4 external factors that impact on property sales

 

There are few investments that can have as much of an impact on a person’s financial well-being as purchasing a property. Not only can it affect the buyer’s current financial standing, but their long-term financial prospects as well.

 Property Auctions In Cape Town, Western Cape. Get a full list of new repo houses on auctions in Western Cape.Wherever possible, Goslett says buyers should do their research and make sure that they are as well informed as possible before they take the final steps toward becoming a homeowner.

This is according to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who says this is why it is so important for people to take their time when making the decision to purchase a property and to consider all aspects that could have an impact on that decision.

“For the majority of the population, buying a home will be the largest financial purchase that they will ever make, and the property itself is likely to be their largest asset,” says Goslett.

“Owning a property is considered by many as a measure of success. In fact, many place more value on owning a home than any other type of investment.”

However, he says there are a number of factors that should be carefully considered before a consumer can realise their dream of becoming a homeowner.

“These aspects are often out of the consumer’s control, but will have a bearing on the property market and should influence the decision to purchase a property,” says Goslett.

He says all potential home buyers should make themselves aware of these factors before they set out on their journey to buy a home.

“It is important to look into these influences as they can change the market dynamics and the environment in which would-be homeowners find themselves,” says Goslett.

“Understanding how these factors control or change the property market will help to empower potential property buyers with the knowledge to assess the changes they need to make in order to make a sound property purchase decision.”

He discusses a few of the external influences that could impact the property market:

1. Economic factors

Potential buyers have started to prepare for homeownership by saving up for deposits and reducing their debt levels, says Goslett.

Issues such as rising electricity tariffs, the price of petrol and the rate of unemployment will all have a bearing on the housing market.

This is because these economic factors place pressure on the population and their affordability ratios. Needless to say, if the country’s economy is struggling or experiencing negative trends, it will impact on consumers and their ability to afford a property purchase.

The state of the greater economy will directly impact the state of the housing sector. An increase in living costs will likely result in fewer consumers being able to show the necessary affordability levels to qualify for home loan finance.

2. Access to home loan finance

Before the global recession impacted South Africa, the National Credit Act (NCA) was introduced to nullify the effects to the economy as much as possible. While the NCA did have the desired effect, it also brought about much tighter qualifying criteria for home loan applicants.

As a result the bond approval rate decreased from around 80% to below the 50% mark. This in turn resulted in the lowest level of property transactions experienced in the last decade occurring during 2009 as fewer buyers had access to home loan finance, therefore fewer were able to purchase property.

While criteria for bond approval have remained relatively stringent, the approval rate has improved as banks have increased their appetite for risk and more consumers are making the necessary financial provisions to meet the lending requirements of the banks.

Potential buyers have started to prepare for homeownership by saving up for deposits and reducing their debt levels.

3. The interest rate

“Although buyers cannot control external factors, it is important that they take them into account when making their property buying decision,” says Goslett.

Most consumers who purchase a home are reliant on the bank to finance the deal, and as result they are heavily affected by the rise or fall of the prime interest rate.

Even if the home buyer opts to link their bond to a fixed rate, the rate they are given is still influenced by the prime rate.

If the rate is considered by consumers to be on the low side, they are generally more inclined to enter the property market, whereas higher rates would have potential buyers thinking carefully before making an investment.

An increase of 1% in the prime interest rate will result in a monthly bond repayment increase of R657.76 per million. Increases in the interest rate generally slow the market and affect buyer’s affordability levels.

4. Legalisation

With the introduction of the NCA a prime example, legislative changes can have a massive impact on the property market and how business is concluded.

Over the past few years there have been several legislative changes that have influenced the property market, such as the Credit Amnesty Bill

Legislative changes to the real estate agent qualifications also had an impact on the market, with buyers and sellers now more assured that they are working with a qualified industry professional.

“Although buyers cannot control external factors, it is important that they take them into account when making their property buying decision,” says Goslett.

“Wherever possible, buyers should do their research and make sure that they are as well informed as possible before they take the final steps toward becoming a homeowner.”

Source – Private Property

Buying a home? Make sure it’s an investment

Throughout the course of our lives, there are three important lifestyle decisions which nearly all of us are likely to face, and all three have huge financial implications. These are the car you choose to drive, the school you send your children to and, possibly the biggest decision, the house you choose to live in.

Cape Town Auctions | Auctions in Cape Town | Auctions in Western CapeO’Mahony says with property, it’s best to push your financial envelope as much as possible. Therefore, don’t just consider your income today, you should be looking five years ahead.

This is according to Barry O’Mahony, founder ofVeritas Wealth, who says property is everyone’s favourite asset class, particularly in South Africa.

“First of all, it’s a brick and mortar investment that we live in, making it more tangible than nearly all other investments. This gives us the legitimate feeling that we are getting something for our money,” he says.

“Property also has the potential to be a terrific investment, which we have seen over the past 20 years with South Africans having made more money off property investments than any other.”

O’Mahony says what everyone forgets is that property is normally the only asset class that you borrow money for in order to purchase.

For example, if you invest R300 000 in an equity fund, let’s say you get a return of 15% per year on your money. But if you put R300 000 down as a deposit on a R1.3 million home and bond the extra R1 million, when it comes time to sell your home you will probably have made a lot more than the 15% on your R300 000.

However, he says you need to remember that you will have paid interest on your R1 million home loan.

So what all this means is that when you buy a property, debt is a huge part of the equation, and the level of debt you commit to is critical, he says.

O’Mahony offers the following advice to buyers considering property as an investment:

1. Get into the market as soon as you can

“The earlier you start buying property, the greater the long-term benefit. Good advice to young adults, especially if they’re single, is to buy a property and get friends to help pay the home loan.”

He says you can do this by taking on roommates who will pay rent. It may be tough at the start, but well worth it in the long run.

2. Project your income in five years’ time

O’Mahony says with property, it’s best to push your financial envelope as much as possible. Therefore, don’t just consider your income today, you should be looking five years ahead.

For example, if you are a young management consultant, article clerk or new in any business, look at what someone five years ahead of you is earning and use this as a benchmark.

Equally, if you are an established professional and you are close to capacity, he says you must realise that the likelihood of getting increased income is lower, and you need to cut your cloth accordingly.

“It’s worth noting that within the professions, pressure to keep up with the Joneses is prevalent. In both cases, being realistic about your future earning power will prevent you from having to sell and buy repeatedly, a costly mistake that can hinder your long-term financial well-being,” he says.

3. Stretch yourself – then stay in place

Changing houses costs money and property transactions are hideously expensive, he says.

O’Mahony says you want to aim for making as few moves as possible and grow into your home, rather than continue to change homes.

“The first five years of owning any property are tough, but it is critical that when you are young, you put yourself under pressure to buy as big as you can. Within reason, try and borrow as much as possible from the bank, and get a house that, ideally, you could stay in forever,” he says.

“This is not always practical, but will make a massive difference to your overall financial position in retirement. The problem with changing houses, especially when kids come along, is that you then have to stretch yourself again about 10 years after your first purchase.”

4. When can a property investment go wrong?

O’Mahony says things go wrong when you don’t meet the income requirement you have set for yourself.

“If you work in a cyclical business, that is building, engineering or architecture, you need to be prepared for downturns, as they inevitably come. Your investment can also take a dive if the property price takes a tumble,” he says.

“If interest rates go up, property prices go down. If there is an interest rate hike in the early years, this could be detrimental, although banks will usually come to the table in order to avoid foreclosure.

He says to remember that when borrowing money, you should be prepared to afford at least a 2% interest rate hike. When buying, it’s imperative that you shop around for the best interest rate.

While banks are not that easy to negotiate with, even a rate that is a quarter of a percentage point lower will make a massive difference to you over the next 25 years.

5.  Don’t continue chasing up the property ladder as your earnings increase

“The Joneses are your enemy, not your friends. Buying homes is an expensive exercise, so take one big leap as early as possible and try to stay the course until you are ready to move to the retirement village.”

6. Strike a balance

O’Mahony says while these are the main financial guidelines they advise, it is important to remember that they are not just about property, they concern your home. It will be a place of memories, childhood dreams, social interactions and occasions as well as a comfortable base for your family.

“For all of us, there is also a varying degree of social status attached to our property,” he says.

“What’s important is to take a balanced view in making this decision, take the finances seriously, but also make sure you are tapped into what matters to you in your home and your neighbourhood,” he says.

Source – Property 24

When moving to a smaller property makes ‘money sense’

Parents whose grown children have left home to study, travel or move into their own homes, often find it difficult to sell their large family homes because of the memories and emotions attached to these properties.

Clarke says since middle-aged homeowners currently spend up to 50% of their incomes on housing costs, it stands to reason that most can achieve considerable savings by moving to a smaller property that is cheaper to run and easier to maintain.

This is according to Tony Clarke, managing director of the Rawson Property Group, who says many of these ‘empty nesters’ also put off the decision because they feel that downscaling will entail a drastic change in lifestyle.

And then there is the daunting thought of the move itself and having to decide which of their accumulated ‘treasures’ to keep and which to let go of.

However, he says they may find the whole process easier to deal with if they can think of it not so much as downsizing, but rather as ‘downshifting’ to an easier, more secure and less costly lifestyle, as a reward for years of hard work.

”For a start, they will no longer have to worry about the increasing costs of owning and maintaining a large home, or about having to replace or repair major components such as the roof, wiring or plumbing as the property ages.”

Secondly, Clarke says they will have the opportunity to choose a home that not only offers them a higher level of personal security, but also a higher level of convenience, such as no stairs, or large shower stalls instead of bath tubs, or wider doors and passages.

“In addition, moving may mean they can, at last, afford some of those luxury features or new technologies they promised themselves they would have ‘someday’, or have more money to spend on hobbies, travel or even a new business,” he says.

“Moreover, the sooner they sell, the less chance there is that they will have to make a forced sale due to ill health, or just the lack of energy or agility to keep a big home in good condition.”

And of course, he says the younger they are when they decide to make a move, the easier it will be to get settled in their new home, make new friends and develop new interests.

However, Clarke says perhaps the most compelling reason to downscale is the difference it can make to one’s lifestyle after retirement.

“It has been calculated that most South Africans who have been in corporate employment and are obliged to retire at 60 or 65 will receive a monthly pension equal to less than a third of the final salary they were making, unless they start making additional private provision for their retirement well in advance,” he says.

“And one of the pillars of such financial planning is to pay off debts, including home loans, as early as possible while still earning, and then divert any and all spare cash into more investments or savings for retirement.”

Clarke says since middle-aged homeowners currently spend up to 50% of their incomes on housing costs, it stands to reason that most can achieve considerable savings by moving to a smaller property that is cheaper to run and easier to maintain, even if their actual home loan repayment is not that much lower.

“These savings can then be used to help them get ‘free and clear’ of all debts before retirement, or added to a nest egg that will help them maintain their standard of living in retirement.”

He says, however, empty-nesters who are contemplating a move need to keep a close watch on the property market in their area, and pick a time to sell when prices are rising or, at the least, stable.

“And this, of course, is where the advice and help of an experienced and trusted local estate agent is invaluable.”

Meanwhile, Clarke says the physical transition from a larger property to a smaller space can be made easier with some forward planning.

Here are tips from relocation experts:

– Think about where you will place furniture and other items in your new home, and carefully pare down your possessions to those for which you know there will be a specific space in your new home. Don’t leave things to the last minute, give yourself to visualise your new lifestyle and think carefully about your choices.

– Never move with things on the off chance that you will find room for them, and don’t rent a storage facility for any overflow. Now is also the time for grown children to claim any items they want from the family home, or let them go.

– If you have trouble parting with certain items, consider donating them to a children’s home, hospice or animal shelter, or having an auctioneer or second-hand dealer sell them to raise cash for your favourite charity.

– Scan any papers and photographs you want to keep and save them on a few CDs or memory sticks, or ‘in the Cloud’ for future reference.

– Maximise the space available in your new home. A spare bedroom can easily do double duty as a study, for example, and a wall-hung screen will take up much less space than a TV on a stand. Similarly, why not digitise your music collection so you can ditch the bulky hi-fi?

– Use the internet to explore innovative storage solutions, such as additional cupboard space above the existing kitchen units, double hanging rails in clothes cupboards, bookcases below counter overhangs, and hundreds of other clever ideas for keeping smaller spaces uncluttered.

Source – Property 24

6 ways to use your tax refund to add value to your home

During July this year many homeowners would have submitted a tax return and possibly received a lump sum of money back from the South African Revenue Service.

“There are several ways in which homeowners can use their tax refunds to make home improvements, regardless of the amount of money that they receive,” says Goslett.

Adrian Goslett, Regional Director and CEO ofRE/MAX of Southern Africa, says getting a tax refund is an ideal opportunity for homeowners to invest in their home and make some changes that could add value to their property.

“There are several ways in which homeowners can use their tax refunds to make home improvements, regardless of the amount of money that they receive,” says Goslett.

“They don’t have to undertake large, expensive renovations to see the benefits as there are relatively inexpensive home upgrades that can boost both the look and value of the property.”

He provides homeowners with a few ideas to improve their home with their tax refund:

1. Update kitchen fixtures

They say the kitchen is the heart of a home, as it is normally a place where the homeowner will spend a lot of their time.

Goslett says that in order to upgrade the kitchen there is no need to redo the entire space to give it a fresh new look. Simple changes such as new cabinet handles and knobs, or new taps, will go a long way to a whole new look and feel.

2. Freshen up the bathroom

Again, there is no need for the bathroom to be given a complete overhaul to have it looking fresh. “One or two key changes can make a big difference,” says Goslett.

“Try replacing old shower doors or the tiles in the shower, re-finishing the bathtub or replacing the toilet and basin. All of these changes will freshen up the bathroom’s look and add to its aesthetic appeal.

3. Replace the garage door

A beautiful tree in the garden will enhance the look of the property, and the best part is that it is good for the environment, says Goslett.

Very often the garage door is the first feature of the home that is seen as soon as a person arrives. Replacing the garage door can upgrade or modernise the entire look of the home, as well as being an excellent investment.

Goslett says according to a property cost versus value analysis, around 80% of the costs of replacing a garage door are recouped when the home is sold.

4. Garage shelving

Another fairly inexpensive addition to the garage is shelving. Aside from being an excellent selling point, the additional storage space will make it far easier to keep the garage neat and tidy.

5. Replace the front door

Much like the garage door, the front door to the home is one of the first features that people see when approaching the home.

“The front door is what welcomes the homeowner, guests and potential buyers to the home, so it is an important element in the overall first impression,” says Goslett.

He says that the homeowner can expect to recoup more than 90% of the cost of the front door when the property is sold.

Along with the front door, Goslett says the homeowner can also look at upgrading the doorbell and the lighting.

6. Plant a tree

A beautiful tree in the garden will enhance the look of the property, and the best part is that it is good for the environment.

Goslett says homeowners who wish to restrict their water usage could opt for other landscaping enhancements instead, such as some stepping stones or water-wise plants for the garden.

As a general rule, only indigenous plants and trees should be used, as they consume very little water and require minimal maintenance.

“For homeowners who are not looking to make home improvements, they can still make use of their tax refund by paying it into their bond,” says Goslett.

“Paying lump sums into the bond will reduce interest charges and will help to cut time off the period on the loan.”

Source – Property 24

Tips for buying and selling at property auctions

Tips for buying and selling at property auctions -Live Auction | City of Cape Town Auction | Sandlers Auctions | Western Cape Auctions.

South Africans are not used to buying and selling residential properties using auction sales. A property that is being auctioned usually conjures up pictures in the minds of people of liquidations and insolvencies. In countries like Australia, the largest percentage of residential property sales takes place through auctions.

Buying a property at an auction sale does not mean that you are going to get a bargain. Properties sold on auction are not always forced sales. It is therefore important that you do your homework before purchasing.

What is the difference between a Property in Possession and a Sale in Execution?

There is generally confusion between a sale in execution and a repossessed property. A property becomes a repossessed property when a home owner is in substantial arrears with his repayment on his home loan, the bank takes legal steps to serve the owner with a summons, take judgment and eventually attach the property. If during these stages the owner is still in arrears, the bank instructs a sheriff of the court to sell the property at a public auction. The bank is entitled to attend the sale and to ‘buy the property back’ if the bidding amounts being bid at the sale are not sufficiently high enough to cover the amount outstanding to the bank. A property becomes a Property in Possession (PIP) when the bank ‘buys the property back’ at a sale in execution (public auction).

If you wish to purchase a property at this type of auction there are certain factors to consider:

  • Prospective buyers need to register before the auction and pay a refundable deposit;
  • If your bid is successful you will be required to pay a deposit normally equal to 10% of the purchase price as well as the sheriff’s commission on the fall of the hammer;
  • The balance of the purchase price must be guaranteed within 14 to 30 days;
  • The purchaser is responsible for outstanding rates and/or levies;
  • The purchaser is normally responsible for the eviction of any occupiers.

Advantages of buying a property on auction:

  • The buyer may feel more at ease knowing that the bidders who lost to his bid are prepared to pay almost the same amount for the property. The buyer can feel assured that he did not overpay for the property.
  • An auction eliminates lengthy negotiation periods.
  • The buyer knows that the seller is certain that he wants to sell, and is not just simply ‘testing the market’.
  • In terms of an auction agreement, the seller is contractually obligated to transfer title of the property to the highest bidder in an absolute auction, and to the highest bidder that meets or exceeds the reserve price in an auction with reserve.

Tips for buyers:

  • Go to a couple of property auctions just to observe, before you decide to buy on auction. This will give you the necessary knowledge on more-or-less how it works, and also the confidence that you will not feel intimidated by the fast moving ‘action’ associated with auctions.
  • Go and view the property before the sale. Assess if there are any maintenance problems that the property has. This may affect the bid that you are prepared to make at the auction sale. The other advantage of pre-viewing the property is that you may be able to conclude a contract of sale with the seller before the auction takes place. This will also depend upon the agreement that the seller has with the auctioneer.
  • Try to determine the market value of the property before it goes on auction. This is important as it will assist you to assess whether or not the price that you bid at the auction is reasonable or not. You do not want to overpay.
  • You must check if the seller owes any money to the council for rates and taxes and service charges. One of the terms and conditions of the sale may be that the buyer is responsible for any of these outstanding amounts.
  • Pre-arrange your finance. You will be required to pay a deposit at the auction sale and will then have to make arrangements to settle the balance of the purchase price with the auctioneer.
  • Auctioneers fees are also payable on the day of the auction. This is usually a percentage of the value of the sale. Make sure that you know what all the extra costs are and that you are prepared.
  • Ask the auctioneer to see the contract that you will be required to sign, and read through it thoroughly. If you are unclear about anything, rather ask the auctioneer to explain the terms or consult an attorney before you attend the auction.
  • You must get to the auction sale before it commences. The auctioneer will read out the terms and conditions of the sale in public before the auction begins.

Advantages of selling your property on auction:

  • Auction sales are conducted in an open forum, which allows both motivated buyers and the seller to watch the property’s true market value emerge as the bidding process progresses.
  • You are sometimes able to set a price and have buyers negotiate downwards, rather than the conventional upward bids.
  • No commission is paid by the seller. The buyer will pay a market related, usually between 5-10%, auctioneers commission.
  • Auction sale do not generally accommodate suspensive condition. The property is sold ‘as it stands’ or ‘voetstoots’ with no bond clause.
  • Bidders at an auction are generally qualified (financially) and ready to buy.
  • A seller may receive a higher price than the initial asking price.
  • Auctions take the seller out of the negotiating process, unless the minimum asking price (reserve) is not achieved on the auction day.

Tips for Sellers:

  • Find an auctioneer who has experience in selling residential property on auction. You do not want to place your property in someone’s hands that has no experience in the field of auctioneering. Check the newspaper as a starting point. Look out for qualifications like: Graduate of South African College of Auctioneering; Registered with the South African Institute of Auctioneers; Registered with the South African Property Valuers Profession; Member of the Institute of Valuers;
  • Ask the auctioneer to explain the different types of auctions available to sell property and select the type of auction that best suits the property and your needs. For example:

    At an Absolute Auction the property is sold to the highest bidder with no reserve i.e. you did not put a minimum acceptable price on the property, as the seller. Absolute auctions are attractive to qualified prospective buyers. At an Auction with Reserve a minimum selling price is agreed upon with the seller before the auction date. Should the price be exceeded the property is sold to the highest bidder. Should the highest bid not reach the minimum reserve price, the last and highest bid is temporarily taken, subject to a confirmation period which is set in order to discuss the bid with the seller.

  • Make sure that the auction company that you choose will undergo an aggressive marketing and advertising campaign for your property, geared towards prospective buyers.
  • Establish whether the auctioneer already has a list of qualified buyers.
  • Try and determine the market value of your property before it goes on auction. This is important as it will assist you to assess whether or not the price achieved at auction is reasonable or not.
  • It is generally recommended to set a minimum price which is in line with the market value of the property and with the market’s current conditions.
  • You need to be realistic in setting a price and in your expectations.
  • Ensure that your property is ready for sale. There are auctioneers who will be able to assist you to get your property ready for auction. The desirability of the property being sold in terms of location, condition and surrounding properties is important, not only for auction properties, but for any property sale. Paint your house and fix any outstanding maintenance problems.
  • The auctioneer should be proficient in terms of educating prospective buyers on the property before the auction, so that the only issue that remains is price.
  • Ask your auctioneer to explain all your contractual obligations in terms of the Auction Mandate and the Sale Agreement.

Source – Private Property

A guide to buying property at auction

Sandlers Auctions is South Africa's foremost auctioneers· Sandlers Auctions, No 45 Blouberg Road, Blouberg, Cape Town, 7841 | Tel: 021 556 0328 | info@sandlersauctions.co.za

It’s a well-known fact that it is possible to purchase quality properties on auction. However, as is the case with most high–involvement purchases, it’s important to fully understand the intricacies of buying via this platform before committing to bidding.

Establish your budget

According to Jaco du Toit, head of Park Village Auction’s property division, the first thing to consider when sizing up an auction property is your budget.

Notes Du Toit: “In order to determine what you would be prepared to spend on a property, you first need to ascertain what it is actually worth and what it is worth to you as the purchaser.

Take a good, hard look at it on the viewing day. Take into account the area and surrounding amenities and examine current area listings. Remember, location, location, location. Any repairs and modifications you would want to make would also have to be factored in.

“The trick is to stick to your budget once you’ve settled on a number. It’s easy to get swept up in the excitement of the auction or get into a bidding war with another buyer and go over your limit. Remember – once that hammer goes down, the deal is sealed.”

Conditions of sale

Another aspect which Du Toit says should be carefully considered are the Conditions of Sale. Issues such as the confirmation period, outstanding rates and taxes, the commission and VAT are typically dealt with under this banner. Ideally it’s best to obtain a copy of the Conditions of Sale before the auction which will allow you to peruse them at your leisure. And don’t be afraid to ask questions on the day of the auction either, notes Du Toit.

“Simply put, the confirmation period relates to a period of time (usually 14 days) during which the bidder’s offer will be considered. It may well be that there is a reserve on the property in which case the winning bid will either be accepted or rejected based on whether or not it has met the reserve price.

In terms of rates and taxes associated with an auction property, Du Toit explains that the nature of the sale will dictate who would be liable for this expense, if applicable.

Notes Du Toit: “No hard and fast rule applies when it comes to arrear rates and taxes. That said, it is customary for the seller to bear these costs if the property is being liquidated by trustees or a liquidator. If the sheriff sells the property the buyer will be responsible for the arrears. The moral of the story is the Conditions of Sale dictate who pays.”

Auctioneer’s commission

As for the auctioneer’s commission which differs considerably from auctioneer to auctioneer, Du Toit explains that a trend has emerged whereby the commission (which is typically paid in addition to the final price bid) is paid by the buyer. But again, Du Toit urges bidders to refer to the Conditions of Sale to determine what the facts are in this respect.

VAT

In terms of VAT, Du Toit explains that this will depend on whether or not the seller is registered for VAT which can add significantly to your costs. If not, transfer costs will still apply.

The Voetstoets clause

Du Toit adds that potential bidders must keep in mind that auction properties are sold voetstoets or ‘as is’. This means the property is sold faults and all, and the seller has no legal obligation to rectify any faults you may find post purchase.

Fixtures and fittings

“Of course there are other factors which need to be considered,” notes Du Toit. “For instance, you should also ask if any fixtures, fittings or plants have been excluded and if there is currently a lease in place (which you should have sight of) which will have to be honoured. You will also need the necessary deposits and applicable commission and VAT.

“The upshot is that if you are going to buy property at auction, it is absolutely imperative that you do your homework and make the best informed choice you possibly can. Auctions are a great way to invest in property but they can also backfire if you aren’t aware of the potential pitfalls.”

Source – Private property

Sorry Sir, You Can’t Bid on That…

The recent media storm around South African auction practices may spook some people when bidding on property. Potential bidders may have the urge to scour the audience for ghosts to try to ascertain whether all the people in the room are genuine bidders at a property auction. In actual fact, the illegal practice of ghost bidding is not that common.

The term “ghost bidder” applies to individuals who attend an auction with the intention of driving the selling price upwards. Although these people have no intention of buying the property, they bid against other legitimate bidders with the sole purpose of achieving a higher price. Auction fever, if you will.

The practice of ghost bidding is prohibited in South Africa. The rules of the SA Institute of Auctioneersstate that members are obliged to take all reasonable and necessary steps to prevent the manipulation of an auction, inter alia by bidders who are “planted” with a view to manipulating the price of a particular item obtained at an auction and in circumstances where the planted bidder is not a genuine prospective purchaser.

There are also rules that apply to vendor bidders (an auctioneer who registers as a bidder for and on behalf of the seller). The Consumer Protection Act (CPA) also comments on the practice and states that notice must be given in advance if a sale by auction is subject to a reserve or upset price, or if the owner or auctioneer or anyone on behalf of the owner or auctioneer is bidding.

Mark Kleynhans, the spokesperson for the High Street Auction Co, says the placing of ghost bidders at an auction is highly irregular and that his company does not condone the practice. He says that if the company was ever alerted to a staff member practising or participating in such unethical behaviour, they would immediately enforce their policies and deal with the situation to the fullest extent in line with the company’s policies.

“Our bidders are required to register and in doing so they need to comply with the regulations set out in terms of the Financial Intelligence Centre Act (FICA), sign the terms and conditions relating to the rules governing the auction and pay the required deposit. Only once this is done is the bidder registered and issued with a numbered paddle. Only members of the audience in possession of a numbered paddle are considered for any and all bids.”

It is fairly easy to ascertain who the genuine bidders are at an auction. Their names must appear on the bidding roll and anyone who has any doubts can ask the auctioneer to stop the proceedings and insist that the other bidders identify themselves.

There are undoubtedly sellers out there who do attempt to use underhand tactics and as such will attempt to inflate the selling price by illegally bidding on property. However, High Street Auction Street Co’s policy is very clear and they do not allow sellers to bid on their own property.

When asked if the recent media attention that has been focussed on the auction industry could change the way auction houses conduct their business in future, Kleynhans noted that the events of the past couple of weeks would serve to encourage the auction business to become even more transparent.

“The auction industry is regulated and compliant,” he said. “Businesses that conduct themselves ethically and use compliance as a driving principal in their business operations will grow and be successful. Those that do not operate in a compliant environment will struggle as the consumer is going to ensure that they not only know their rights, but are more savvy and fully understand the processes when buying or selling property on auction.”

Source – Property 24

Sorry Sir, You Can’t Bid on That…

The Ghost of Auctions Past

The Ghost of Auctions Past

The news that one of South Africa’s richest women, Wendy Applebaum, had filed a complaint against Auction Alliance with the National Consumer Commission regarding irregularities that she believed took place at the auction of Quoin Rock, a wine farm in the Western Cape, has proved to be only the tip of the iceberg in a story that has rocked the auction industry. Allegations of kickbacks to banks, attorneys and liquidators have all been in the headlines. However, while the general public may be disgusted if these allegations are proven to be correct, the idea that people who have absolutely no intention of buying a property could be planted at auctions to deliberately increase the selling price has undoubtedly raised more than a few hackles.

The wine farm in question formed part of the liquidated estate of Dave King. The auction which took place in early December attracted a number of big names, however, only two of those attending actually placed bids, Mrs Applebaum and a gentleman who allegedly acted as a ghost bidder by the name of Deon Leygonie.

Rael Levitt, the former CEO of Auction Alliance, conducted the auction and opened the bidding at R75-million, no one responded. A lower bid of R30-million was placed by Leygonie. According to Applebaum she could not see who the other bidder was but offered a counter bid of R35-million. Leygonie raised the stakes and offered R40-million and Applebaum responded with R45-million. Leygonie came back with a bid of R50-million and Applebaum upped the ante by bidding R55-million. It was at this point that things started to get interesting. Leygonie went to R60-million, and Levitt offered the property to Applebaum for R65-million. She declined to increase her bid, so Levitt dropped the bid to R61-million. Applebaum again refused the bid and Levitt returned to Leygonie. Although one cannot hear what Leygonie says on the amateur video footage aired on Carte Blanche recently, Levitt turns to Leygonie and says “oh sorry sir was R60-million not a bid?” He then turns back to Applebaum and resumes with her bid of R55-million.

It was this that started the alarm bells ringing for Applebaum. Suspicious as to what had just occurred and unaware of the identity of the other bidder until well after the auction was over, Applebaum handed the matter to her attorneys to investigate. They discovered that Leygonie had previously worked for Auction Alliance. Levitt has conceded that he has employed Leygonie on occasion as a vendor bidder however, insists that the gentleman concerned was acting as a proxy bidder for Ariel Gerbi on the day of the Quoin Rock auction. However, Ariel Gerbi has declined to comment. While the jury is still out on whether or not Leygonie was a ghost or proxy bidder, the matter has brought the practice of using ghost bidders to the fore.

Different titles are given to different types of bidders and these include a vendor bidder a proxy bidder and a ghost bidder.

A proxy bidder is someone who is at an auction on behalf of a buyer who is unable to attend. He has a mandate to bid up to a certain amount. Both the buyer and the proxy have to be registered as a bidder before the auction commences and the buyer has to sign a proxy form allowing the proxy bidder to bid on his behalf.

A vendor bidder is, in actual fact, an auctioneer who registers as a bidder for and on behalf of the seller. It is the duty of the auctioneer to protect the interests of the seller, however the practice only occurs when property is being sold and a reserve price has been set. The auctioneer has to announce that they are vendor bidders and will only bid up until the reserve has been met. They have to appear on the bidder’s roll.

A ghost bidder on the other hand, is someone who is used to drive the selling price of the property, but has no actual intent of purchasing the property. It is rumoured that sellers themselves have been known to utilise the service of these sorts of bidders in order to achieve a higher price.

Obviously, there is a big difference between a vendor bidder and a ghost bidder and although Levitt has gone on to state that vendor or ghost bidding is legal, this statement is somewhat confusing as a ghost bidder is a completely different animal to a vendor bidder. The practice of ghost bidding is prohibited by the SA Institute of Auctioneers. The body’s own rules say that members are obliged to take all reasonable and necessary steps to prevent the manipulation of an auction, inter alia by bidders who are “planted” with a view to manipulating the price of a particular item obtained at an auction and in circumstances where the planted bidder is not a genuine prospective purchaser.

The Consumer Protection Act (CPA) states that notice must be given in advance that a sale by auction is subject to a reserve or upset price or if the owner or auctioneer or anyone on behalf of the owner or auctioneer (vendor bidder) is bidding.

The entire affair has to be a PR nightmare. People who took auction sales at face value are bound to look at this incredibly successful selling process with fresh eyes and are going to need convincing that what may have occurred on a wine estate in the Cape is an isolated incident and is not happening at other auctions across the country.

Source – Property 24

The Basics & Benefits

Q. What is a Real Estate Auction?

A. A real estate auction is an innovative and effective method of selling real estate. It is an intense, accelerated real estate marketing process that involves the public sale of any property—most certainly including those that are nondistressed—through open cry, competitive bidding.

Q. How will auction benefit me?

A.

BENEFITS TO THE SELLER:

  • Buyers come prepared to buy
  • Quick disposal reduces long-term carrying costs, including taxes & maintenance
  • Assurance that property will be sold at true market value
  • Exposes the property to a large number of pre-qualified prospects
  • Accelerates the sale
  • Creates competition among buyers—auction price can exceed the price of a negotiated sale
  • Requires potential buyers to pre-qualify for financing
  • The seller knows exactly when the property will sell
  • Eliminates numerous and unscheduled showings
  • Takes the seller out of the negotiation process
  • Ensures an aggressive marketing program that increases interest and visibility

BENEFITS TO THE BUYER:

  • Smart investments are made as properties are usually purchased at fair market value through competitive bidding
  • The buyer knows the seller is committed to sell
  • In multi-property auctions the buyer sees many offerings in the same place at the same time
  • Buyers determine the purchase price
  • Auctions eliminate long negotiation periods
  • Auctions reduce time to purchase property
  • Purchasing and closing dates are known
  • Buyers know they are competing fairly and on the same terms as all other buyers
  • Buyers receive comprehensive information on property via due diligence packet

BENEFITS TO THE REALTOR®:

  • Generates a list of ready, qualified buyers
  • Offers clients and customers new selling and purchasing options
  • Increases revenue and market share
  • Develops your own market niche
  • Assurance that property will be sold at true market value
  • Property is sold within a relatively short period of time
  • Exposes the property to many potential purchasers
  • Auctions bring people in to look at all your listings, not just the auction listing
  • Successful auctions result in referrals and return business
  • Agents can earn commissions as referring agent/broker, cooperating agent/broker, or as the listing agent/broker

How to buy property on auction

Many people think of auction property as bank repossessions or distressed sales and hope for a ‘bargain’. So what can a buyer actually buy and how does the process work?

Residential & Commercial Auctions. Listings on Website, Contact Us

“Buyers will find anything – literally from a R500 000 entry-level home to a multi-million rand mansion, and everything in between,” says Winterstein.

Buyers can expect to buy all and any property on auction, says Darren Winterstein, managing director of Aucor.

He explains that bank repo properties are those that have been repossessed by banks whereas distressed property is the step prior, where the owner cannot service the bond on the property and together with the bank agrees to sell it before they default on payments.

“Buyers will find anything – literally from a R500 000 entry-level home to a multi-million rand mansion, and everything in between,” says Winterstein.

ClareMart Auction Group CEO, Jonathan Smiedt says that the auction market is not an avenue for distressed sales only but is also an excellent platform for selling private properties for private sellers, companies and consortiums.

According to Auction Alliance CEO Rael Levitt, distressed property sales are no different to any other type of property sale, but there are several issues that buyers need to be aware of.

He says it is important to establish what sort of distress is applicable – Is it a seller who is in early stage default with a bank but no legal proceedings have taken place? Or is the property being sold through one of the many bank distressed channels? Is it a sale in execution or insolvency? Or has the property gone through the full cycle and is fully repossessed and owned by the bank?

Each property will have a different background and a buyer should ask the auctioneer what the specific history is, says Levitt.

Where do buyers find these properties?

Residential & Commercial Auctions. Listings on Website, Contact Us

This Cape Town mansion located onLlandudno Beach has 8 bedrooms and 7 bathrooms and is being auctioned by Auction Alliance.

Levitt says there are various auction papers advertising properties in newspapers, but the largest source of information on auction properties is found online.

“There are a myriad of channels including banks, sheriffs, websites and auction houses,” he says.

What about finance?

First-time buyers to the auction market are often under the impression that they need cash in order to purchase a property at auction, says Smeidt .

“This is absolutely untrue – a buyer, after bidding and the acceptance of the offer, is free to apply for bonds or finance in the normal and approved fashion.”

Smeidt explains the buyer normally has thirty to forty days in which to supply the transferring attorneys with documentation that guarantees the balance of the purchase price from a suitable financial institution.

All that is necessary on the day is the stipulated deposit and auctioneer’s commission, says Smeidt.

However, Levitt advises buyers to check that they can get finance before the sale by approaching their financial institution to find out what funding options they have at their disposal.

“They can do it after the sale, but if they are not regular buyers they should rather be conservative and make early arrangements,” he adds.

How does the auction process work?

Residential & Commercial Auctions. Listings on Website, Contact Us

This Mouille Point apartment in Cape Town is being auctioned by Claremart Auction Groupwith viewing on Sunday 31 October from 2 to 5pm.

According to Smeidt the auction process is fairly simple. When attending an auction, bidders register on arrival, there is no fee for registration and bidders are not obliged to bid. In order to register the bidder needs to provide FICA documents in accordance with the requirements of the Consumer Protection Act and once registered the bidder receives a buyer’s card.

Auctions are no different from private treaty sales with the exception that suspensive clauses are not part of the sale, says Levitt, and therefore the buyer will have to pre-arrange finance.

They will be required to make payment of the deposit on the bid price, as well as the Auctioneer’s commission, on the fall of the hammer, he says. “Buyers need to pre-determine what price they will be bidding and they should make financial arrangements around their bid price. “

Levitt says that buyers must realise that once the sale is confirmed it is a binding transaction and no cool-off periods apply. Furthermore, the balance of the purchase is due on registration of transfer, but the buyer will need to present their guarantee of funds to the seller’s attorney within a stipulated time frame.

The confirmation period is normally seven to ten working days and the buyer retains full obligation to the purchase unless rejected by the seller, says Smeidt.

Once the offer is accepted by the seller the transfer and registration process runs exactly as it would in an estate agency property sale, he says

More tips for first-timers

Residential & Commercial Auctions. Listings on Website, Contact Us

A two bedroom ground floor unit in Soho Lofts, Broadacres is up for auction through Aucor on Thursday 27 October.

Rule one for the first-time auction-goer is to attend as an observer and get a feel for the method and the auction house, says Winterstein.

Rule two is to do their homework and know what they want to buy, what a property is worth and what they are prepared to spend.  “It’s very easy to get caught up in the excitement and sheer adrenaline rush of an auction, and then to experience a strong case of buyer’s remorse afterwards. “

Winterstein has the following additional advice for buyers to ensure they are familiar with certain points unique to a property auction:

– When buying fixed property, always be sure to discuss the property with the agent and get a copy of the fact sheet that will give all the insight necessary to make an effective buying decision.
– Ensure that they understand prevailing market conditions.
– When registering as a buyer, ask for a copy of the Conditions of Sale and ensure that they are familiar with the contents.
– Make financial arrangements prior to the auction sale.
– Ask the auctioneer and his team any questions before the sale
– Make good use of viewing days and inspect the property fully before the sale commences.
– Watch, listen, ask and bid only when they feel comfortable to do so.
– Once you have registered as a buyer at a property auction and you make a bid, whether verbal or by raising your hand, it is considered binding, even if purchase papers have not been signed.

Levitt says buyers should also read the details such as the zoning, any outstanding rates and taxes owed, or the property rules if owned by a Body Corporate, prior to the auction. “All auctioneers should disclose this information in the form of bidder’s packs to buyers but I still would recommend inspection reports.”

So can you get a bargain?

Residential & Commercial Auctions. Listings on Website, Contact Us

This luxurious triple storey home in Dainfern Valley Estate, Gauteng offers 5 bedrooms, 4 bathrooms, spacious entertainment areas and more. It is being auctioned by Auction Alliance.

Selling on auction does not mean selling for less, says Smeidt as “when the market dictates the price then that is the market value”.

He says that it sometimes does happen that a bargain is found on auction but notes that an auction is where people bid openly in a competitive environment which can also result in record sales prices.

Levitt says in general, right now, he does think there are bargains out there and buyers are often getting houses at below replacement value. “Auctions determine true market value, and it is my view that in our current market, many sellers have a distorted perception of market value. “

Winterstein says it all depends on the specific property and how competitive the bidding is. “Buyers name their price and as long as they have done their homework in terms of knowing prices for similar properties in the area in question, understanding market value and knowing when to cap their bids, they should get a fair price. “

According to Levitt auctions came of age during the last property boom and now in the residential property sector they are a preferred method to sell distressed properties. “With the introduction of the Auction Laws through the Consumer Protection Act, the auction industry is highly regulated with a number of laws to protect the buying and selling public.” – Julia Hinton

Readers’ Comments Have a comment about this article? Email us now.

What your article and the auctioneers fail to mention is that if a person bids on auction, pays the deposit and auctioneers commission and then fails to obtain finance, they lose their deposit and commission. All too many times people bid thinking that they will easily obtain finance only to come short later when the banks reject their application leading to the being  put back on auction. Buying the auction way is only for people who have cash and is not recommended for people seeking finance afterwards as the risks are too high. – Arthur

Source – Property 24

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