Modern Method of Auction – does reservation fee count towards mortgage value

Hi Simon

Interesting question, I don't know the answer.

What I do know is that price and value are not necessarily the same thing. A valuation will be based on evidence of comparable sales.

I suppose the key question is whether a mortgage lender will consider the purchase price to include the premium. As we know, most lenders base their lending on a percentage of purchase price or value WHICHEVER IS THE LOWER.

I will be interested to know what brokers have to say about this.

Please report back on whether lenders you speak to will consider the premium as part of the price or not.
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I bought a property through this auction house and the £6,000 was paid by me and my mortgage was then based on the purchase price only, with the 25% deposit being paid on just the purchase price (so in effect my deposit was 25% plus £6,000) .

Not sure whether it could be done in any other way but that was how I did it.

Hi
This fee is in effect dead money and can't be added to the purchase price or towards the deposit I have looked into this before ad theres no way around it 🙁

I hate this auction method.I am sure there are costs attached to 'traditiional' auctions and would be interested in someone giving a comparison for e.g a 100K property. I certainly would not pay for the privilege of buying from such a company.I notice a lot of estate Agents in W.Yorks are shifting slow selling property this way.,often with inflated reserves.Some employees are embarassed when costs are nailed down and admit it is a good earner for the company.On low priced property the effect is exaggerated.It is like a grossly inflated buyers premium.You may as well try to identify buy to let property via estate agents and try to push the price down.Beware of words like modern,initiative etc.It was a Bliar favourite!! David

Is the house really worth paying a premium of 20% for? If it goes really cheap then maybe but I think walk away and find another property to buy may be the answer. Or approach the seller and make an offer to purchase and pay his (Normal) agency fees?

If this type of auction is for sellers who are not prepared to pay any fee then logically the sale price should be lower as any buyer will decide what the house is worth to them and then bid up the perceived value less the fee/premium. In that scenario, the actual value should be amount bid plus fee.

Mortgage valuers should give market value but will tend to go with the actual agreed price.

Personally I would not buy in this way as it seems to me to be a way for sellers to avoid paying whilst at the same time getting more than they might have done.

Nick

Reply to the comment left by "Ray Davison" at "16/02/2015 - 15:19":

Everyone bidding will be in the same situation so the final price including the reservation fee will reflect the market value, much as it does in a conventional sale where the vendor will usually pay the sale fees out of the proceeds.

What you say about approaching the seller (assuming I can find them) is the only alternative I have so far come up with. I have been unable to find GNPA or Iam-sold's sellers contract, but I believe that if a sale occurs outside of Agent/GNPA channels that the vendor is committed to pay a similar fee to them. This would suit us far better as these costs could then be wrapped up into the purchase price and thus subject to valuation be mortgageable.

This method seems to be highly prevalent at the moment in this area, perhaps because it is offered on a no up front cost and no sale no fee basis. But I wonder if the vendors are aware that they are in essence doubling the liquid funds required for fees and deposit by buyers and thus reducing their pool of potential buyers. I cannot see any CGT or over financial incentive outside no up front cost and no sale no fee as costs are tax deduct-able.

From a mortage viewpoint it will defintely not form part of the purchase price, however, I assume, as this fee is a cost directly related to the purchase, and not a fee related to the 'lender', then this fee can be included in the purchase costs from a CGT viewpoint. So although not allowed as part of the purchase cost when calculating a mortgage, it will be a benefit, at a later date when it is sold and it counts towards the Capital cost of the property

As a direct result of this discussion I received a call from GNPA. They confirmed that a mortgagee would not count any reservation fee towards mortgageable value. However they did point out that it is possible to make an offer to the vendor (they are of course legally obliged to pass on all offers whether under auction or not) part of which being the condition that they convert the selling method to one where the vendor pays the fee and thus from my standpoint where the entire cost becomes mortgageable subject to valuation. Of course the vendor can refuse the offer and any offer needs to take into account that the vendor will have to pay the fees (ie it's probably pointless to bid below starting price+fees).

I can only speak from my experience, but even with the £6,000 in fee taken into account the total price I paid was a bargain,

I guess that when going through the figures beforehand you just need to tot up the expenses and factor them in and bid accordingly.