Auctions in the property industry

There are a number of reason why properties are sold on auction, including:

• Voluntary auction by the owner – the purpose in this case is often to get a better price or to ensure a quicker sale by gathering multiple buyers together in one place.

• Deceased estate auctions – In a will, a testator may indicate that the assets in his or her estate must be sold by auction or an executor may elect to do so should it be required for cash flow.

• Divorced estate auctions – Divorcing parties may agree in their settlement agreement that an asset will be sold by auction.

• Bank auctions – A type of voluntary auction arranged by the bank where a distressed seller (an owner who is in arrears with his bond payments) is given an ultimatum by the bank to sell the property at auction. The auction sale is however subject to the bank accepting the bid.

• Sheriff auctions – Also known as a sale in execution, this is where a creditor (bank / body corporate / homeowners association) is unable to rehabilitate the debt and can see no chance of recovering funds from the registered owner of the property. The creditor then applies to the court to attach the property and sell it to the highest buyer.  

Preparations for the auction

Before attending an auction, there are some important points of preparation to be done by an interested purchaser.

Firstly, any potential purchaser should view and inspect the property in question. Because all properties on auction are sold “voetstoots”, a buyer will not have any recourse later regarding any property defects and a pre-purchase inspection allows a buyer to make an informed financial decision.

Secondly, potential purchasers should do their homework regarding the property and the area ahead of the auction. The auctioneers should be able to supply a copy of the title deed, building plans, occupancy certificate, zoning certificate and current lease agreement (if applicable). It is also worthwhile to obtain the outstanding amounts due to the local council, body corporate and/or homeowners association from the relevant body.

Thirdly, a buyer looking to purchase property on auction should obtain a copy of the conditions of sale from the auctioneer.

And lastly, it is important to arrange finance prior to the auction. Auction sales are non-suspensive, meaning that the bidder who wins the auction will have to pay the auctioneer’s commission and deposit immediately and provide a guarantee for the balance of the purchase price shortly thereafter.

At the auction

Once at the auction, a potential purchaser must register as a bidder and get a number for the specific auction. At this point, a purchaser should also check whether there have been any amendments to the conditions of sale.

Each bidder will receive a copy of the order of sale sheet and find out the lot number of the property.

A sale by auction is completed when announced by the auctioneer with the fall of the hammer as stipulated in terms of the Consumer Protection Act and no bids made after the fall of the hammer will be taken into consideration. Once the auction has been completed, the winner of the bid will be asked to sign off the conditions of sale and make payment of the commission and deposit.

The buyer should also double check the conditions of sale relating to when risk of the property will be passed as he or she might need to arrange for building insurance for the property from date of auction.  

Applicable legislation

All auctions are regulated by section 45 of the Consumer Protection Act (CPA) together with regulations 18 – 33 of the same Act.

The purpose of the CPA is to promote transparency in an industry where, until recently, the consumer’s rights have been shrouded in ambiguity. Amongst other things, the CPA deals with advertisement of auctions, transparency of auctions, auctioneer fees and charges, retraction of a bidding prior to the fall of the hammer, the prohibition of mock auctions and penalties for non-compliance.

As previously stated it’s critical to go thought the conditions of sale prior to the auction. These condition will stipulate if a purchaser will be held liable for all the outstanding rates and levies and if he will be held liable for the issue of the compliance certificates which are normally paid by the seller.

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Written by Wessel de Kock

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