A real estate auction is an exciting environment for prospective buyers keen to make a winning bid on a new home. It’s important to be fully prepared for the extra expenses involved.
Property auctions can be as stimulating and promising as any other auction environment, with many a prospective buyer on the lookout for a bargain. But that’s not what home auctions are all about. Bargains are not guaranteed and there’s no recourse for buyer’s remorse, according to ooba.
With that in mind, Park Village Auctions Director, Clive Lazarus, answers the most frequently asked questions about auctions.
1. Are all assets sold on auction repossessed?
Not all auction assets stem from bank repossessions. Assets can also stem from:
- Voluntary auctions, where a seller chooses to put their assets up for auction.
- Deceased estates, where the executor will choose to realise assets to fulfil the deceased's obligations.
- Business rescue matters, where some assets are sold to raise liquid capital for a business to continue operating; similarly
- Liquidation auctions see all of a company's assets liquidated to satisfy creditor obligations before closing.
See repossessed property for sale
Warren Aronson, Business Development Executive at Aucor Property, says it is important to emphasise the fact that auctions aren’t only for distressed sales (although that is what has historically been the perception) and that sellers and buyers are using the auction platform as a preferred property transaction method due to the various advantages this brings – for example, the speed to market, the competitive bidding environment where the market drives the price, the fact that auctions are non-suspensive and that there are pre-defined terms and conditions on one standardised term sheet where the only variable is price - to name but a few.
“Buyers should ensure that they spend sufficient time with the Business Development Professional who is associated with the property prior to the auction. This facilitates an understanding of the intricacies and requirements involved in the purchase prior to the auction,” says Aronson.
SEE | What buyers need to know about purchasing a distressed property
2. What are the costs to participate in an auction?
At the very least, you must register to bid - a bid taken from an unregistered person is invalid. Most auctions require a deposit to register. The deposit is refundable if you did not purchase anything.
If you win a bid (successfully, purchasing an asset) you are obligated to pay the full amount on which the hammer fell. You also liable for VAT, commission and other applicable auction fees. All costs are announced in the rules of the auction before the action starts.
3. When is my final payment due?
When it comes to property, bidders must know the auction rules before bidding. Often, the deposit; the auctioneer's commission and VAT are due on the fall of the hammer (meaning the same day). Then, there will be a short period in which the buyer must produce ‘guarantees’ for the outstanding remaining amount, which will also carry a deadline.
It is also important to ensure you can finance the purchase
When you bid at property auctions, ooba experts say you must be confident that you will qualify for a home loan (unless it’s a cash deal and you don’t need a bond) because you can’t afford to default on the sale. If you can’t come up with the finance, you could face legal action from the seller.
The payment of the deposit is usually required immediately, in cash, after the winning bid and the auctioneer also requires a commission payment worked out as a percentage of the auction price.
4. Are online auctions safe?
Auctions hosted by legitimate, reputable auction houses are safe. Unfortunately, though, there are opportunist scammers that have jumped on the online auction bandwagon.
SEE | Online property auctions: Dos and don’ts for sellers and buyers
It's best to check if the company is a registered SAIA member. Scrutinise the logo and business details; scammers create very close replications. Verify the business and their banking details and confirm the asset's location. If you're unable to view the asset yourself, send someone on your behalf to confirm its existence - it's always wise to view the asset's condition before bidding, too.
No one should ever feel bullied into a paying a deposit, especially if they have not authenticated the company. All, established auctioneers will be able to prove their details without hesitation.
Clive encourages anyone interested in participating in an auction to ask questions, "Ask as many questions as you need to feel confident. Professional auctioneers who take pride in their craft will gladly assist you because they want to ensure that you have a pleasant auction experience."
Do your research
Property auctions feature an inventory of homes that are sold voetstoots, faults and all. That means that the seller is not legally responsible for fixing any faults after the sale.
Successful bidders at home auctions will also be liable for any outstanding municipal rates, taxes and levies on the property.
It’s therefore important to do your homework beforehand to find out what the market value is of the property you’re keen on, and factor in the potential for additional maintenance and repairs so that you don’t overbid in the heat of the moment.
Estate agents are a useful resource in this regard. They will be able to prepare a comparative market analysis for you, which details actual sale prices received for similar properties in the area.
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