When people think auction, they think BARGAIN! We think about getting a car on the cheap or maybe picking up appliances at really good prices. But when it comes to property, what may seem like a bargain could end up costing a small fortune. Let’s go into a bit of detail about property auctions and how you can avoid pitfalls and maximise on getting the best deal possible.
Firstly, why are properties on auction?
There are various reasons and in these difficult times where people have lost income due to COVID, a lot of the houses on auction will be there because the owners could no longer afford them and defaulted on their loan. This means the bank takes over the property and will now need to reclaim some of the outstanding debt through selling. This is the most common reason for the auction.
Next, there are people who want to sell fast. An auction does just that by avoiding lengthy inspections of potential buyers when listed through Real Estate Agents.
Another reason could be that the property is in very high demand and the seller would like to make sure they get the very best price possible by letting buyers go head to head on a very attractive property.
A property could also be auctioned when it’s in really bad shape and needs vast renovations or even demolitions. This is when construction companies or developers would see the derelict property as an investment.
And the final reason is that a property is unique and not usually one that would be sold through traditional means, for instance, a petrol station wouldn’t be sold through a property site, so an auction would be the best place to sell. These auctions usually apply to shopping malls, industrial zones but even lighthouses have been known to go on auction.
So, where would you find a property auction?
In South Africa, we have a wealth of property auction houses that you can approach if you’d be interested in buying or selling. They gladly allow people to come and observe auctions to get a feel of how they work upfront. They’re simple to find and a web search will give you all the options you need.
What if I want to actually participate in an auction?
Here’s where it gets interesting because as a possible buyer you’ll need to understand a few things.
Firstly you’ll need to register as a bidder and you’ll most likely need to put down a deposit, this will vary according to the property value on auction.
The properties that are on auction can’t be inspected prior to going under the gavel. Risky, yes, but great if you do a little homework upfront. For instance, pay close attention to the property value and the auction pack provided. Then do some research on the properties in the area and what they’re selling for to give yourself an idea of values. Also feel free to ask the auction house questions about the property, which they will usually be able to answer.
Because you will need to put down a 10% deposit immediately after you win a bid, you need to be financially ready to do so. By doing so you bind yourself to the property and usually have a month to come up with the funds for the sale, whether it’s cash or a bond. A great idea is to go into an auction with pre-approval of a bond or loan so that you know you’re ready for it.
Lastly, make sure you understand what you’re getting yourself into as a bidder, there are bidder’s obligations in many events and bidders pay the auctioneer’s commission. These commissions could reach as high as 10% of the property value and are added on top of the bidding value you agreed upon.
At the auction, there will always be a reserve price for any property. This means the owner won’t sell until a minimum price is reached. If you have ever watched The Block on DStv, you’ll know that when it comes to auction day, that reserve price is the big target. Once the auction crosses that reserve price it’s fair game and can go up until the winning bid is reached. Should the bids not reach the reserve, often the seller will negotiate with the highest bidder until an agreement can be reached or will not sell at all.
A last word of auction advice
Yes, an auction is a great way to get a great price on a property, but you can be left exposed. So, please do as much research as you can and make sure the property is what you’re looking for before you raise your hand at that auction – it’s not an impulse purchase. If you’d like any more sound auction advice why not talk to us direct, by emailing terry@reeflords.co.za.
Don’t forget to check out our Facebook and LinkedIn pages – Reeflords Property Development. Think Home, Think Reeflords.
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