Words: Anne Schauffer | Image: Shutterstock
According to Reiner Sternzhorn of auctioneers in2Assets, “The volume of residential auctions escalates dramatically in a distressed economy. More properties come on to the market, and that over-supply makes it more difficult to sell quickly.” Internationally, an auction is a perfectly acceptable way to sell a house, not so here.
South Africans unsure
“Residential auctions still mostly comprise distressed and insolvent auctions,” says Reiner. He puts down South Africans’ uncertainty to numerous reasons. “These sales are unsuspensive – large deposits are payable on the auction day. The sale is not subject to the approval of a loan, and if buyers cannot come up with the balance, they lose their deposit. Buyers don’t want that risk.”
Inexperience plays a role, too. “Buyers are often first-timers and feel intimidated by an auctioneer and the swift process of an auction. Equally, buyers feel intimidated by other bidders and can come up against experienced buyers representing syndicates,” explains Reiner. “Inexperienced buyers often don’t ascertain prior to the auction what other costs are payable, like outstanding rates, taxes, or more. Many of the Rules of Auction burden the buyer with onerous obligations to pay for electrical and entomologist certificates, not even knowing the costs.”
Bottom line, it’s imperative that buyers do their homework before an auction.
From a seller’s perspective
A slow market means a slow property sale. On auction, it’s faster, and bidders aren’t “just looking”. Some auction houses insist on a buyer being pre-approved for a bond prior to bidding, so the auction sale is unlikely to fall through due to the seller’s inability to qualify for a bond.
How to buy on auction
Although it differs between auction houses, the process loosely goes as follows:
- Potential buyers view and inspect the property
- Buyers register before or on the day and pay a deposit, which is refundable if unsuccessful
- If successful, a buyer immediately pays a deposit of either 5% or 10% of the bid price
- Then bank guarantees for the balance of the purchase price are due within a specified period of time, anything between 21 to 45 days.
“You cannot negotiate the terms and conditions of an auction sale. It’s take it or leave it,” says Maria Davey of Meumann White Attorneys. Her advice for prospective buyers, “View and inspect any property before the auction date – all auction properties are sold ‘voetstoots’ (as is), so the purchaser is unable to negotiate and get warranties or undertakings.”
Maria suggests that if a buyer has concerns about anything on the property, get a professional to look. “The purchaser must ascertain first-hand whether there is any damage or work to be done so as to decide how much to bid.”
She adds, “Obtain copies of the title deeds, plans, any lease agreements and the zoning certificate if relevant. Get hold of a copy of the conditions of sale and make sure you understand the meaning of it all before the auction. This will also set out what the purchaser is accepting liability for, like municipal rates.”
She cautions, “A winning bid at an auction is legally binding and cannot be retracted later without repercussions.”