South Africa's astute property laws mean that there's no chance
of buyers being 'gazumped' or sellers 'gazundered' in a property
sale, says Lew Geffen of Sotheby's International Realty.
"Selling residential property in South Africa through the
auction process could be an alternative method, but there is simply
no demand from the public." Geffen notes that demand is low
for property auctions because the law in SA protects the buyer
from being 'gazumped' or the seller being 'gazundered'.
'Gazumping' is the process whereby a seller can change their
mind and pull out of the deal right up to the point when property
is transferred its usually because he has received
a better offer. And 'gazundering' is the where the buyer can simply
walk away right up to the point of transfer.
"In countries like Australia where the law does not protect
against gazumping and gazundering, property auctions have evolved
and are so successful because of the need to thwart these practices.
Selling by auction in Australia prohibits gazumping and gazundering
but selling by Private Treaty does not. This is why Australians
elect to go the auction route.
"In Australia a buyer can sign an offer by private treaty,
have it accepted and then go through months of insecurity not
knowing whether he has in fact bought a house because the seller
can walk away anytime if he gets a better offer.
"In SA gazumping and gazundering cant happen because
of our Roman Dutch law (as opposed to Australias legal system
that is based on English law) that states that once the suspensive
conditions have been met (i.e. the deposit has been placed and
homeloan granted) there is only a miniscule chance of the collapse
of the deal. In other words, neither buyers nor sellers can walk
away from the sale."
Cheaper and quicker
Geffen notes that is it also much cheaper, quicker and much less
invasive for a seller to sell by private treaty than by auction.
"An auction sale typically costs the seller 10 percent of
the sale proceeds and the seller has to pay his own marketing
costs. This can amount to thousands of Rands.
"Sale by private treaty is cheaper and more efficient. Although
7.5 percent commission is usually requested, commissions average
about six percent across the board and the agent places the ads
and covers all marketing costs."
Geffen points out that his own property auctions in the early
to mid-nineties showed just what an ineffective selling model
"In those days and still today we have a specially trained
in-house auctioneer and would gather up 150 people in a hall and
auction off 30 to 40 homes at a time. At one stage we had about
30 auctions per week, but the buying demand was simply not there.
"The hit rate was only about 10 percent and the whole process
took about six weeks which sellers and buyers found a long and
painful process. Auctions attract bargain hunters and there is
therefore a negative stigma attached to the auction. People are
very wary of houses that didnt sell at an auction and are
now listed with an agent.
Geffen concludes: "As long as the property market is positive,
auctions will not be flavour of the month."