Many people think of auction property as bank repossessions or distressed sales and hope for a ‘bargain’. So what can a buyer actually buy and how does the process work?
"Buyers will find anything – literally from a R500 000 entry-level home to a multi-million rand mansion, and everything in between," says Winterstein.
Buyers can expect to buy all and any property on auction, says Darren Winterstein, managing director of Aucor.
He explains that bank repo properties are those that have been repossessed by banks whereas distressed property is the step prior, where the owner cannot service the bond on the property and together with the bank agrees to sell it before they default on payments.
“Buyers will find anything – literally from a R500 000 entry-level home to a multi-million rand mansion, and everything in between,” says Winterstein.
ClareMart Auction Group CEO, Jonathan Smiedt says that the auction market is not an avenue for distressed sales only but is also an excellent platform for selling private properties for private sellers, companies and consortiums.
According to Auction Alliance CEO Rael Levitt, distressed property sales are no different to any other type of property sale, but there are several issues that buyers need to be aware of.
He says it is important to establish what sort of distress is applicable - Is it a seller who is in early stage default with a bank but no legal proceedings have taken place? Or is the property being sold through one of the many bank distressed channels? Is it a sale in execution or insolvency? Or has the property gone through the full cycle and is fully repossessed and owned by the bank?
Each property will have a different background and a buyer should ask the auctioneer what the specific history is, says Levitt.
Where do buyers find these properties?
This Cape Town mansion located on Llandudno Beach has 8 bedrooms and 7 bathrooms and is being auctioned by Auction Alliance.
Levitt says there are various auction papers advertising properties in newspapers, but the largest source of information on auction properties is found online.
“There are a myriad of channels including banks, sheriffs, websites and auction houses,” he says.
What about finance?
First-time buyers to the auction market are often under the impression that they need cash in order to purchase a property at auction, says Smeidt .
“This is absolutely untrue - a buyer, after bidding and the acceptance of the offer, is free to apply for bonds or finance in the normal and approved fashion.”
Smeidt explains the buyer normally has thirty to forty days in which to supply the transferring attorneys with documentation that guarantees the balance of the purchase price from a suitable financial institution.
All that is necessary on the day is the stipulated deposit and auctioneer’s commission, says Smeidt.
However, Levitt advises buyers to check that they can get finance before the sale by approaching their financial institution to find out what funding options they have at their disposal.
“They can do it after the sale, but if they are not regular buyers they should rather be conservative and make early arrangements,” he adds.
How does the auction process work?
This Mouille Point apartment in Cape Town is being auctioned by Claremart Auction Group with viewing on Sunday 31 October from 2 to 5pm.
According to Smeidt the auction process is fairly simple. When attending an auction, bidders register on arrival, there is no fee for registration and bidders are not obliged to bid. In order to register the bidder needs to provide FICA documents in accordance with the requirements of the Consumer Protection Act and once registered the bidder receives a buyer’s card.
Auctions are no different from private treaty sales with the exception that suspensive clauses are not part of the sale, says Levitt, and therefore the buyer will have to pre-arrange finance.
They will be required to make payment of the deposit on the bid price, as well as the Auctioneer's commission, on the fall of the hammer, he says. “Buyers need to pre-determine what price they will be bidding and they should make financial arrangements around their bid price. “
Levitt says that buyers must realise that once the sale is confirmed it is a binding transaction and no cool-off periods apply. Furthermore, the balance of the purchase is due on registration of transfer, but the buyer will need to present their guarantee of funds to the seller's attorney within a stipulated time frame.
The confirmation period is normally seven to ten working days and the buyer retains full obligation to the purchase unless rejected by the seller, says Smeidt.
Once the offer is accepted by the seller the transfer and registration process runs exactly as it would in an estate agency property sale, he says
More tips for first-timers
A two bedroom ground floor unit in Soho Lofts, Broadacres is up for auction through Aucor on Thursday 27 October.
Rule one for the first-time auction-goer is to attend as an observer and get a feel for the method and the auction house, says Winterstein.
Rule two is to do their homework and know what they want to buy, what a property is worth and what they are prepared to spend. “It’s very easy to get caught up in the excitement and sheer adrenaline rush of an auction, and then to experience a strong case of buyer’s remorse afterwards. “
Winterstein has the following additional advice for buyers to ensure they are familiar with certain points unique to a property auction:
- When buying fixed property, always be sure to discuss the property with the agent and get a copy of the fact sheet that will give all the insight necessary to make an effective buying decision.
- Ensure that they understand prevailing market conditions.
- When registering as a buyer, ask for a copy of the Conditions of Sale and ensure that they are familiar with the contents.
- Make financial arrangements prior to the auction sale.
- Ask the auctioneer and his team any questions before the sale
- Make good use of viewing days and inspect the property fully before the sale commences.
- Watch, listen, ask and bid only when they feel comfortable to do so.
- Once you have registered as a buyer at a property auction and you make a bid, whether verbal or by raising your hand, it is considered binding, even if purchase papers have not been signed.
Levitt says buyers should also read the details such as the zoning, any outstanding rates and taxes owed, or the property rules if owned by a Body Corporate, prior to the auction. “All auctioneers should disclose this information in the form of bidder’s packs to buyers but I still would recommend inspection reports.”
So can you get a bargain?
This luxurious triple storey home in Dainfern Valley Estate, Gauteng offers 5 bedrooms, 4 bathrooms, spacious entertainment areas and more. It is being auctioned by Auction Alliance.
Selling on auction does not mean selling for less, says Smeidt as “when the market dictates the price then that is the market value”.
He says that it sometimes does happen that a bargain is found on auction but notes that an auction is where people bid openly in a competitive environment which can also result in record sales prices.
Levitt says in general, right now, he does think there are bargains out there and buyers are often getting houses at below replacement value. “Auctions determine true market value, and it is my view that in our current market, many sellers have a distorted perception of market value. “
Winterstein says it all depends on the specific property and how competitive the bidding is. “Buyers name their price and as long as they have done their homework in terms of knowing prices for similar properties in the area in question, understanding market value and knowing when to cap their bids, they should get a fair price. “
According to Levitt auctions came of age during the last property boom and now in the residential property sector they are a preferred method to sell distressed properties. “With the introduction of the Auction Laws through the Consumer Protection Act, the auction industry is highly regulated with a number of laws to protect the buying and selling public.” - Julia Hinton
Readers' Comments Have a comment about this article? Email us now.
What your article and the auctioneers fail to mention is that if a person bids on auction, pays the deposit and auctioneers commission and then fails to obtain finance, they lose their deposit and commission. All too many times people bid thinking that they will easily obtain finance only to come short later when the banks reject their application leading to the being put back on auction. Buying the auction way is only for people who have cash and is not recommended for people seeking finance afterwards as the risks are too high. - Arthur
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