PROPERTY AUCTIONS
Do property auctions work?   Well yes, but auctions, like other methods of selling property, should be used selectively, tailored to the needs of the client and appropriate to prevailing economic conditions.

In a sellers’ market when stock is scarce, credit easy and buyer competition fierce, auctioning a prime property in a desirable location such as Cape Town’s Constantia or Clifton Beach virtually guarantees a speedy and usually highly satisfactory result.   After all, it’s a basic rule of economics that scarcity pushes up price – so in a sellers’ market property auctions work astonishingly well!    

Historically, in South Africa’s normally buoyant market and particularly here on the KZN South Coast, property auctions have largely been viewed as a last throw of the dice by desperate sellers.   Bargains are expected – and often secured.   But in the current enduring recessionary climate things are changing!  

Since 2007 deepening recession, a restrictive National Credit Act, stubbornly high inflation and general caution as to where the property market is headed have made traditional methods of selling extremely difficult.    In the current market even an experienced estate agent may take many months to sell a well priced home.   Although interest rates have fallen, they remain extremely high by international standards.   

Sellers who are comfortably off can afford to wait out the market but time is a luxury not available to financially challenged sellers whose creditors are already camped on the doorstep.   It’s in this situation that a property auction may provide an extremely effective and speedy alternative and may be the best or indeed the only way to solve a seller’s problems.

Of course the seller may set a reserve price but should never be tempted to set this too high.   Under present market conditions many less desirable properties fail to achieve even modest prices.   In this market it’s the willing and able buyer, not the seller, who dictates the price.   In a tight spot it’s often a case of, "Needs must when the Devil drives!"      The best recipe for achieving success at auction, as for achieving a quick sale by any other method, is realistic pricing!  

The first and greatest advantage of an auction is speed.   (A well organised sale may be concluded within as little as four to six weeks).   The second advantage is certainty.   Fortunately not all of those who attend property auctions are bargain hunters and in the heated atmosphere of the auction room purse strings are often loosened and eager and innocent punters can sometimes push prices to quite unexpected levels! 

However, novice buyers should be aware that in the auction ring every bid is binding. Unprepared purchasers can forget about requesting time to obtain a mortgage or insert suspensive conditions – here cash is king!   On the other hand experienced buyers will be prepared to secure their purchase with a "cash" deposit of between 10 and 20% on the fall of the hammer.   Confirmation of sale is virtually immediate and guarantees payable within thirty days of sale ensure the speediest possible transfer.

In the present recessionary climate banks are increasingly unsympathetic towards delinquent bond holders.   Remaining in arrears for three months or more may result in repossession, black-listing and as Charles Dickens might have put it, ruin and misery!   Hope is said to spring eternal but don’t be tempted to put off a decision until your home is finally repossessed and sold off at a bargain price by sheriff’s auction.   The price is unlikely to be high and you will remain responsible for substantial costs as well as any outstanding balance of the bond!

So what will an auction sale cost a seller?    A traditional estate agency sale requires no up-front payment but a commission of between 5% and 7% plus VAT will be payable to the agent on transfer of the property.  On the other hand auctioneers normally require an up-front payment to cover agreed advertising costs, auction signage, posters and a small guaranteed appearance fee. After all, an auctioneer is in business to sell property, not to advertise it!   However, unless the property is particularly expensive or unusual, these up-front costs can be kept to a minimum and since the buyer pays the auctioneer’s commission substantial savings are often possible weigh up your options If you are in financial difficulty and the amount outstanding on your mortgage bond is less than, say, 70% of the potential sale value of your home, there is still hope!   And remember that an auction sale is designed to achieve a result in the shortest possible time.   It is therefore a viable alternative for highly motivated sellers such as overseas residents, urgent emigrants, divorcing spouses, heirs wishing to wind up estates and others who are under pressure to settle their financial affairs in the shortest possible time. 
 
Under certain circumstances it’s certainly worth considering – and we can help!  

Allen Denton-Miller
Denton-Miller Estates cc
+27 (0) 39 695 0203
+27 (0) 72 717 7771
E-mail: denton.miller@mweb.co.za
www.natal-south-coast-estates.co.za

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