Property Auctions - The myth investigated
Everyone's heard of the word 'auction' at some point. We know it involves bidding. We've heard stories about how people made huge profits through auction and how buyers pick up bargains but what else does an auction involve? How does it work and who is involved? Keep reading to find out!
The Basic Information
First off not all properties sold at an auction are being sold because of some horrendous failure by its owner to repay a bank loan. This seems to be the general impression of what a property auction is!
Contrary to that belief some people actually sell their properties this way on their own through Auctioneers and end up with a quick and easy transaction without much hassle, on occasion they even sell the property for more than it's worth! If you know how it works an auction is a very nice way to sell your property.
Buyers naturally flock to any auction in hopes of picking up a bargain and usually many if not all of them have money to spend, else they wouldn't be there. This is another perk of selling at an auction, you know all the buyers there are interested.
Secondly there are two terms that tend to confuse people, these are; Property In Possession and Sale In Execution.
When you buy a property you usually take out a loan from the bank right? Well if you fail to repay that loan and don't keep up your monthly payments the bank will most likely take legal action and send the Sheriff to kick down your door (he doesn't really do that don't worry).
You might then end up having your property sold at an auction so the bank can get their money back. A Sale In Execution is just a fancy name for a Public Auction and if the bank decides to buy the property at this auction (so they can resell it at a higher price), that property then becomes a Property In Possession. Simple, eh? That's it for the basics, now it gets more complicated!
Information For Buyers
Okay so now you want to run out and go attend an auction so you can buy a property at a bargain price. What do you need to know before heading out? Number one, you can't just show up at an auction and wave R100,000 in the air in a briefcase.
You have to register before the auction takes place and pay a deposit (the deposit varies from auction to auction).
You also need to pay a standard deposit on top of your other deposit if you win a bid, that's usually 10% of the price the bid closed on. Next you have to pay the Sheriffs commission, which also varies from auction to auction and you're also responsible for outstanding levies on the property you just bought. As a standard you have to pay within the next 30 days for all of it.
Suddenly it doesn't sound fun does it? Don't be discouraged, it's not as bad as it sounds! Most of these rules and conditions are put in place to separate those who are serious from those who aren't. If your serious you won't have any problem getting through any of the above mentioned and if you have questions the Auctioneer will be more than happy to answer them.
Keep reading, below are a few tips and pointers to help you out:
- If you've never been to a property auction it would be a great idea to attend a few just to see what you're getting yourself into. The auctions are usually fast paced and intimidating at first, build up a little experience before going to a property auction to buy a property. The people there usually don't mind a few questions from beginners either, talk to them. You might discover some useful info!
- Make sure all your finances are in order before attending an auction with the intention to buy. If you need to take out a loan, take out the loan first and then go to the auction. If you bid on a property and you win that bid you're required to pay within a certain time frame. Last thing you want is to win a bid and then find out your bank isn't going to give you a loan!
- Usually you're able to view properties going on auction before the auction day. Go view a few properties that strike your fancy, take a look around and keep an eye out for damages to the property. Try to determine the actual market value of the property while you're there so you don't end up overbidding for it.
- Make sure you understand the terms and conditions of the property you're interested in. Sometimes one of the terms and conditions is that the person buying the property has to pay all outstanding rates, taxes and service charges. Even though the property sells relatively cheap, the outstanding fees on it might add tens of thousands to the price.
- This is what most people don't know: If the property was repossessed by the bank and sold at auction and you bought it, you are responsible for getting rid of the people living there! The buyer is always responsible for this unless other arrangements have been made between you and the auctioneer or if the property is currently unoccupied.
Information For Sellers
For this let's assume you're not getting your property repossessed by the bank. Let us instead assume you're not in the mood for estate agents and the lengthy wait and processes attached to selling a property normally. Enter Auction!
Now why would you want to do this? Are there any advantages?
The first obvious advantage is that you are almost guaranteed your property will sell at the auction, there's no lengthy 6 to 12 month waiting period where you have to wait for estate agents to find a buyer for you. Negotiations and estate agents (and the estate agent commissions) are factored out entirely. You set your reserve price and bidding begins, ending when the highest bidder wins and that's it.
The second advantage is that you might actually manage to sell your property for more than you were hoping for, combine this possibility with the fact that you get to sell your property 'as is' without having to pay for renovations and don't have to pay the auctioneers commission either (which is paid by the buyer) and suddenly selling at auction looks a whole lot more attractive.
If you're interested in selling your property at auction the first thing you need to do is find an auctioneer. This task can be achieved by browsing your local newspaper, the yellow pages or the internet. Once you found an auctioneer who claims to be reliable there are a few things to look out for, make sure the auctioneer is a Graduate Of The South African College Of Auctioning, make sure he's registered with The South African Institute Of Auctioneers and The South African Property Valuers Profession, is a member of The Institute Of Valuers and is a Certified Estate Agent registered with the Estate Agency Affairs Board. If any of these things aren't present, avoid that auctioneer!
Once you found your auctioneer it's time to get some information from him, get your auctioneer to explain the different types of auctions available. The two types he should mention are Absolute Auctions and Auctions With Reserve. In a nutshell an Absolute Auction is an auction where the property is sold with no pre arranged minimum selling price, whoever bids the highest gets the property. An Auction With Reserve is where the property has a pre arranged and set reserve price that has to be met or bettered. If the reserve is not met the highest bid is temporarily accepted until the seller is contacted and talked to.
Also make sure you assess the value of your property and that you're realistic when you set your price for it. Don't set your price at R500,000 and expect to get R600,000 when you know your property isn't worth more than R200,000. Buyers aren't stupid and will spot you a mile away and will avoid you like the plague. This being said there are things you can do to boost the value of your property, renovate it a bit and fix up what's wrong with it if you want to boost your selling price. If it looks good it will sell good!
Lastly as a seller you should ask your auctioneer to explain all the obligations you have in terms of The Auction Mandate and the Sale Agreement, make sure you understand all the fine print. If you at any point aren't sure about something and your auctioneer doesn't explain it to your liking get a lawyer to take a look and explain things to you.
The Conclusion
You stand to hit off a few bargains as a buyer at an auction but can be equally well off as a seller. The only real skill to auctioning is understanding what it involves and reading the fine print. If you don't really like waiting and don't have a taste for dealing with many people and estate agents then auctions are for you.