Cape Argus - 1 April 2004

GRAHAM NORRIS
Property Editor

Flexible: 'Brokers offer more and cheaper options'

A CAPE Town realtor ahs raised questions over the claims by property auctioneers that a public bidding contest is the most effective way of disposing of private residential property.

"In promoting their business Cape Town's property auctioneers are understandably anxious to convince home owners that the public auctioning of their property is the most successful and advantageous vehicle through which to dispose of their biggest asset," says Alyce Collins. While there will always be a place for auction sales, particularly when disposal in a hurry is desirable, in South Africa, unless there were radical changes in auction structures, the conventional method of using a professional property broker will remain the cheapest and most effective method of selling property, Collins asserts.

"In South Africa the only occasions when an auction is justified is in cases of legal requirements like insolvencies, repossessions or a cash crises, or on the rare occasions that someone is looking for publicity and exposure to promote a particularly high-profile property. Otherwise it makes no sense to follow the more expensive and financially risky auction road," Collins warned sellers.

"Selling a property through the auction method is, firstly, the most expensive in marketing terms and in commissions paid. Traditionally, the auction house insists on the seller paying all advertising costs and, because the auctioneer wants wider exposure since these auctions advertisements also promote the auctioneer's business, marketing costs are always a lot heavier. Whereas through the conventional route, the broker or real estate agent pays the advertising costs."

Collins points out that the auctioneer held de facto and often de jure sole mandate over the property, "up to and sometimes as long as three weeks after", the auction, and the minimum price will have been agreed several weeks prior to the auction date.

"The irony of this arrangement is that if the seller granted a reputable agent a sole mandate under the same conditions, the property would receive just as much exposure but, as it would be for the cost of the agent, the price undoubtedly would be higher than on any auction, and the commission would be appreciably less."

"In today's volatile market, the possible selling price could well increase in the run-up to the auction, but the auctioneer could still, if he had a mind to, hold the seller to the pre-arranged price. Then, at the auction, if bidding reaches the agreed minimum bid price, the seller would still have to pay commission, if he declined to sell because he felt the price was no longer market-related.

"Real estate agents are much more flexible and can increase or decrease prices on a daily basis if needs be." Collins says auction houses generally demand much higher commissions than real estate agents. Because the buyer is obliged to pay this and is aware of the arrangement, the effect is to place a damper on prices. "An auctioneer demands between 7 and 10% commission plus VAT. Real estate agents have a scale of commissions which reduces, the more the expensive the property.