An Auction versus Estate sale

Making the right choices: Auction vs. Estate Sales

In the past, a home on auction would probably have belonged to a distressed seller, someone who had fallen on hard financial times and had his or her home repossessed by the bank.

Today, however, more and more estate agencies offer auctions as option to their sellers, as an addition to the more traditional estate agency sale.  Heidi Franck, Group COO at One Property Holdings outlines how to decide on the best option for your property.

The residential property market is slow and due to the current economic climate, there is little growth. That said, sellers will still sell their properties, but it is taking much longer than previously, depending on its value. “Houses that are priced between below R 1 million will sell more quickly, as there are more buyers in this market than for the more expensive properties,” Franck explains.

To this end, buyers in a rush to sell their properties may find the idea of an auction more appealing, as properties move more quickly selling this way. “Most sales that take place on auction do not have conditions or ‘subject to’ clauses,’ Franck continues. Buyers at auctions are required to put down a deposit and have been pre-approved for a bond by their banks prior to bidding, so the sale on auction is unlikely to fall through due to the inability of the seller to qualify for a bond.  Moreover, it frees the seller from dealing with buyers who are not serious - if they make a bid on the house, they generally have their ducks in a row and mean business.

On the downside, commissions charged by auctioneers are usually higher than those of estate agents. “This is due to the intensity of the specific marketing that is done around an auction,” comments Franck. “While an estate agent is able to place an advert in the paper, bringing in a pool of buyers that they can then refer to this, as well as all the other properties on their books, an auctioneer’s marketing has to be more targeted – and this comes at a premium. That said, the buyers that arrive at the auction have specifically chosen to bid on your house alone, and there is a greater chance that they will commit to a sale if successful, than people who have simply popped in to see a show day and like what they see.  On the other hand, when going with an estate agent, there is the potential to get a higher price for the property. This is mainly due to the fact that estate agents are usually area focused and have an intimate understanding of their specific market. Optimal market knowledge together with the incentive of a higher commission that results from achieving a higher sales price will inevitably drive a more lucrative sale.”

According to Marc Zlotnick, Managing Director of Forsite, there are positives and negatives to both methods.   “Auctions are quicker processes, but the commissions are higher and the agent area expertise may not be as good. Traditional estate agency sales take longer, buyers are messier to qualify but the agents are more negotiable and the parties feel as if they have been more participative in the deal.”  At the end, however, true market value will prevail – because property is bought and sold when a willing buyer and a willing seller agree on a price in an open market.