And what is the difference between a reserve and a guide price?
With auctions now generally accepted as a quick and effective way of fetching a market-related price for both commercial and residential property, the advent of purely on-line bidding – with bidders who may be located anywhere in the world – raises the question for sellers as to how to know what price to expect on the day.
Firstly, explains MC du Toit, CEO Auctions & Sales for BidX1 South Africa, a reserve price is set which is the undisclosed minimum sum that the seller will accept and which is agreed upon with the auctioneer prior to the auction. He says this is not to be confused with the guide price, which as the term suggests, is just a guideline.
Says du Toit: “The reserve price, which is only known to the seller and auctioneer, can be reduced by the seller if required, based on the information provided to him/her by the auctioneer during the pre-auction marketing period. However, the reserve price must be at a level which the seller is comfortable to accept. The highest offers will be presented to the sellers and any bid could be accepted, as is the norm with any auction. Confirmation of our sales will be the same day as the auction, depending on the seller as certain financial institutions require longer confirmation periods.
“As with any property and any method of sale, it is not easy to gauge what we will fetch at auction, and we will only really be able to have a good idea once we have started with our marketing campaign.
“However, as experienced property specialists, we will first of all assess the property and consult extensively with the seller and advise on what we believe to be a proper, market-related price. But, being an auction where everyone is invited to bid, and with the ease of bidding on-line making the process even more accessible and transparent, anything can happen.
“There have been instances where we have exceeded the reserve price, and conversely cases where the seller has accepted below reserve price, basing their decision on the demand for the property and realising that that is its true value – which fundamentally is one of the primary benefits of selling property via auction.”
This raises the next question – how does the auctioneer gauge its value? MC says value is determined by various key aspects that must be taken into account, along with, obviously, the condition of the property and its location. “For example, in terms of residential property, certain areas have different price ceilings and by that we mean that you will not easily achieve R6 million when the average sale price for the area is R3 million. Properties which are unique and therefore not your average property, will be more difficult to gauge and I always advise that potential buyers and the market itself are the best determinants of real value, and the auction is the best way to get this answer.
“Commercial properties, on the other hand, are much easier and value is determined by the return on investment. What is interesting on auction of commercial (office), industrial or retail property is that in most instances, the majority of buyers calculate more or less the same yield, and this then serves to create competition between the buyers, with the final purchaser then being compelled to buy at a lower yield than anticipated. End users of such property do hold a different value to a property, and that can only be determined at the auction.”
Du Toit says buyers will need to conduct a proper due diligence on and inspection of the property they are interested in and once they have all the information they require and have done their research, they will be able to determine what they believe to be the value. “We are always available to advise buyers and we will also list a guide price – which is however in no way a reflection of the opening bid or the reserve price. When they register to bid and express an interest in a property, we provide all the information we have available, including title deeds, Surveyor General diagrams, rental agreements, homeowner’s rules and more. We conduct show days on the properties and recommend that buyers attend these to get a good feel for the property.”
Another question raised is how does an auctioneer know if the bidding is ‘stuck’ and what can be done to get it moving again? Says du Toit: “As the auctioneer, I will personally monitor the bidding throughout to ensure that everything runs smoothly. We are always available to buyers during the auction and will make contact if we think that a bidder might be having difficulty to bid.
“Interestingly, generally, 85% of our bidding takes place in the last five minutes of the auction.”
What about ‘ghost’ bidders? Du Toit says BidX1 will not permit anyone to be able to bid unless they have registered on the same basis as all the other bidders. “So only registered bidders will be allowed to bid and they would have been FICA’d and a security deposit would have been paid. We also confirm all the bidders’ details upfront, before we approve them as a bidder. Therefore no one will be allowed to unethically bid and drive up prices. Fairness and transparency are the key advantages of our auction platform.”
Once a bid has been successful and approved, the normal transfer process will follow and a transferring attorney will be appointed to facilitate the transfer process.