Auction Tips for Buyers

1. Ten most important tips buyers must know when buying on auction

The tips contained herein are meant to introduce buyers to the auction method with a view to make their auction experience an interesting, hassle-free and rewarding one.

1.1. Auctions are for everybody

Auctions are for everybody, and they offer value for money deals for all asset categories; including vehicles, residential and commercial properties, vacant land, game, livestock, artwork, office and household furniture and many more. Anyone can participate in auctions. Don’t be intimidated by the auction chant and miss out on great deals.

1.2. Do your homework

Auctions are conducted on a “voetstoots, as is, where is” basis, with no cooling off period, warranty or duty to repair by the seller. Therefore, it is advisable for anyone interested in participating in an auction to conduct due diligence and inspect the assets on auction, research market prices and familiarize themselves with the rules of auction. Buyers are advised to engage third parties such as building inspectors, appraisers, real estate agents, attorneys mechanics and any other experts to assist them with their buying decision, if need be.

1.3. Auctions are conclusive transactions with no suspensive conditions

Auctions are conclusive transactions and have no suspension conditions. Do not buy on auction unless you are good for the money. Although the settlement of immovable property is effected upon transfer, the fact that immovable property is also auctioned on a non-suspensive basis implies that buyers will not be allowed to bid on a conditional basis. However, the perception that auctions are cash only transactions is not true because bank finance is available for all asset categories. But your finance must have already been approved before you participate in an auction.

1.4. Registration and refundable deposit

Only registered buyers allocated bidders cards are allowed to participate at auctions. Make provision for enough time to register before the auction starts. It is mandatory for buyers to comply with FICA requirements (proof of address and proof of positive identification) for them to register and participate in auctions. Buyers are often required to pay a “refundable” registration fee in order for them to participate in an auction. The amount of the registration fee differs, based on the value of the assets on auction. The registration fee is refunded to buyers who do not buy anything during the auction. Successful buyers have the option to claim their registration fee or use the money in part-settlement of their purchases.

1.5. Protect your bidding card at all times and don’t lend it to other buyers

Your bidding card is money, protect it at all times and never lend it to other buyers at an auction. Auctioneers do not divide or split invoices at the end of auctions, so if you allow someone else to use your card, you will be liable for the settlement of the full invoice. And should you default, you will forfeit your refundable registration fee.

1.6. Auctions are emotive and can result in impulsive decisions

Auctions are emotive and can often result in impulsive decisions. Determine your budget upfront and exercise the discipline to stay within your budget. Do not get carried away in the heat of the moment.

1.7. You can’t bid for many assets with a view to select only one or a few

Most first time auction buyers make the mistake of bidding for more than one items during the auction, with a view to select only one or a few items at the end of the auction. You cannot buy more than one assets with the purpose of choosing one asset at the end of the auction. You have to pay for all the assets you buy, failing which you will forfeit your refundable registration fee over and above other additional claims.

1.8. Factor additional costs into your purchase price (hammer price)

The hammer price, or the price at which the auctioneer knocks the asset to you does not represent the total amount payable. Factor additional costs such as buyer’s premium, VAT, transfer duty, administration fees, and any other miscellaneous costs into your biding price. However, do not add up the amounts on your own, but ask for a pro-forma invoice from the auctioneer before settlement.

1.9. Settle and collect your assets immediately after the end of the auction

Although auctioneers and sellers usually provide security at auction yards, it is advisable to settle your purchases timeously and collect your assets as soon after the end of the auction as possible. All risks transfer to the buyer upon the fall of the hammer, and neither the auctioneer nor the seller will be liable for any damage or loses thereafter.

1.10. Auctions are lawful and transparent transactions with no tricks

Most people miss out on great value for money auction deals because they fear myths such as the belief that auctioneers are crooks who knock bids to unsuspecting buyers merely scratching their noses or waving at someone during the auction. Although bidders should be aware that auctioneers and bid spotters scan the auction floor during live auctions and gestures such as scratching of noses and waving can distract auctioneers, it is a fallacy that auctioneers are tricksters who knock assets to unsuspecting bidders. Although the auction industry is not regulated, the Consumer Protection Act (CPA), No. 68 of 2008 and other laws of the Republic of South Africa protects buyers who participate in auctions. For instance, Section 45 (3) of the states as follows: “A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in any customary manner; and until that announcement is made, a bid may be retracted”.

Auctions tips for sellers

1. Five most important tips sellers must know about auctions

The tips contained herein are meant to advise sellers about the dos and don’ts of using the auction method to dispose their assets, with a view to make their auction experience an interesting, hassle-free and rewarding one.

1.1. Auctions offer sellers many benefits

Contrary to the stigma traditionally associating auctions with the disposal of distressed estates (liquidations, sequestrations, deceased estates and bank repossessions) and the baseless perception that auctions offer bargains, the auction method represents the true fundamentals of the economic principles of supply and demand with many benefits to sellers including those listed in the table below, compared to conventional/ private treaty methods:

1 LIST AND WAIT (LONG LEAD TIMES AND NOT COST EFFECTIVE): The biggest disadvantage of conventional private treaty disposal methods is that assets are merely listed with no certainty as to when the sale will happen. The long lead times are not cost effective as assets deteriorate meantime; be it through wear and tear, acts of vandalism and illegal occupation which necessitate costly eviction. As a result, sellers often have to incur holding costs such as security and insurance. QUICK-TURNAROUND AND COST EFFECTIVENESS: Auctions offer sellers quick-turnaround and timeous disposal of assets; thus saving them (sellers) time, holding costs and the deterioration of assets. Auctions are definitive events which can be staged at very short notice, where a pre-determined date, time and venue is set.
2 SECRETIVE AND TEDIOUS: The fact that the conventional private treaty disposal method is facilitated behind closed doors with the agent acting as a middleman is tedious and secretive; hence buyers usually treat attempts to drive prices up using counter offers with suspicion. OPENNESS AND TRANSPARENCY: Auctions are open and transparent activities which happen in the full glare of the public eye. Live on-site auctions offer buyers the opportunity to congregate in one place and bid for assets. Although online auctions happen behind the scenes, they also offer transparent audit trails.
3 ESTABLISHMENT OF A CEILING PRICE: The problem with conventional private treaty disposal methods is that they establish a ceiling price with the result that buyers tend to negotiate downwards. TIME VALUE OF MONEY: Considering the principle of ‘time value of money’, auctions avoid the devaluation of assets, as a rand in hand today is more valuable than a rand received some time in the future.
4 SUSPENSIVE AND SPECULATIVE: The suspensive nature of conventional private treaty disposal methods sometimes attracts speculative buyers. There is no guarantee that a person making an offer is good for the money and will settle his/her purchases. CONCLUSIVENESS: Auctions are conclusive events where serious buyers congregate to buy assets at the fall of the hammer in a competitive, real time, non-negotiable bidding environment, with non-suspensive and non-speculative conditions. By and large, auctions are treated as cash transactions, with the result that affordability is determined upfront. Although payment for transactions involving immovable assets happens upon transfer, the buyer must have proof of funds on auction day.
5 NOT COMPETITIVE (ONE OFFER AT A GO): A disadvantage of the conventional private treaty disposal method is that it doesn’t always yield the best value as it entertains one offer at a go, and accepts the first best offer with little option for the seller to bargain. COMPETITIVENESS AND TRUE MARKET VALUE: The competitive nature of auctions reveal the true and fair market value of assets. Auctions establish the price floor price and eliminate the price ceiling price. The auction method leverages multiple offers and give buyers the opportunity to determine value independently, in comparison and in competition. Bidding for auction items usually start low, but increases until the highest bidder buys the asset, giving buyers a 2nd, 3rd, 4th and more bites of the apple. With auctions, it is likely for a buyer who initially placed the lowest offer during the first round of bidding to end up being the highest bidder and purchaser of the assets.
6 MULTIPLE MANDATES AND LOCALIZED MARKETING: The fact that the conventional private treaty disposal method usually works on multiple mandates discourages agents from committing most resources (time and money) on the seller’s assets. As a result, agents only list assets locally with no focused attention and aggressive marketing effort requiring extensive investment. SOLE MANDATE AND MARKET EXPOSURE: The fact that auctions preferably work on sole mandates encourage auctioneers to commit resources (time and money) on aggressive and targeted marketing. As a result, auctions reach more buyers because they are marketed and publicized as ‘all or nothing events’ with the hype and excitement that build-up to maximum attendance on the day of the auction.

1.2. The auction method requires sole mandate

The auction method is not speculative and requires motivation, commitment and investment on the side of the  seller. For this reason, selling property on auction can only be done through a sole mandate mainly because of the time, effort and money the auctioneer has to commit on personalized marketing and promotion. Multiple mandates do not work with the auction method as they discourage the commitment of resources into the active marketing and promotion of assets. Who can be motivated to commit time, effort and money when other agents can present a buyer and close the deal with the seller at any time?

1.3. Good auction values are achieved through professional service

High auction values do not come automatically, but are a result of concerted professional service. Sellers should select auction professionals carefully in order to achieve good auction values. Among other factors, the attributes sellers must look for in the appointment of fit and properauction professionals include the following:

1.3.1. Professionalism: Rendering professional auctioneering services involves far more than just bid calling. Much as auctioneering is not regulated in South Africa, and no minimum training standards are prescribed, sellers would be best advised to appoint professional auctioneers. The professionalism of an auctioneer is determined by training, knowledge and skill. One of SAPAA’s objectives is to professionalize the auction industry and auctioneering profession by; among other things, establishing minimum entry requirements into the auction profession, including educational qualifications, experiential requirements, occupational designations and continuous professional development.

1.3.2. Expertise and track-record: Whether it is for vehicles, real estate or livestock, sellers should appoint auction professionals who are specialists and have track-record in the asset categories for which their services are required.