In the prevailing tighter market conditions, disposing of a commercial property by way of auction may not produce the desired result, says Geoff Stroebel, general manager for Pam Golding Commercial.
"Many sellers are being persuaded to put their properties on auction on the premise that this will maximise their price. However, this is not necessarily so as since 2007 commercial auction prices have indeed been reducing, and many 'sales' knocked down on the day are unconfirmed - which means that the reserve prices are not necessarily being met. And while there are distressed sales, it's also true that there are not too many 'fire' sales.
"Take mass auctions for example, which by their very nature indicate the need to move as much stock as quickly as possible, with no time for focused, individual attention. Generally at an auction, if the reserve price is not reached, the seller has between 24 and 48 hours to either accept or reject the highest bid. Such circumstances place a great deal of pressure on the seller to accept a bid which is lower than the original reserve price - which may well be far removed from the maximised selling price he/she may have been enticed with at the outset."
Stroebel says today's buyers are well informed and generally seeking a good buy, which will also provide sound returns. "Local investors are savvy and will not naively buy something on auction that is not producing a sound yield, which at present is in the region of 10-11 percent for good commercial property. Even owner-occupier buyers, having researched the market, are cautious when making a purchase decision on vacant property. They are not going to buy at an inflated value that allows no room for profitable resale in the future.
"This is why we prefer conventional property sales methods where we can negotiate a deal in a professional and unpressurised manner. We always act on behalf of our seller, and as soon as we receive a mandate we can negotiate, and reveal the true, intrinsic value of the property coupled with its investment and/or income potential.
"And while there are very few 'buy' mandates in this business, we always have a pool of investors or buyers who are seeking a sound proposition. As a result we have room to negotiate - and submit counter-offers - to find the true value of the property which is agreed upon by both buyer and seller. The added value in this manner of bringing together a buyer and seller through a professional negotiation process is that the seller also gets the best possible deal in the current marketplace," says Stroebel.
Issued by Gaye de Villiers