Important to know sales terminology
People planning to buy on auction need to get to grips with the concepts involved
WITH auctions recognised as one of the most effective way of fetching market-related prices for property, the advent of purely on-line bidding – involving bidders from all over the world – has led to some confusion regarding the price to expect on the day, says MC du Toit, chief executive Auctions and Sales for Bidx1 South Africa.
The concept of a reserve price is often not clear. “This is the undisclosed minimum that the seller will accept, agreed upon prior to the auction. This is not to be confused with the guide price which – as the term suggests – is just a guideline.
“The reserve price – known only to the seller and auctioneer – can be reduced by the seller based on information provided by the auctioneer during pre-auction marketing. However, the reserve price must be at a level the seller is comfortable to accept.
“The highest offers will be presented to the seller and any bid could be accepted. Confirmation of the sale will generally be the same day as the auction,” says Du Toit.
“As with any property and any method of sale, we will be able to have a sound idea of the likely fetching price only once we have started the marketing campaign.
“We will first assess the property and consult extensively with the seller and advise a proper, market-related price. But, being an auction where everyone can bid, and with bidding on-line making the process even more accessible and transparent, anything can happen.”
So, how does the auctioneer gauge property values?
Du Toit says this is determined by various key aspects including the condition and location. “For example, certain areas have different price ceilings. You will not easily achieve R6 million for a house when the average sale price for the area is R3m.
“For commercial properties, on the other hand, value is determined by return on investment. What is interesting with commercial and industrial property is that in most instances, most buyers calculate roughly the same yield, and this then creates competition between bidders with the final purchaser then forced to buy at a lower yield than hoped for. End-users of such property hold a different value to a property and that can only be determined at the auction.”
Du Toit says buyers must conduct due diligence for property on which they want to bid.
“Only once they have completed their research will they be able to determine what they believe to be the value.”
Bidx1 South Africa’s first multiple auction is on April 10. For full details, visit www.bidx1.com and click on “South Africa”, or go direct to https:// bidx1.com/en/countries/south-africa or email mc.dutoit@bidx1.com.