PROPERTY AUCTIONS IN SOUTH AFRICA.
How many times have you heard someone say:” Times have changed “? You are probably tired of hearing this but it certainly is a true statement especially in the auction business. Selling the idea of an auction is one of the most important sales an auctioneer can make.
Since the start of the first auction companies in South Africa in 1928, the auctioneering market has grown intensively over the years. Auctions cover all sales areas such as vehicles, estate, livestock, agricultural, insolvency, closures and more. If there is a product, there is an auction opportunity. B ut, the property market is one of the fastest growing categories in the auction business in South Africa today with a success rate of over 70%. When we hear or see auctioneering we always use to think of insolvency, but it's more than that, it is a growing phenomenon. In Australia it is commonplace to put your home up for auction before giving a mandate to estate agents. The auction of houses and land is not considered as a last resort.
In today's ever changing fast paced markets, accelerated marketing or auction is no longer thought of as a last resort. Many of the world's largest companies now use the auction method of accelerated marketing "as a tool of rapid and positive change”. In fact estimates show that by the year 2007, over 30% of real estate in the South Africa will be sold at public auction as the property owner's first choice.
Selling assets now, as opposed to later, guarantees more money in your bottom line. Consider the accumulated cost associated with holding your non-performing mortgaged property; thousands of Rands paid in interest, insurance, taxes and maintenance. These liabilities are often over looked and can take a large portion of your bottom line revenues.
Increased Values Can be Demonstrated
Auction buyers come together for one competitive bid process, demonstrating the values and negotiating each other higher. Conventional sales methods always bargain down.
Auctions Focus Attention, Freezing Traditional Sales
Your property is exposed to a detailed advertising & marketing campaign which results in a public event on a specific day. The freeze occurs when, rather than spending valuable time shopping and negotiating for a possible sale, the prudent buyers set aside time on your specifically planned day to purchase items with little hassle and at their highest competitive bid.
Sale Day Means Pay Day
By selling your property at auction, every interested buyer will make themselves available with money in hand on a specific day and the asset conversion process is so precise you even know what day to make your deposit.
KNOCKING DOWN HOUSES - Residential property under the hammer
THANKS TO HOME GALLERY MAGAZINE FOR PERMISSION TO PUBLISH CERTAIN INFORMATION BELOW.
Well, the auctioneer's hammer at least... Luxury yachts, rare artworks and antiques are traditionally the kind of fare that gets auctioned. But open the newspapers or drive through your neighbourhood of a weekend, and the chances are you'll come across houses being auctioned. Home Gallery takes a look at this new trend and gives you a starter kit for the auction action.
In Australia over 85 percent of real estate is sold by auction. In South Africa , though, auctions are historically associated with insolvent or deceased estates. Residential property has always been auctioned, but it was usually limited to houses that had been repossessed by banks and often snapped up by speculative buyers or shrewd investors. "Until fairly recently, the majority of residential properties that came our way were those that were difficult to sell through the traditional use of estate agents," says Eddie Winterstein, CEO of Aucor. Now it has become a popular option for ordinary residential sales, and everyone is curious about this new phenomenon.
The number of auctions has increased by 300 percent over the last two years and auction attendance has increased by over 200 percent over the same period. "When Australia experienced their property boom, their residential property sales method - which until then had been predominantly by private treaty - metamorphosed into an auction system," says Ronen Jackson, group marketing and sales director of Auction Alliance. Could South Africa be heading down the same path? Jackson says, "Property auctions have become popular firstly because the macro market is strong and auctioneers have identified the opportunity to convert the industry into a first-choice method of sale.
"Auctions will continue to gain momentum in the future," he says. "There will be a large focus on commercial and industrial properties in the short-term future. Even when the property market turns (and it will turn sooner or later) auctions stand a chance of becoming a method of disposing of properties quickly. But over the last three years auctions have gone through a golden period and the goodwill in the industry will perpetuate its popularity for years to come."
1) WHEN IS AUCTION THE BEST OPTION?
2) HOW DO I BUY?
3) WHAT DO I DO AT AN AUCTION?
4) AND IF I'M SELLING?
5) AUCTIONING TIPS
6) FREQUENTLY ASKED QUESTIONS
7) WHAT TO DO AT AN AUCTION
8) AUCTIONS VS TRADITIONAL SALES
9) AUCTION DO'S AND DONT'S
10) AUCTION TERMINOLOGY
WHEN IS AUCTION THE BEST OPTION?
From a seller's point of view, auctions work best when there is a high demand in a strong area. The law of supply and demand means that competitive bidding will push prices up and the sense of competition is the best way to find a good price. It is also a great way of finding the market value of a property when it is unique, unusual or a landmark in some way or another - or difficult to value for any other reason. Because it is quick and accurate, it's also a hot choice for sellers who need to sell urgently - for example if they're emigrating.
"It is the cleanest, quickest method of striking a deal between a willing seller and a willing buyer," says Eddie Winterstein. All the buyers are in one spot, although buyers are limited to those who can be on the spot at the time. And because bidders have to be able to pay upfront, or have their finances prearranged, there are no suspensive conditions and other complications. When the hammer falls, you sell and get the money relatively quickly.
Roy Lazarus of Park Village Auctions says that from a buyer's point of view, auctions also have their advantages. "The advantage for the buyer is that you know exactly who is bidding against you and exactly what the competition is offering. The process is transparent. There is no room for someone to tell you that there is an offer higher than yours if it is not true."
He also adds that sellers at auctions are usually highly motivated; they are not testing the market. And, because buyers have to have their finances arranged before the auction, you know exactly how much you can afford.
HOW DO I BUY?
Auction Alliance told us that over 95 percent of property purchasers at auctions use bonds. The only difference between buying at an auction and a traditional sale is that you have to make your bond arrangements before the auction and not after the sale - you cannot bid on the condition that you get your bond approved. You have to have the money immediately available. Buyers should also understand the conditions of sale before the auction. Make sure you know all the issues and have done all your homework. Commissions can vary but are normally 10 percent. Buyers pay the usual transfer costs and duties, but the seller pays the advertising costs.
WHAT DO I DO AT AN AUCTION?
-When you arrive at an auction, you should register as a bidder.
Listen to the conditions of sale. Read the pamphlet. Examine the house thoroughly.
-During the auction you should make eye contact with the auctioneer and lift your hand or paddle when you wish to bid.
-When you no longer wish to bid, indicate this clearly to the auctioneer by shaking your head.
-You should only bid if you have the money available or have made financial arrangements.
-You usually have to put down a deposit of five to ten percent.
-You sign the conditions of sale directly after the auction
AND IF I'M SELLING?
- You make contact with an auctioneer. The auctioneer comes to your house to value it.
- They do a walk-through with a video.
- They ask you what price you hope to achieve.
- They put together a proposal, which includes the cost of advertising.
- You decide on an advertising fee, keeping in mind that achieving a good price is dependent on having a good turnout of bidders.
- You sign a mandate, a date is set and the property is auctioned off.
Go to a few auctions and see how they work. Familiarise yourself with the system and the procedure. That way you will not be intimidated or easily driven to bid a higher price than you want.
ATTEND THE PREVIEW
Most auction houses have a viewing date before an auction. Inspect the property carefully. The auctioneer should disclose all information they have. If bidding on property, d on't buy a property without having had a survey done . Not only will you limit the potential nightmare of building problems but you'll also have a basis on which to bid, as well as knowing your mortgage limit and how much of a deposit you'll need.
KNOW THE RULES
Policies of each auction house are included in catalogues. This gives you general information on the auction, whether there will be "buyers premiums" added to the final price, etc. Ask questions at the preview. Before bidding at auction, make sure you know all legal aspect's of the auction the process. If you require help with bidding on a property, don't hesitate to ask your agent.
SET A PRICE LIMIT
Determine a price before hand and stick to it. It is easy to get caught up in the bidding excitement. Set your price range so your heart won't rule your head at bidding time. Steady, firm and unemotional bidding is often the best tactic - set your limit and stick to it. Expect the unexpected - prices at auction can shoot up very quickly.
LISTEN TO THE AUCTIONEER
Before the bidding on an item, the auctioneer will give information on the item - the lot number and description. Listen for any changes to the catalogue.
If you do not wish to carry on bidding on an item, and the auctioneer looks at you for a bid, signal "No".
FINALISE YOUR PURCHASE
If you have successfully bid on an item, before you leave, you must complete payment and arrange for collections. Make sure you are able to pay – if you don't have the finance ready in time, you will lose the deposit.
An additional tip is to play with your cards close to your chest. It is best not to let the auctioneer or fellow bidders to know too much about how much you are prepared to bid at an auction. It is possible that there might be dummy bidders who will bid against you to push the price up to what you are willing to pay - even if you could have got it for less. This is illegal, but has been known to happen. These tips are courtesy of the South African Institute of Auctioneers www.saiauction.org.za
FREQUENTLY ASKED QUESTIONS
Can I submit an offer prior to the auction sale?
No. Extensive costs are incurred in arranging for any assets to proceed to auction and to be advertised. Once this process has been done, offers submitted prior to auction will not be considered. Any interested parties may attend the auction sales to bid on the day. It is always advisable to wait until the auction to establish a real market demand and value.
Can I get a bond for real estate purchased on auction?
Yes. However, auctions are non-suspensive transactions and as such your offer at an auction sale is NOT subject to your obtaining a bond. Should you wish to obtain a bond this is acceptable, however it is important to note that the sale is not subject to your obtaining finance. If for any reason you are not granted a bond, or do not qualify for the amount you have bid to, you will still be held liable and responsible to fulfil all your obligations in terms of the agreement signed at the auction.
Can I bid on behalf of another person or company or trust?
It is possible to bid on behalf of another person or trust, or company already formed or to be formed. However, the person who bids on behalf of any of these entities will be required to sign personal surety on the auction day. Should the company / person / trust or any other nomination not be able, for whatever reason, to take transfer of the property then the person who bid at the auction will be deemed the purchaser and will become responsible for all the terms of the agreement of sale.
Are there reserve prices at auctions?
Auctions are sold with no reserves. Sales in Execution are sold on the fall of the hammer without any confirmation period, and with no reserve. Certain insolvency and liquidation auctions are sold on the fall of the hammer, and may at times be sold subject to confirmation within a certain period. This is not a reserve, merely a formality to protect creditors from secured assets being sold way below their market value. These sales are often confirmed the same day although the Seller may choose to wait the full confirmation period.
What happens if I default on the sale or fail to come up with the balance of the purchase price and/or costs?
The Seller will reserve their right to take the necessary legal action against you should you go into breach of contract or fail to fulfil any of your obligations in terms of the Conditions of Sale. They will exercise their various options, which will be stipulated in the Conditions of Sale. However, ultimately you will be held liable and responsible to fulfil your obligations. Should you still remain in breach of contract, all monies already paid by you to the auctioneer and/or seller will be forfeited as "rouwkoop" (pre-estimated damages). It is very serious to go into breach after an auction and legal action will be taken. Therefore if there is any uncertainty on the part of the Purchaser, it is better to not bid.
What if an item(s) is sold to me STC (Subject to Confirmation)?
Items sold STC are usually encumbered to a secured creditor and confirmation will be obtained within the time frame specified at the auction. During this period you are held bound by your offer and will be advised by an Auction Alliance staff member whether the offer is acceptable or not. Payment is required immediately after the auction sale nonetheless. Should the sale for any reason not be confirmed you will be refunded immediately.
What recourse do I have if I have bid on the wrong items or they are not to my satisfaction after the auction?
Purchaser's bidding on items at an auction acknowledge that they have familiarised themselves with the items for which they bid. All items are sold "voetstoots" and the bids are made in public. Therefore, there is no recourse if you have made a mistake and bid for the wrong items or discover later that you are not happy with your purchase. Once you have bid, you are bound and will be required to pay in full for these assets and remove them from the facility.
When do the movable assets or real estate become my risk?
The assets become your risk from the date of possession, or the fall of the hammer - whichever is the later. If possession is given on confirmation or the fall of the hammer then you will be responsible for the assets and be required to arrange suitable insurance and storage from this date.
Can I change the Conditions of Sale ?
No. The Conditions of Sale are approved by the Seller and often the Master of the High Court before the sale. They are not negotiable and may not be altered in any way. No clauses may be added or deleted unless agreed upon by the Seller and the Auctioneer.
WHAT TO DO AT AN AUCTION
- When you register ask for a copy of the Conditions of Sale and thoroughly inspect them
- Ask relevant questions to the auctioneer or the Auction Alliance team before the sale
- Ask relevant questions at the designated question time
- Inspect the property fully before the sale commences
- Remember that auction sales are non-suspensive and "voetstoots". Thus you must do your homework
- Watch, listen, ask and bid only when you feel comfortable to do so
- Settle immediately after making your purchases of movable assets or property
- That commission and taxes may be payable over and above your bid price
- All our auctions are taped in order to avoid confusion and disputes. Each auction is audited
- Our Auctioneers are all trained and qualified members of the South African Institute of Auctioneers and the South African Estate Agency Affairs Board
- All deposits are paid into valid Trust Accounts in terms of relevant legislation
- Register with the Auctioneers and we will place you on our email and SMS "auction alert" client base
- Visit our website regularly for more information and upcoming auction sales
- We do not accept any cash whatsoever at any Auction Alliance sales
- To make your financial arrangements prior to the auction sale
AUCTIONS VS TRADITIONAL SALES
- Focus is on your property alone.
- Results in 21-30 days or less
- Extensive advertising featuring your property exclusively.
- Buyers act on your time deadlines
- Auction provides catalyst to promote buyers interest.
- Realizes the property's true market value.
No limit on upside potential.
- Eliminates guesswork in determining the asking price of property.
- All conditions of sale set in advance, thus
Composite element can drive prices upwards.
- Property one of many being advertised, listed & shown.
- May remain on market for months.
- Minimal advertising;
- Little motivation for buyers: you wait for them.
- Price reduction encouraged to facilitate sale.
- Upside potential limited by asking price.
- Seller risks overpricing, and thus seeing little interest,
or under pricing and selling for less than the worth.
- Seller must negotiate all aspects of sale.
- Comparative element largely avoided
AUCTION DO'S AND DONT'S
- Register as a bidder (unless not required to do so)
- Lift your hand or buyer's card in the air to bid
- Make eye contact with the auctioneer when he acknowledges your bid
- Shout out your bid if necessary and attract the auctioneer's (and ring men's) attention
- Remove yourself from the bidding by shaking your head "no" or saying "no" if the auctioneer turns your way
- Ask questions and get advice if you are unsure about any aspect of the auction sale
- Keep in mind that you are legally bound by your bid
- Bid if you have no money to purchase or have not made any proper financial arrangements
- Be arrogant, bombastic or intentionally loud as this will irritate the auctioneer and your fellow bidders
- Be intimidated by other bidders as they may be trying to put you off bidding
- Be shy to ask questions if you are not 100% sure of all your obligations as purchaser
- Hesitate or procrastinate when bidding because you may loose the deal
- Contact the auctioneer after the sale for higher bids because it will most likely be too late
- Lose your bidders card. If you do, report it immediately
Here's the talk so you can walk the walk
A procedure which allows a bidder to participate in the bidding process without being physically present. A bidder submits an offer before the auction.
A prospective buyer's indication or offer of a price he or she will pay to purchase property at auction. Bids are usually in standardised increments established by the auctioneer.
The number issued to each person who registers at an auction.
The illegal practice whereby two or more people agree not to bid against one another so as to deflate value. Also known as collusion.
The package of information and instructions pertaining to the property to be sold at an auction event obtained by prospective bidders at an auction. Sometimes called a buyer's pack or due diligence pack.
An advertised percentage of the high bid or flat fee added to the highest bid to determine the total contract price to be paid by the buyer. Also known as purchaser's commission.
A Latin term meaning "let the buyer beware". A legal maxim stating that the buyer takes the risk regarding quality or condition of the property purchased, unless protected by warranty.
CONDITION OF SALE
The legal terms that govern the conduct of an auction, including acceptable methods of payment, terms, buyer's premiums, possession, reserves and any other limiting factors of an auction. Usually included in published advertisements or announced by the auctioneer prior to the start of the auction.
ELECTRICAL INSTALLATION REGULATION
An Electrical Compliance Certificate is required by any purchaser of a fixed property in South Africa . Usually must be provided for by the Purchaser, at his cost at an auction sale.
ESTATE AGENT AFFAIRS ACT (EAA)
The EAA 112 of 1976 governs any person who holds himself out as a person who, whether directly or indirectly advertises that he/she, on the instructions or on behalf of any other person sells or publicly exhibits for sale immovable property.
Auctioneers who sell immovable property clearly fall within the definition of an Estate Agent and must be registered with a valid Fidelity Fund certificate
Raising the price after a verbal agreement when an item has been auctioned, but before the papers have been signed, a bidder tries to offer a higher price for the item.
The fall of the hammer that signals that an item has been sold.
Either an individual object or grouping of objects that are offered for sale at auction as a single unit.
The amount which the purchaser of a fixed property pays before registration of transfer, after taking possession. This is normally a fixed amount and a percentage of the purchase price.
The minimum price that a seller is willing to accept for a property to be sold at auction.
SOUTH AFRICAN INSTITUTE OF AUCTIONEERS (SAIA)
An association of individual South African auctioneers united to promote the mutual interests of its members; formulate and maintain ethical standards for the auction profession; make the public more aware of the advantages of auction selling; and generally improve the business conditions affecting the auction profession.
SUBJECT TO CONFIRMATION
A sale which is subject to the seller's approval within a specified time period.
"TAKE ONE - TAKE ALL"
A method of sale whereby the successful high bidder wins the right to choose a lot or lots from a grouping of similar or like-kind lots. After the high bidder's selection, the lot is deleted from the group, and the second round of bidding commences, with the high bidder in round two choosing a lot, which is then deleted from the group and so on, until all lots are sold. The first bidder has the right to choose the number of lots he wants.
The document which is used to record the buyer's number and price bid.
Selling the property without warranties as to the condition and/or the fitness of the property for a particular use. Buyers are solely responsible for examining and judging the property for their own protection.