Interested observers will have noticed an increasing number of On Auction signs lately among the For Sale signs on homes in Johannesburg’s northern suburbs – and there’s good reason for that, says Denese Zaslansky, CEO of the Johannesburg-based Firzt Realty group, which has its own auction division.
READ: Deceased estates offer excellent property investment opportunities + tips to purchase via auction
“There are more sellers than buyers in the market at the moment and stubborn inflation and high interest rates are still keeping a lid on demand, so sales by traditional means are slower than usual, but many owners are in a hurry to sell, and they are increasingly finding that the best way to get the fast results they want is to put their home on auction.
“As property professionals, we often come across owners who need to sell fast, to meet a deadline on relocating to take up a new job, for example, or because they need to liquidate funds for debt reduction or other investments, or because there has been a sudden change in their family circumstances. Others simply don’t want to deal with lots of viewings by potential buyers. And our advice to such sellers is usually to put their home on auction.”
Consequently, she says, real estate auctions are no longer automatically associated with home repossessions or seen as a desperate attempt to finally sell a dilapidated or derelict property that has proved unsaleable by other means and has been on the market far too long.
“One of the biggest advantages of sale by auction is that both sellers and buyers get an instant snapshot of the exact value that the market – represented by the bidders at the auction – currently puts on the property. However, if you’re a property owner interested in selling on auction, it’s vital to first consult a property professional who can help you to determine if this is the best approach in your specific situation.”
Zaslansky says some other advantages of selling on auction include:
*Intensive marketing and short timeline: Auction properties often benefit from targeted and intensive marketing efforts designed to attract as many interested buyers as possible within a short timeframe and increase the chances of a achieving a successful sale quickly.
*Serious buyers: Buyers attending auctions are usually serious cash investors, reducing the risk of deals falling through due to financing issues.
*Competitive bidding: Auctions create a sense of urgency and competition among buyers that can encourage them to offer more for the property than they might in a private sale.
*No negotiations: The auction process eliminates lengthy and potentially stressful price negotiations, as the highest bid at the auction is typically final. Auction sales are generally also unconditional, meaning they don't depend on the buyer being able to obtain finance, for example. Once the hammer falls, the sale is legally binding, as long as the reserve price (minimum net price set by the seller) is met.
*Lower holding costs: A quicker sale means the seller can avoid the ongoing costs associated with holding the property while it is transferred to the new owner, such as rates and taxes, insurance premiums and maintenance costs.
*Zero commission payable by sellers as this is added to the bid made by the successful buyer.
Meanwhile for property buyers, she says, the additional advantages of purchasing on auction include:
*Motivated sellers: The owners of properties on auction usually want to sell quickly, which can lead to lower asking or reserve prices.
*Speed and efficiency: The auction process is typically faster than traditional home buying. Once the auction ends and the bid is accepted, the transaction moves ahead quickly to transfer of ownership. This eliminates the uncertainty of waiting for a seller to accept an offer and the potential stress of protracted price negotiations.
*Transparency: Auctions are transparent, with bids being visible to all participants, so buyers can clearly see what competition they have and make more informed decisions about the value of the property.
“However, it’s also critical for potential buyers to conduct thorough research and due diligence before participating in a home auction, and to understand the risks involved so that they can be sure they are making a sound investment decision. At Firzt, for example, we don’t handle Sheriffs’ auctions of repossessed properties. Our auction properties are sold with all compliance certificates in place, which adds to buyers’ peace of mind.”
Additional information:
Giel Viljoen, Principal at Leapfrog Stellenbosch, offers advice on how to best deal with a distressed property.
Distressed is the term used to refer to a property where the homeowner can no longer afford the bond repayment and has consistently missed payments - the property is then “distressed”.
Act fast, and decisively
The moment you realise you may not make your next payment is the moment you need to get in touch with a property advisor as well as the bank with which you have the mortgage. Be upfront about your situation. Inform the bank of your position before they take legal action, while at the same time working with a trusted agent to get the property on the market as soon as possible.
The goal here would be to sell the property as quickly as possible to recover costs and settle with the bank before they take the legal steps that put the foreclosure process into motion.
Take note
Work with a reputable property advisor to ensure the selling price is exactly right for the market. The right price almost guarantees a faster sale, which in turn can help to minimise further loss.
Furthermore, if there is any equity in the bond, selling faster means there’s a chance of covering both the outstanding bond and other debt with the proceeds from the sale.
Being forced to sell your property because of a change in your ability to afford is a terrible fate, and one that few homeowners anticipate. It’s crucial to act fast and sell as quickly as possible - before the debt burden spirals out of control. It’s also important to maintain a favourable credit record, for when the tides turn, and you’re in a position to afford a property again.
Sheriff’s Auctions (Sales in Execution)
Sheriff’s auctions happen when a bank is forced to take legal action against a property owner who has defaulted on their loan and is unwilling or unable to collaborate on a solution.
“These court-mandated auctions are about debt recovery, not about big profits,” says Jovanovski, “which means you might find properties going for a little less than their actual market value.”
Standard auction costs
In addition to the normal property purchase costs, like transfer duty or VAT and conveyancing fees, Jovanovski says successful bidders will also need to prepare for some immediate costs on the fall of the hammer.
“Auctions move quickly,” she says. “All the sale documentation is signed as soon as the bid has been awarded. As part of this, the successful bidder will normally need to put down an immediate deposit of 5%, and pay the auctioneer’s commission of another 10% plus VAT.”
Potential hidden costs and complexities
One of the biggest risks of buying on auction is the fact that auctioned properties are sold as is, and buyers need to view the property in person before the purchase and do their DD.
“The title deed, property plans, and zoning certificates are normally available before the auction, and all effort is made to provide an accurate bidpack of the property. All agents ensure that a defect list is completed. Although we sell the property Voetstoets, we have to give full disclosure of any known defects disclosed by the sellers. That said, it’s always smart to budget for some extra expenses like repairs or renovations, or even eviction expenses if the property is occupied.”
Despite the potential challenges, Jovanovski says buying on auction is still one of the best and most exciting ways for savvy investors to secure unbeatable value.
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