements

• Traditional: Should be arranged before bidding
• Conditional: Can be arranged during the reservation period, but we advise having approval in principle in place

Buyer Pool

• Traditional: Typically investors or cash buyers
• Conditional: Broader, including those needing mortgage arrangements

4. Which Auction is Right for You?

For Sellers:

• Traditional auctions offer speed, certainty, and low risk but may deter buyers who need more flexibility. They’re ideal for sellers wanting a quick, guaranteed sale.
• Conditional auctions open the door to a broader range of buyers including buyers who might need to raise finance. Because of this, there’s a small risk that the sale could fall through during the conditional period.

For Buyers:

• Traditional auctions require readiness. If you’re a cash buyer, these auctions offer the chance to purchase a property with speed and certainty.
• Conditional auctions are better suited for buyers who need more time, especially those requiring financing.

5. Conclusion

Both traditional and conditional auctions have their merits.. Traditional auctions provide immediate certainty and speed, while conditional auctions offer flexibility and open the market to a wider array of buyers. Understanding the distinctions between these two auction types can help ensure that both parties are well-positioned for a successful transaction, tailored to their individual needs.

Are you an estate agent ready to revolutionise your property sales? Discover the power of online auctions with Bamboo Auctions and get in touch with one of our expert team today!