Property Auctions

Property Auctions

Following in the footsteps of the leading world markets, where over 70% of property transactions are sold on auction, South Africans are starting to embrace the auction as a competitive way to dispose of their properties.

Sure, an auction is a good way to pick up a property bargain, but this is only part of the story. For both buyer and seller, the benefits are compelling.

‘An auction is an easy and efficient process for both parties. There are no protracted negotiations, suspensive clauses or intermediaries. And every transaction takes place transparently and in the open, with terms and conditions available for public scrutiny,’ says Jan van der Merwe, director of BidEasy Auctioneers.

The seller’s fee to the auctioneer covers inspection of the property, marketing, advertising and catalogue production costs. The auctioneer’s commission, if there is a sale, is paid by the buyer,’ says Van der Merwe.

The seller also gets to set a minimum reserve and, should the winning bid fall short of this, he/she is not obliged to accept the offer. More importantly, there’s no ceiling on the maximum price the property can fetch. Often, this means higher final prices than more traditional methods of sale, says Van der Merwe, as the buyers at auctions are serious. ‘They are aware that you genuinely intend to sell your property, so they’ll compete for the deal,’ he states.

The turnaround time for a property auction is as little as three or four weeks between the mandate to sell and the auction date, so the seller has the benefit of a specific deadline.

Van der Merwe also mentions: ‘There’s a high degree of certainty that your property will be sold. In tough markets, that’s a huge bonus. It typically takes between eight and 10 weeks from the instruction to sell to the registered transfer of an auctioned property.’

For the buyer, meanwhile, there is no risk of overpaying for a property, as he/ she determines the correct market value.

David Soutter, CEO of Reliance Auctions, says: ‘By placing a property on auction the seller has made his intentions clear, is a real seller, and is not just testing the market. The buyer is obliged to raise the finance prior to the auction, and with the fall of the hammer immediately enters into a sales contract.’

‘The transaction is clean, and accompanied by a substantial non-refundable deposit. This is a major benefit in a market where the banks determine the approval of a sale, which too often falls through due to banks declining the finance,’ says Soutter.

Therefore, buyers at a property auction need to do a bit of preparation and obtain a pre-approval for a certain amount well in advance of the auction, and there are some important precautions that potential purchasers need to take.

‘The first of these,’ says Rudi Botha, CEO of BetterBond, ‘is the need to establish the market value of the property before the auction, so that you can set a limit on how much you are prepared to bid and not get carried away in the excitement and competitive atmosphere of the auction.’

Secondly, good auctioneers will also be able to supply you with copies of the title deed, the site diagram, the plans of the property, any lease agreement and the zoning certificate if relevant. And internet research on will reveal more details about the estate and area, such as local schools, shopping centres and other facilities.

‘Third,’ says Botha, ‘potential buyers must thoroughly check the Conditions of Sale before an auction, so that they understand exactly what is being offered for sale and exactly what else they might be taking on, bearing in mind that a winning bid at auction is legally binding and cannot be retracted later without considerable financial loss.’

There is often a provision, for example, that the buyer of an auction property will be responsible for any outstanding municipal rates, or levy arrears in the case of Sectional Title property. There could thus be a substantial amount to pay – in cash – in addition to the auction price, which could make the property a much less attractive proposition.

He says the Conditions of Sale could also stipulate if the auction price carries interest from the hammer fall until the transfer of ownership is registered, or if there is still a tenant in residence whose lease needs to be honoured. In addition, the Conditions of Sale can be amended right up until the day of the auction, so it is worth double-checking them before you sign acceptance and go ahead with your bid.

‘Lastly,’ says Botha, ‘potential buyers must ensure that their financing is in place well before the auction date, because auction sales are non-suspensive, which means that they are not conditional on your being able to get a bond.’

‘As a winning bidder, you will usually be required to pay a deposit of 5% to 10% of the purchase price immediately, in cash, and possibly also the auctioneer’s commission, which is usually 10% plus VAT. Most likely you will also be required to give the seller’s attorneys a guarantee for the balance of the purchase price within 30 days – whether or not you have been able to obtain a bond.’

In fact, he notes, the Conditions of Sale will usually also provide that, if you default on the sale after the auction, the property seller will have the right to take legal action to compel you to fulfil the contract – or to forfeit the deposit and any other monies that you have already paid as rouwkoop.

In most cases (unless you are paying cash for the property), the guarantee you have to provide will be an assurance from your attorney that your bank has granted you a bond for at least the balance of the purchase price, and is ready to pay that over to the seller’s attorney on transfer of the property into your name.

It is advisable to view the property before you bid for it, and work out the maximum bid you are prepared to make, no matter what. Remember, if you overbid, you will be the one that has to deal with the gap between your lender’s valuation of the property and the price you have agreed to pay – and will probably have to cover the shortfall yourself.

By Helen Grange

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