Commercial asset class leads auction sector in 2021

Commercial asset class leads auction sector in 2021

MAIN IMAGE: Ryan Swart, Head of Auctions at Swindon Property

Staff Writer

Buying and selling property via auction, has fast become a preferred method for many investors and sellers alike. It’s exclusive nature, makes it far more attractive with more than 90% of all auction properties being privately elected for sale by the seller dispelling the myth that auctions are used to sell only repossessed or distressed properties.

According to Ryan Swart, Head of Auctions at Swindon Property, 2021 was a very good year for the auction sector thanks to low interest rates and low commission, opening the door for new players to enter the market. He affirms that the company saw over 80 properties going under the hammer, 46% of which were investment property while 54% vacant property.

These bids resulted in an excess of R250 million equating to R90 million worth of sales. Asset class spread put commercial property at the forefront (50%), followed by retail (19%), industrial (14%), hospitality (7%), vacant land (6%), agricultural (2%), residential (2%), making it an incredible year with the market showing resilience throughout a difficult economic climate.

Auction sales are on the rise in South Africa and have grown by a huge margin of 40% during the past few years. However, despite the trend, it would be wise to realise that buying a property on auction does not necessarily mean that you will always be getting a good bargain.

Auctions are regulated by section 45 of the Consumer Protection Act 68 of 2008 and it is important to know the rules of the auction game long before you decide to get involved.

Types of auctions

There are many different types of auctions and it’s vital that to familiarise oneself with the protocols before engaging.

 

Voluntary Auctions

This is where the seller places his/her property on auction in anticipation of achieving the highest purchase price for the property. Often, the seller will set a reserve price which means the sale is subject to the seller’s acceptance. This type of auction usually favours the seller and not the buyer.

Bank Auctions

This is where the bank voluntarily places the property on auction because the seller is significantly in arrears with their bond payment. Bank auctions favour the buyer as the properties are usually sold at a reduced amount with the usual warranties, and on transfer the seller becomes liable for the rates and taxes.

Sheriff Auctions

Sheriff auctions are where property is sold in execution. The court issues a judgment for the property to be attached and sold to settle debts owed by the owner – this is carried out by the sheriff of the court and sold to the highest bidder. The property is sold voetstoots, which means ‘as is’ and the buyer will subsequently have to settle all outstanding debts on the property. In most cases the bank purchases these properties themselves.

Property in Possession (PIP)

When the bank purchases a property at a sale in execution this property is known as PIP. The bank usually does this at a high cost to themselves and when reselling the property, they ensure that the purchase price is high enough to compensate themselves for the monies they have spent.

Types of houses on auction

Regular property that is for sale by owners who are not keen to wait it out in the property market.

Sale in execution. These are properties where the owner has fallen into financial trouble. Banks often send their own representatives to these auctions and sometimes the banks will buy back the properties themselves.

Property in possession. When a bank buys back a property at a sale in execution, it becomes a repossessed property or a property in possession.

With interest in auctions on the rise, Swart shares a few tips and insights for investors looking to get involved.

First steps for buyers   

  • The auction lots are first advertised approximately six weeks prior to the actual auction event, and during this time buyers are expected to have done their due diligence and ensured they have the necessary finance in place.
  • This means arranging a viewing with one of our brokers, familiarizing themselves with all the inclusions and exclusions, zoning, rental streams and expenses, the condition of the property, registering on our website as a bidder, submitting all paperwork required by FICA.

Benefits for buyers

By accessing online auction platforms, buyers can view all properties on auction from the comfort of their home. They can consult a qualified and experienced broker to help them with their due diligence. Every step of the process is transparent, and buyers end up paying an acceptable market value for the property. They also get to deal with serious sellers who price correctly and are in line with market expectations.

Benefits for the seller

Auctions are a safer and quicker way to find serious buyers who are required to undergo a stringent pre-screening analysis to qualify before participating. Brokers are more inclined to apply themselves to marketing the property as well as streamlining the online auction bidding process from start to finish.

This would include the uploading of all necessary documentation onto the auction platform and facilitating viewings on the seller’s behalf.

Fees

Most auction houses charge an auction registration fee to secure serious bidders and buyers need to pay a fixed refundable registration fee upfront of up to R50 000. Once the sale goes through after the auction, an additional 10% property deposit and a 10% commission is charged.

Some auction houses do things differently. Some have excluded the registration fee required and only require the 10% property deposit after the seller accepts the offer, along with just a 5% commission.

Bidding type options

To keep the bidding process simple, there are several ways one can participate online. A buyer can put a proxy bid on the table or appoint a proxy bidder on behalf of oneself or an entity with a predetermined bidding amount which is regulated and kept confidential.

This process is used to appoint a representative who bids on a buyer’s behalf, should they not be able to attend themselves. Alternatively, bidding can also take place over the phone.

Timeframe 

The sale cycle of an auction is between six to eight weeks. 24 hours after an auction, buyers are required to sign the deed of sale after which it is presented to the seller to approve. The seller then has 24 – 48 hours to approve the sale, once approved the buyer has 30 calendar days to finalize the guarantees.

Price

Investors will invariably associate a certain value on the property in line with its rental income streams and associated expenses and the resulted yield, whilst end-users may attribute value to the property based on its sought-after positioning or even its versatile configuration.

The price that a property will fetch at an auction is market driven and the auction process allows for a competitive bidding environment which extracts the true value of the property.

Quick questions about auctions:

What do I need to attend a property auction?

  • You’ll need to apply for a bidder’s card at the venue
  • All you need are your FICA documents.

Can I inspect a property before attending the auction?

In many cases you will not be able to inspect the property before attending the auction. You can try a drive-by viewing, but if this is not enough to set your mind at ease, you should ensure the auction you are attending does allow for home inspection.

Important things to remember:

  • Ensure you can finance the purchase and have a deposit ready, as well as commission.
  • Get prequalified -it is a process conducted by bond originators such as ooba Home Loans when they help you work out what you can afford on your monthly bond repayment, and what home loan amount the bank is likely to approve you for. They’ll also check your credit score, to see if you qualify for a home loan. You will need your ID, proof of residence, proof of income, details of monthly expenses, last three months’ bank statements and a list of assets and liabilities.
  • Read the sales contract – and ask questions
  • Do your research – successful bidders at home auctions will also be liable for any outstanding municipal rates, taxes, and levies on the property. It’s therefore important to do your homework beforehand to find out what the market value is of the property you’re keen on, and factor in the potential for additional maintenance and repairs so that you don’t overbid in the heat of the moment.
  • Attend auctions as an observer as part of your preparation.
  • Find ways to evaluate the property – ask the auctioneer for copies of the title deed, the site diagram, the property plans and the zoning certificate if relevant. Being able to inspect the property yourself before the real estate auction will prove invaluable in terms of assessing the condition of the property. Seeing the property beforehand might pave the way to making an offer to purchase.
  • Be prepared to seal the deal – be sure of your bid strategy because if you secure the winning bid at an auction, there’s no going back.
  • Check the conditions of sale – Take a closer look at the Conditions of Sale before you decide to participate in a real estate auction as these can be amended until the auction date.

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