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The decline of a stigma - selling commercial property by auction

We are, for the most part, fairly traditional beings with preconceived notions regarding many facets of life. Selling a property on auction is one of these. Many myths abound regarding property auctions which are generally believed by most people, yet there has been a distinct rise in the popularity of auctions as a means of sale for both commercial and residential properties.

The belief that a property is sold on auction only if it is distressed is no longer the case. “These ideas are for the most part no longer true, given the changes in society and development of trends,” says Jason Gregoriades, a member of the Rawson Property Group’s Commercial Business Development Team in Cape Town. “Customers are now radically driven by the need for convenience and time saving,” he continues, “which is amply supplied by means of property auctions.”

Benefits to the seller


A sale by auction allows for a quick transaction of the property, thus saving long-term costs including property rates, municipal charges and maintenance costs, as the average time for an auction sale is about 42 days. The seller is protected by the reserve price which he and the auctioneer agree upon prior to the sale. He is also spared frequent, unscheduled requests to show the property. Further, the seller does not have to be involved in any negotiation process, which can be a time-consuming exercise.

Another important point to consider is that potential buyers are required to pre-qualify for financing, thus eliminating the wait involved when a purchaser applies for financing after making an offer and is ultimately unable to conclude the transaction if his application for financing is refused. “It is also helpful to have the date of the sale set,” Gregoriades explains, “and thereby provide yet another fixed variable around which the seller can better plan for things going forward. A further pertinent point that should be noted is the fact that the purchase price may exceed the seller’s expectations, as competition among the buyers promotes higher bidding.”

Benefits to the buyer

“The buyer is assured that the seller is committed to selling the property,” says Gregoriades, “and that he or she is not merely testing the market to see if a viable offer will be made.” The buyer stands to gain a worthwhile investment as it is suggested that only on auction is the true market value of the property reflected. On the other hand, the buyer could acquire a potentially lucrative property at fair market value if the bidding is not too competitive.

Convenience

The fact that one may bid online or telephonically, or place an advance bid with the auctioneer is also helpful to the busy investor who is unable to attend the auction in person. This makes it open to all who wish to take part and who take the time to register and arrange pre-qualification for financing.

“The idea that auctioned properties must be bought ‘sight unseen’ is one of the many myths which may easily be disproved,” Gregoriades points out, “as properties are available for viewing before the auction at times advertised, together with the information about the event. Marketing is more comprehensive for a property auction sale and necessarily so, as the period of marketing is brief but must at the same time attract buyers of the highest potential in order to make the sale worthwhile to all parties.”

The best points

Selling by auction saves the seller in rates, taxes and maintenance, which would still need to be covered where a sale has been delayed for whatever reason. “The speedy sale process allows for the transaction to be accelerated,” Gregoriades concludes, “and for the seller to receive their payment much sooner which can only be regarded as a plus, should they wish to invest in some other venture.”


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