Reservation Fee – ‘The Modern Method of Auction’
A Reservation Fee is normally associated with properties sold under the modern method of auction which is also known as a conditional auction. This is where the successful bidder secures an exclusivity period (usually either 20 or 40 working days), during which time a buyer will finalise any mortgage that they require and move the legal process through to exchange of contracts. You should note that a reservation fee is non-refundable and is simply paid by the purchaser to secure the exclusivity period.
Lots sold through the modern method of auction are sold subject to a reservation fee which will be clearly stated on the reservation agreements along with the terms and conditions attached to the legal pack. The reservation fee will be 6% including VAT of the sale price or a minimum fee of £8,000 including VAT, whichever is higher and is an additional charge above and beyond the final negotiated selling price.
This fee will be deemed to have been received on a non-refundable basis. The minimum fee is automatically charged on completion of the successful bid and the buyer agrees prior to making their bid, to pay any outstanding amount of the property reservation fee immediately at the end of the auction. This is held against the property until such time that exchange of contracts take place. If the sale falls through due to the vendor breaching the terms of the agreement the reservation fee or deposit becomes repayable to the buyer in full. Fees paid to the Auctioneer may be considered as part of the chargeable consideration for the property and be included in the calculation for stamp duty liability. Further clarification on this must be sought from your legal representative.