Auction myths and mysteries

1. Auction myths and mysteries

1.1. The stigma traditionally associating auctions with the disposal of distressed estates is the single biggest misconception about auctions. It is a myth that auctions are all about the disposal of distressed estates; be it liquidations, sequestrations, deceased estates and bank repossessions.

1.2. The perception that auctions offer bargains is also baseless.

1.3. The thinking which most people are conditioned to, suggesting that “If it can’t sell, submit it to auction” is flawed. The principles of supply and demand clearly refute the current thinking that only the slow moving and non-selling stock should be submitted to the auction method.

1.4. On the contrary, the auction method represents the true fundamentals of the economic forces of supply and demand. Prices diminish when supply is abundant and they increase when supply is scarce.

1.5. Therefore, the principle of the auction method is simple, “Competition increases when demand is strong and prices go up”.

1.6. Apart from the stigma associating auctions with distressed sales and bargains, the auction method is also shrouded in mysteries and myths, which most people who are not educated about the auction method unfortunately believe.

1.7. Among others, these mysteries and myths include the belief that auctioneers are crooks who knock bids to unsuspecting buyers merely scratching their noses or waving at someone during the auction.

1.8. Although bidders should be aware that auctioneers and bid spotters scan the auction floor during live auctions and gestures such as scratching of noses and waving can distract auctioneers, it is a fallacy that auctioneers are tricksters who knock assets to unsuspecting bidders.

2. SAPAA’s resolve to instil confidence in South Africa’s auction industry

2.1. To a large extent, the auction principles of supply and demand have been successful in South Africa and across the world.

2.2. Auctioneers; including South African auctioneers, consistently fetch market related and even record prices from the hundreds of auctions conducted daily involving diverse categories of assets including movables (sedans and commercial vehicles), residential and commercial property, farms, undeveloped land, livestock (domestic animals and game) and art work.

2.3. Unfortunately, South Africa’s auction industry has done very little to instill confidence in the auction method.

2.4. A lot needs to be done to regain the trust of an already skeptical public in the auction method.

2.5. Ideally, the public should see auctions as a friendly, open, transparent and competitive marketing and sales process conducted by scrupulous professionals with integrity. 2.6. Therefore, SAPAA undertakes to instil confidence in South Africa’s auction industry, auctioneers and the auction method, by implementing the principles enshrined in SAPAA’s Constitution, particularly the ‘Preamble’ and the ‘Purpose, Aims and
Objectives’.

2.7. Extracts of SAPAA’s ‘Preamble’ and ‘Purpose, Aims and Objectives’ are reprinted here under for ease of reference:

PART A

1. PREAMBLE

(1) REALIZING that South Africa’s auction industry lacks professionalism, ethics, equitableness, accountability, credibility and respectability;

(2) AND REALIZING that South Africa’s auction industry remains one of the most untransformed and inequitable industries more than twenty years after the dawn of democracy;

(3) AND REALIZING that opportunities exist to grow the auction industry by educating and introducing auctioneering to previously disadvantaged individuals (PDIs) and masses;

(4) NOW THEREFORE, the founders of SAPAA resolved to establish a voluntary association not for gain with a mandate to achieve the purpose and objectives outlined in this Constitution.

PART B

5. PURPOSE, AIMS AND OBJECTIVES

(1) The broad purpose of SAPAA is to establish a professional, ethical, equitable, accountable, credible and respectable auction industry.

(2) SAPAA’s aims and objectives are to:-

i. promote and advance the business conditions affecting the auction industry and auctioneering profession;

ii. professionalize the auction industry and auctioneering profession by; among other things, establishing minimum entry requirements into the auction profession, including educational qualifications, experiential requirements, occupational designations and continuous professional development;

iii. build the institutional capacity of its members by providing business and career development opportunities; including educational and training programs;

iv. transform the auction industry by; among other things, creating conditions conducive to the entry and participation of PDIs, and promoting the equitable distribution of auction work;

v. achieve a substantial change in the racial and gender composition of ownership, management and control structures as well as in the skilled and specialist positions of new and existing auction enterprises;

vi. influence the enactment of legislation, regulations, policies and programs conducive for the advancement of its purpose, aims and objectives; including but not limited to the regulation of the auction industry and the promotion of preferential procurement;

vii. represent and coordinate the several and joint interests of its members;

viii. promote ethical conduct within the auction industry by ensuring adherence to a code of conduct and only permitting ‘fit and proper’, honest and competent individuals and companies to practice as auctioneers;

ix. educate and inform the public about the advantages of auction selling and buying; and

x. provide platforms for networking opportunities among SAPAA members, with the broader auction industry in South Africa, with the international auction community and other relevant stakeholders through engagements such as seminars, conferences as well as inbound and outbound trade missions.

Auction terms and definitions

1. Auction terms and definitions

The following terms and definitions apply to auctions.

1.1. “Absentee or commission bid” refers to a procedure that allows a bidder to participate in the bidding process without being physically present. Generally, a bidder submits an offer on an item prior to the auction. Absentee bids are usually handled under an established set of guidelines by the auctioneer or auction company. The particular rules and procedures of absentee bids are unique to each auction company.

1.2. “Absentee or commission bidder” means a person (or entity) that is not present at the auction but submits, in advance, a written, oral or telephone bid that is the maximum price they will pay for a given asset. An absentee or commission bidder must fulfill all the registration requirements of the auction in order to participate.

1.3. “Absolute auction or auction without reserve” means an auction at which:-

(a) goods/assets are sold to the highest bidder without reserve;
(b) the auction does not require a minimum bid;
(c) the auction does not allow competing bids of any type by the seller or an agent of the seller;
(d) the seller of the goods/assets cannot withdraw the goods/assets from auction after the auction is opened and there is public solicitation or calling for bids; and
(e) the seller has a bone fide intention to transfer ownership of the goods/assets regardless of the price realised on auction in terms of regulations 20 (18-19) and 22 (3) (i) of the CPA.

1.4. “Agent” means a person who acts on behalf of another individual or entity.

1.5. “Apprentice auctioneer” means an auctioneer who is in training, operating under the supervision or mentorship of an experienced professional auctioneer. A distinguishing feature of an apprentice auctioneer is that he cannot exercise the authority to:–

(a) enter into an auction agreement;
(b) independently manage an auction company;
(c) independently manage an auction house; or
(d) maintain an auction trust account.

1.6. “Auction” means a method of marketing and selling goods/assets on a predetermined date, time and place by means of a physical exchange or online electronic transmission via the Internet, or by any other means where there is a solicitation of offers and competitive bidding by the public.

1.7. “Auction block” means the podium or raised platform where the auctioneer stands while conducting the auction. “Placing (an item) on the auction block” means to sell something at auction.

1.8. “Auction catalogue” means a publication listing and describing the goods/assets available for sale at a public auction, often including photographs, goods/assets descriptions and the terms and conditions of the sale.

1.9. “Auction company” means a juristic person defined in terms of the Companies Act; whose core business is to arrange, manage, sponsor, advertise, or conduct auctions from time to time. A distinguishing feature of an auction company is that; unlike an auction house, an auction company does not trade for its own account, meaning that an auction company does not buy and sell goods, but auction goods as an agent on behalf of another person, including sellers.

1.10. “Auction house” means an established place of business including an auction mart, a sale barn, and a sale pavilion and its contiguous surroundings where at least two (2) or more auctions are held within any twelve (12) month period and where representations are regularly made that goods are sold at auction. Each day during which goods are offered for sale at auction shall constitute one (1) auction.

1.11. “Auction mandate” means a contract executed by the auctioneer and the seller which authorizes the auctioneer to conduct the auction and sets out the terms and conditions of the agreement and the rights and responsibilities of each party.

1.12. “Auction services” means the activities and tasks an auctioneer undertakes to market and sell goods on auction as an agent of the owner or rightful holder, including:–

(a) accepting auction mandates;
(b) performing marketing activities for auctions;
(c) making logistical arrangements for auctions, including site preparation, asset preparation, layout, lot numbering, stock loading and cataloguing; and
(d) administering auctions; including clerking, cashiering, dispatch; and
(e) conducting auctions either using physical exchange or online electronic transmission via the Internet, or by any other means where there is a solicitation of offers and competitive bidding by the public.

1.13. “Auction with reserve or auction with upset price” means an auction where:-

(a) the seller reserves the right to establish a stated minimum bid, the right to reject or accept any or all bids, or the right to withdraw the goods from auction at any time prior to the completion of the auction by the auctioneer;
(b) goods/assets are sold to the highest bidder subject to the reserve price and acceptance of the highest bid by the seller in terms of regulation 28 (6) of the CPA;
(c) the owner or auctioneer, or any one person on behalf of the owner or auctioneer, as the case may be, may bid at the auction; provided notice has been given in advance that the sale by auction is subject to a ‘reserved’ or ‘upset price’; and  the auction becomes ‘absolute’ or ‘without reserve’ once the reserve price determined by the seller is reached, and the auctioneer is authorized to sell the goods/assets to the highest bidder at the fall of the hammer or close of the auction.

1.14. “Auctioneer” means a qualified and experienced professional auctioneer who is entitled to practice and engage in all the activities of an auctioneer; including the authority to:–

(a) act as a principal auctioneer;
(b) conclude auction mandates;
(c) independently manage the affairs of an auction company;
(d) independently manage the affairs of an auction house;
(e) maintain an auction trust account; and/or
(f) sponsor, mentor and coach apprentice auctioneers.

A distinguishing feature of a professional auctioneer is that; unlike a dealer, a professional auctioneer does not trade for his own account; meaning that an auctioneer does not buy and sell goods, but auctions goods as an agent on behalf of another person, including sellers of goods, or as an employee or agent of an auction company or an auction house.

1.15. “Bid” means a prospective buyer’s indication or offer of a price they are willing to pay to purchase goods/assets at auction. Bids are usually in standardized increments established by the auctioneer.

1.16. “Bid assistants” means individuals of a live auction team also known as “ringmen”, “bid spotters” or “groundsmenwhose primary responsibility is to accurately interpret and effectively communicate buyer participation to their auctioneer. They are also qualified to assist prospective bidders with the necessary information to make informed buying decisions.

1.17. “Bid caller” means the person who actually “calls,” “chants”, “cries” or “auctions” the goods/assets at an auction, recognizing bidders and acknowledging the highest bidder. The bid caller is commonly known as the auctioneer.

1.18. “Bid calling” means a method of conducting an auction using live verbal exchange by calling bids using the outcry method or using physical gestures between an auctioneer and members of the public or prospective purchasers; which exchanges and gestures consist of a series of invitations for offers made by the auctioneer and bids made by members of the public or prospective purchasers.

1.19. “Bid rigging” or “collusion” means the unlawful practice whereby two or more people agree not to bid against each another at an auction with the intention to deflate the value of goods/assets on auction.

1.20. “Bidder’s card” means the number issued to each person who registers to participate at an auction.

1.21. “Bidder’s record” means the document contemplated in regulation 26 of the CPA.

1.22. “Buyer or bidder’s choice” means a method where the auctioneer offers buyers goods/assets from a grouping of similar or like-kind goods/assets per piece, on a ‘per unit/item’ basis; with the highest bidder having the choice to take one or more units/items at the bid price multiplied by the number of units/items in the particular lot. After the highest bidder’s selection, the goods/assets are taken out of the vendor roll, and the second round of bidding commences, with the highest bidder in round two choosing units/items, and so on, until all the goods/assets from a grouping of similar or like-kind goods/assets are sold.

1.23. “Buyer’s premium” means in simple language, a buyer’s premium is an additional charge that is levied by the auctioneer on the buyer over and above the bid price. Therefore, in the event of a buyer’s premium, the buyer will pay an additional amount over and above the purchase price. For example if the rate of the buyer’s premium is 10%, a buyer who purchases land worth R1,000,000-00 at the fall of the hammer will pay the auctioneer R1,100,000-00, i.e., R1,000,000-00 for the land plus R100,000-00 buyer’s premium at 10% of the value of the land.

1.24. “Closed auction’’ means an auction where the auctioneer, the owner or rightful holder; as the case may be, issues an invitation only to a finite list of consumer to take part in an auction.

1.25. “Commission” or “NCC” means the National Consumer Commission established in terms of Section 85 of the CPA.

1.26. “Companies Act” means the Companies Act and Regulations, No.71 of 2008.

1.27. “Confirmation period” means the period during which a seller must either confirm or reject an offer made by the highest bidder after the completion of an auction on condition that:–

(a) the seller has to confirm or reject an offer within fourteen (14) calendar days after the completion of the auction;
(b) the highest bidder is bound by the rules of auction and shall not have the opportunity to withdraw his offer until the seller has confirmed the sale or the predetermined confirmation period has expired; and
(c) negotiations between the seller and the highest bidder may arise during the confirmation period; should a further offer be received before the confirmation of the sale, the highest bidder will have the right of first refusal.

1.28. “Consumer‘’ shall have the meaning ascribed to it in terms of the CPA and shall include:–

(a) a person to whom auctions are marketed in the ordinary course of the auctioneer’s business; and
(b) a person who has entered into a transaction with an auctioneer in an ordinary course of business of auctions.

1.29. “CPA” or “the Act” means the Consumer Protection Act, No. 68 of 2008.

1.30. “Dual agency” means the representation of opposing principals (buyers and seller) at the same time by one agent. This practice is not encouraged as opposing principals have conflicting
interests.

1.31. “Due diligence” means the process of viewing, inspecting and gathering information about the condition and legal status of assets to be sold.

1.32. “EAAB” means the Estate Agency Affairs Board established in terms of the Estate Agency Act.

1.33. “Estate agent” means an estate agent defined in terms section 1 of the Estate Agency Act.

1.34. “Estate Agency Act” means the Estate Agency Affairs Act, No.112 of 1976.

1.35. “Game” means game as defined in section 1 of the Game Theft Act, 1991, No. 105 of 1991. Game means all animals kept or held for commercial or hunting purposes, and includes the meat, skin, carcass or any portion of the carcass of that animal.

1.36. “Ghost bidding” means an auction where sellers use memberships of people they know, or fake memberships they have created, to put false bids on auctions in an attempt to increase the price of goods they are selling.

1.37. “Goods” includes; where appropriate, services.

1.38. “Hammer price” means the price established by the highest bidder and acknowledged by the auctioneer before dropping the hammer/gavel or announcing the close of the auction by any other customary means.

1.39. “Insolvency Act” means the Insolvency Act, No. of 24 of 1936.

1.40. “Liquidator” means an insolvency practitioner as defined by the Insolvency Act.

1.41. “Live on-location or on-site auction” means the competitive marketing and disposal of goods/assets whereby buyers congregate physically at one place and the auctioneer takes bids from the floor.

1.42. “Live webcast auction” means an auction process similar to online auction, except that bidders can participate remotely from any location around the world on the Internet via live link to a ‘live on-location’ auction site. Both online and live webcast auctions have the advantage and convenience of saving the buyer the cost of travel and loss of productivity.

1.43. “Livestock” includes cattle, sheep, goats, pigs, horses, mules and donkeys.

1.44. “Lot” means any item or group of goods sold or offered for sale as a unit and identified as such.

1.45. “Market value” means the highest price that goods/assets will bring in a competitive and open market under all conditions requisite to a fair sale; where the buyer and seller are each acting prudently, knowledgeably, and assuming the price is not affected by undue stimulus.

1.46. “Master” means the officer of the High Court defined in terms of the Administration of Estates Act.

1.47. “Mock auction” means an auction in which:-

(a) goods are sold for less than the highest bid, or part of the purchase price is repaid or credited to the purchaser;
(b) the right to bid for goods is restricted to persons who have bought or have agreed to buy other goods; or
(c) any goods are given away as gifts.

1.48. “Motor vehicle” means a motor vehicle as defined in terms of the National Road Traffic Act.

1.49. “Multiple property auction” means an auction process which allows portfolios of properties belonging to one or more sellers to be marketed and sold to buyers at a single event, essentially providing a mechanism to sell properties in bulk. Multiple auctions can be conducted at hotels or conference venues, and are facilitated by large screens where buyers can experience virtual tours and view pictures and videos of the properties for which they intend to bid. Among others, multiple property auctions have the advantage that they facilitate a high profile event at a reasonable marketing cost and they realize higher prices by attracting a wide buyer network thereby encouraging competition between buyers.

1.50. “Multi-Par auctions” means an auction method that uses a sophisticated computer program to sell undeveloped land and apartments per square meter. The computer program is designed to protect individual buyers from big developers as it allows them to place their highest bid on a single plot or single unit.

1.51. “National Road Traffic Act” means the National Road Traffic Act, No. 93 of 1996.

1.52. “No sale fee” means a charge paid by the owner of goods/assets offered at a reserve auction in the event where the goods/assets does not sell.

1.53. “Online auction” means a competitive marketing and disposal of goods/assets conducted on an Internet based platform for a pre-determined period of time with each lot sequentially closing at a given time. Prospective buyers bid online from the comfort of their offices or homes. Online auctions enable buyers to bid against each other with the system acting as an invisible auctioneer and regulating bid increments and the entire bidding process. Bid prices are updated in real time as bidding progresses and the highest bidder wins at the close of the bidding.

1.54. “Open house”, viewing” or “inspection” means specified date and time an immovable property is available for prospective buyers viewing and audits.

1.55. “Opening bidder” means the first bid offered by a bidder at an auction.

1.56. “Owner” or “rightful holder” means the person who holds the legal title to goods or property, that person’s successors and assigns and an agent of that person.

1.57. “Person” means any natural person, and “juristic person” means an entity; whether or not it has a separate legal personality, which is not a natural person and includes a body corporate, company, close corporation, trust, partnership or an association.

1.58. “Reserve” or reserve price” means the minimum price that a seller is willing to accept for goods/assets to be sold at auction.

1.59. “Rules of auction”, “conditions of sale” or “terms & conditions” means the legal terms that govern the conduct of an auction, including acceptable methods of payment, terms, buyer’s premiums, possession, reserves and any other limiting factors of an auction. The CPA prescribes that the rules of auction must be published twenty four (24) hours before the auction (in the event of movable auctions) and at least five (5) days before the auction (in the event of immovable auctions) and also announced by the auctioneer prior to the start of the auction.

1.60. “Seller” means the person who signs the mandate for an auctioneer to sell goods on auction, including the owner or rightful holder.

1.61. “Seller’s commission” means that the seller pays the auctioneer from the proceeds of the auction. In the event of a seller’s commission, the buyer only pays for the amount of his bid price plus transfer costs and other associated costs such as vat or transfer duty, whichever is applicable. For example if a property is auctioned for R1,000,000-00 and the rate of the seller’s commission is 10%, the auctioneer will be paid R100,000 from the proceeds, thus leaving the seller with net proceeds of R900,000.

1.62. “Seller’s settlement” means a report issued to the seller by the auctioneer or auction company detailing the financial aspects of the auction.

1.63. “Subject to confirmation (STC)” refers to an auction where:-

(a) the sale of the goods is not complete at the fall of the hammer or close of the auction because the reserve price determined by the seller was not met; and
(b) the auctioneer knocks the hammer or closes the auction provisionally to the highest bidder STC by the seller within a predetermined confirmation period.

1.64. “Tie bids” means when two or more bidders bid exactly the same amount at the same time. The auctioneer has the duty to resolve by the auctioneer.

1.65. “URL” means an operational uniform resource locator, providing access to information on the internet.

1.66. “Valuation” means a written or oral statement, independently objectively and impartially prepared by a qualified valuer, prepared in accordance with generally accepted valuation standards, setting forth an opinion of defined value of an adequately described asset, as of a specific date, supported by the presentation and analysis of relevant market information.

1.67. “Vendor bidding” means an auction where the owner or auctioneer, or any one person on behalf of the owner or auctioneer, as the case may be, bids at the auction with the intention of protecting the owner’s reserve price.

1.68. “Vendor’s roll” means the document contemplated in regulation 28 (4), in which all details of the auction are recorded.

1.69. “Voetstoets” means selling or purchasing goods/assets at one’s own risk, without guarantees or warranties as to the condition and/or the fitness of the goods/assets for a particular use, otherwise known as “As Is, Where Is” and “In its Present Condition”. Buyers are solely responsible for examining and judging the goods/assets for their own protection.

1.70. “Withdrawal” means taking an item or asset out of an auction because of failure to reach the reserve price or due to insufficient bidding.

Types, Methods & Benefits Of Auctions

1. Types of auctions

There are two broad types of auctions across the world, and a third variant in the event where reserve is not met as outlined here under:

1.1. Absolute auction or auction without reserve

Regulation 18 (1) of the Consumer Protection Act, No. 68 of 2008 (CPA) defines ‘absolute auction’ or ‘auction without reserve’ as an auction at which:-

(a) goods/assets are sold to the highest bidder without reserve;
(b) the auction does not require a minimum bid;
(c) the auction does not allow competing bids of any type by the seller or an agent of the seller;
(d) the seller of the goods/assets cannot withdraw the goods/assets from auction after the auction is opened and there is public solicitation or calling for bids; and
(e) the seller has a bone fide intention to transfer ownership of the goods/assets regardless of the price realized on auction in terms of regulations 20 (18-19) and 22 (3) (i) of the CPA.

1.2. Auction with reserve or auction with upset price

Section 45 (4) and (5) of the CPA defines ‘reserve auction’ or ‘auction with upset price’ as an auction where:-

(a) the seller reserves the right to establish a stated minimum bid, the right to reject or accept any or all bids, or the right to withdraw the goods from auction at any time prior to the completion of the auction by the auctioneer;
(b) goods/assets are sold to the highest bidder subject to the reserve price and acceptance of the highest bid by the seller in terms of regulation 28 (6) of the CPA;
(c) the owner or auctioneer, or any one person on behalf of the owner or auctioneer, as the case may be, may bid at the auction; provided notice has been given in advance that the sale by auction is subject to a ‘reserved’ or ‘upset price’; and
(d) the auction becomes ‘absolute’ or ‘without reserve’ once the reserve price determined by the seller is reached, and the auctioneer is authorized to sell the goods/assets to the highest bidder at the fall of the hammer or close of the auction.

1.3. Subject to confirmation (STC)

Subject to confirmation (STC)’ refers to an auction where:-

(a) the sale of the goods is not complete at the fall of the hammer or close of the auction because the reserve price determined by the seller was not met; and
(b) the auctioneer knocks the hammer or closes the auction provisionally to the highest bidder STC by the seller within a predetermined confirmation period.

2. Auction methods

Auctioneers use many different auction methods to conduct auctions across the world, predominately the once outlined hereunder:

2.1. Live on-location or on-site auction

Live on-location or on-site auction is the competitive marketing and disposal of goods/assets whereby buyers congregate physically at one place and the auctioneer takes bids from the floor.

2.2. Online auction

Online auction is the competitive marketing and disposal of goods/assets conducted on an Internet based platform for a pre-determined period of time with each lot sequentially closing at a given time. Prospective buyers bid online from the comfort of their offices or homes. Online auctions enable buyers to bid against each other with the system acting as an invisible auctioneer and regulating bid increments and the entire bidding process. Bid prices are updated in real time as bidding progresses and the highest bidder wins at the close of the bidding. There is no doubt that online auctions are the future of asset disposal across the world, for the reasons outlined under the section marked ‘Benefits of online auctions’ hereunder.

2.3. Live webcast

Live webcast auction is similar to online auction, except that bidders can participate remotely from any location around the world on the Internet via live link to a ‘live onlocation’ auction site. Both online and live webcast auctions have the advantage and convenience of saving the buyer the cost of travel and loss of productivity.

2.4. Multiple auctions

Multiple auctions allow portfolios of properties belonging to one or more sellers to be marketed and sold to buyers at a single event, essentially providing a mechanism to sell properties in bulk. Multiple auctions can be conducted at hotels or conference venues, and are facilitated by large screens where buyers can experience virtual tours and view pictures and videos of the properties for which they intend to bid. Among others, multiple property auctions have the advantage that they facilitate a high profile event at a reasonable marketing cost and they realize higher prices by attracting a wide buyer network thereby encouraging competition between buyers.

2.5. Multi-Par auctions

Multi-Par is an auction method that uses a sophisticated computer program to sell undeveloped land and apartments per square meter. The computer program is designed to protect individual buyers from big developers as it allows them to place their highest bid on a single plot or single unit.

2.6. Buyer’s choice

Buyers choice refers to a situation where the auctioneer offers buyers assets per piece, on a ‘per unit/item’ basis; with the highest bidder having the choice to take one or more units/items at the bid price multiplied by the number of units/items in the particular lot.

3. Benefits of auctions versus conventional private treaty sales

Auctions are indeed a preferred method of selling assets and property in most parts of the world today; with many benefits to both sellers and buyers, such as the following:

# CONVENTIONAL METHODS/PRIVATE TREATY AUCTION METHODS
1 LIST AND WAIT (LONG LEAD TIMES AND NOT COST EFFECTIVE): The biggest disadvantage of conventional private treaty disposal methods is that assets are merely listed with no certainty as to when the sale will happen. The long lead times are not cost effective as assets deteriorate meantime; be it through wear and tear, acts of vandalism and illegal occupation which necessitate costly eviction. As a result, sellers often have to incur holding costs such as security and insurance. QUICK-TURNAROUND AND COST EFFECTIVENESS: Auctions offer sellers quick-turnaround and timeous disposal of assets; thus saving them (sellers) time, holding costs and the deterioration of assets. Auctions are definitive events which can be staged at very short notice, where a pre-determined date, time and venue is set.
2 SECRETIVE AND TEDIOUS: The fact that the conventional private treaty disposal method is facilitated behind closed doors with the agent acting as a middleman is tedious and secretive; hence buyers usually treat attempts to drive prices up using counter offers with suspicion. OPENNESS AND TRANSPARENCY: Auctions are open and transparent activities which happen in the full glare of the public eye. Live on-site auctions offer buyers the opportunity to congregate in one place and bid for assets. Although online auctions happen behind the scenes, they also offer transparent audit trails.
3 ESTABLISHMENT OF A CEILING PRICE: The problem with conventional private treaty disposal methods is that they establish a ceiling price with the result that buyers tend to negotiate downwards. TIME VALUE OF MONEY: Considering the principle of ‘time value of money’, auctions avoid the devaluation of assets, as a rand in hand today is more valuable than a rand received some time in the future.
4 SUSPENSIVE AND SPECULATIVE: The suspensive nature of conventional private treaty disposal methods sometimes attracts speculative buyers. There is no guarantee that a person making an offer is good for the money and will settle his/her purchases. CONCLUSIVENESS: Auctions are conclusive events where serious buyers congregate to buy assets at the fall of the hammer in a competitive, real time, non-negotiable bidding environment, with non-suspensive and non-speculative conditions. By and large, auctions are treated as cash transactions, with the result that affordability is determined upfront. Although payment for transactions involving immovable assets happens upon transfer, the buyer must have proof of funds on auction day.
5 NOT COMPETITIVE (ONE OFFER AT A GO): A disadvantage of the conventional private treaty disposal method is that it doesn’t always yield the best value as it entertains one offer at a go, and accepts the first best offer with little option for the seller to bargain. COMPETITIVENESS AND TRUE MARKET VALUE: The competitive nature of auctions reveal the true and fair market value of assets. Auctions establish the price floor price and eliminate the price ceiling price. The auction method leverages multiple offers and give buyers the opportunity to determine value independently, in comparison and in competition. Bidding for auction items usually start low, but increases until the highest bidder buys the asset, giving buyers a 2nd, 3rd, 4th and more bites of the apple. With auctions, it is likely for a buyer who initially placed the lowest offer during the first round of bidding to end up being the highest bidder and purchaser of the assets.
6 MULTIPLE MANDATES AND LOCALIZED MARKETING: The fact that the conventional private treaty disposal method usually works on multiple mandates discourages agents from committing most resources (time and money) on the seller’s assets. As a result, agents only list assets locally with no focused attention and aggressive marketing effort requiring extensive investment. SOLE MANDATE AND MARKET EXPOSURE: The fact that auctions preferably work on sole mandates encourage auctioneers to commit resources (time and money) on aggressive and targeted marketing. As a result, auctions reach more buyers because they are marketed and publicized as ‘all or nothing events’ with the hype and excitement that build-up to maximum attendance on the day of the auction.

3.1. Benefits of online auctions

Apart from the general advantages of the auction method, online auctions offer both sellers and buyers the following added benefits:

3.1.1. Marketing exposure: Online auctions allow for greater marketing exposure of assets tolarger and even international buyers. Online auctions require detailed cataloguing of assets with detailed descriptions, including the attachment of high resolution pictures and virtual tour
videos.

3.1.2. User-friendliness of on-line auctions: Proceedings at live auctions are fast-paced and can be intimidating and overwhelming to first time bidders, who may be discouraged from participating, and ill-equipped to make split decisions within seconds. On the contrary, on-line auctions are user-friendly and offer bidders sufficient time to consider all the lots up for sale simultaneously over days, not seconds. This takes the intimidation of the live process away from the bidder and thus allows for more and better bidder participation. This relaxed bidding experience also allows the bidder to psychologically connect with the asset that is being purchased.

3.1.3. Cost-effectiveness: The biggest advantage of online auctions is cost-effectiveness. Online auctions are suited for the disposal of assets that are spread over a vast area, thus reducing auction delivery costs and saving the seller set-up and handling, costs such as transportation, warehousing, venue hire, etc. Assets can be sold where they stand, as there is no need to move them to central locations. This allows the utilization of natural surroundings with the advantage that many items look good in their natural habitat thus resulting in higher prices. This also eliminates the risk of damage and theft of assets in transit. This further allows local buyers a chance to participate and it has been proven that they (local buyers) generally pay slightly more for the assets as they do not have to factor any moving (transport) costs into their bidding.

3.1.4. Convenience: Online auctions afford buyers unlimited access (24/7) to participation in the auction and bid from the comfort of their homes or offices, thus saving them time, travel expenses and parking hassles. The online auctions also have a feature that allows bidders to place auto-bids by programming maximum bids thus enabling the online auction software to bid on their behalf automatically, even in their absence. Also, buyers do not have to experience inconveniences such as parking hassles on auction day.

3.1.5. Economies of scale and exposure: The biggest advantage of online auctions is that it offers
economies of scale as assets across different locations can be aggregated so that they appear as if they belong to one homogenous auction. An added advantage of economies of scale is that the assets of even the smallest auction base enjoy greater exposure to larger national and even international markets. Also, online auctions are capable of disposing small quantities of assets.

3.1.6. Bidder anonymity and elimination of ‘rings/cartels’: Online auctions have the distinct advantage of anonymous bidding where all registered bidders are displayed only by their bidding number. This prevents bidders from knowing the identities of competing bidders, thus protecting them and enabling them to participate in the auction without fear of the intimidation that usually happens at live auctions. It is common knowledge that the biggest disadvantage of live-on location auctions is the fact that buyers sometimes connive and collude by forming rings/cartels to suppress prices. Therefore, an added advantage of ‘bidder anonymity’ is that online auctions effectively eliminate ‘rings/cartels’ as well as intimidation by other bidders which usually happens at live on-site auctions.

3.1.7. Transparency: Online auctions offers a transparent audit trail. Apart from the functionality for live real time viewing, online auctions track each and every bid made, and provide maximum transparency by enabling sellers the functionality to log onto the system and monitor the auction real time, and also adjust agreed parameters such as reserve prices to facilitate the acceptance of bids that are close to reaching pre-determined reserve prices.

3.1.8. Longer and extended bidding: Online auctions allow for longer bidding time over extended periods of time (three to five days), which create the opportunity for emotional purchasing, whereby bidders bond with an asset to a point where they psychologically own the asset before they actually buy it. Online auctions eliminate the practice of quick knocks, whereby unscrupulous auctioneers connive with buyers to sell assets at reduced prices, thus disadvantaging sellers. The extended bidding built into online auction systems allow for continuous bidding until all bids have been submitted. This feature also allows last minute bids to extend the bidding on each lot until all bids have been submitted.

3.1.9. Price protection: Online auctions protect the seller’s interests as assets are loaded with reserve prices and the system rejects all bids below the reserve price. However, should reserve not be met, the seller can still negotiate the desired price with the highest bidder after the close of the auction.

3.1.10. Site security: The entire online auction process is electronic, with the result that there is no requirement to have an onsite team on auction day. Therefore, the seller attracts less liability as opposed to live on-site auctions. Only successful buyers report to the auction site for collections and the seller can implement effective crowd management and dispatch process such the coordination of as pre-arranged asset collection times.

3.1.11. Weather proof: Attendance and prices for online auctions cannot be affected or influenced by occurrences such as rain and other ‘acts of God’.

3.1.12. Swift settlement: Swift settlement as the online auction system generates automatic invoicing to successful bidders immediately after bidding closes, unless reserve has not been
met.