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Benefits of selling or buying property at an auction

11 Jan 2018

The misconceptions that auctions are reserved for distressed properties or that it is a hunting ground for bargains are steadily being corrected as more and more people opt for the auction floor as opposed to traditional real estate channels.

Jonathan Smiedt, CEO of Claremart Auction Group, says the auction process has seen much success in the property market for many years, and selling on auction can realise more for your asset due to its competitive mechanism. It provides the seller with fair market-related prices and creates opportunities for buyers to acquire property at a price they are comfortable with.

Then and now

“In short, you have a process that is strictly regulated, transparent, and offers instantaneous results, as well as value for money for the buyer and the seller who retains control, can make informed decisions and have the right to set their price at an auction,” says Smiedt.

Given the financial climate 10 years back, many property auctions occurred as a result of company closures or liquidations where the creditors, appointed liquidators or trustees preferred to use the auction method to dispose of assets.

Banking institutions have for some time been using the auction process to sell property successfully, based on its transparent and arms-length process, and have achieved excellent results. These results are achieved through a larger pool of buyers and investors, with a low cost to creditors.

Qualified buyers

Normally, the lack of financing is a common hurdle to selling property out of hand or through a broker where a high percentage of deals may not be approved by finance companies or banks and therefore fail, leaving the seller without a result.

Auctions open up the market for a seller on a cash and voetstoots basis with qualified buyers coming fully prepared to make property investments. While buyers may still obtain finance to pay for the property, the purchase is not subject to them obtaining finance.

Voetstoots applies

Managing Director of Gillan & Veldhuizen, PJ Veldhuizen, says Section 55 of the Consumer Protection Act - Consumer’s Right to Safe, Good Quality Goods - does not apply to goods bought on auction.

“The basic purpose of the voetstoots clause is to protect the seller from any action by the buyer, on discovering any defects neither were aware of when transacting, to jeopardise the actual sale contract. But it is important to note when the consumer’s rights, provided by Section 55, do not apply to a transaction,” says Veldhuizen.

The price is right

The savvy seller or investor knows that the auction route is instrumental in achieving a better price where good demand exists, or producing a result for a seller where no demand exists.

In particular, auctions are able to produce a sale where a seller requires urgent disposal while traditional marketing and sale methods have not been able to produce any significant result. Auctions show a higher confirmed sale rate than that shown by the traditional disposal methods.

Smiedt says he has seen an ongoing increase in both in the number of properties on auction, as well as in the demand for such investment opportunities.

“It is a testament to the strength of the auction mechanism that it can outperform the traditional market under both good and bad economic circumstances, and most notably has been responsible for the sale of many a property that has been listed too long on the market due to incorrect pricing at the outset,” he says.

“In short, you have a process that is strictly regulated, transparent, and offers instantaneous results, as well as value for money for the buyer and the seller who retains control, can make informed decisions and have the right to set their price at an auction.”

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