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Consider commissions before buying on auction

Home Business Management Finance & Investment Consider commissions before buying on auction

BEFORE you commit to attending an auction in hopes of making a large purchase at a bargain price, consider fees such as commissions first before taking the leap.

“Although there is no set amount for commissions, the purchaser can expect it to generally be between 10% and 15%. This usually depends on how the mandate is structured,” explains Clive Lazarus, SAIA board member.

Commissions are the amount or fees the auctioneer will charge in return for organising a successful sale – which can be paid by either the buyer or seller or both parties. They are a part of the sale price and will accordingly attract VAT – whether paid by the buyer or seller, it will be treated as a deduction by the auctioneer. The South African Institute of Auctioneers (SAIA) reminds buyers to be mindful of what fees to take into consideration prior to attending an auction.

“It should be noted by buyers that the commission amount is over and above their final bid. Furthermore, commission charged on the sale of movable assets can vary on the size or value of the auction and the degree of work required. It is commonplace for auctioneers to charge both buyers and sellers commission as movable assets are generally labour and cost intensive.”

“There is also a predetermined marketing and advertising charge levied on the seller which must be negotiated and agreed to by the seller in a clearly defined signed mandate between the seller and the auctioneer. It is important that auctioneers and sellers agree to these charges before committing to the rollout of an auction,” adds Philip Powell, SAIA vice chairperson and head of governance.

Property auctions

When the auctions pertain to property, the commission is normally charged to the buyer, although this can vary. According to the auctioneering industry experts, the consensus is that although there is no prescribed statutory tariff rate, the reasonable norm is between 5% and 7% but may fluctuate depending on the size of the transaction.

“In conclusion of a property auction, the buyer must sign the auctioneer’s condition of sale agreement, at which time the buyer must pay a deposit and auctioneer’s commission. The funds received should be deposited into the auctioneer’s trust account pending confirmation of the sale. On confirmation and acceptance by the seller, the auctioneer must then transfer the deposit into the transferring attorney’s trust account and the commission plus VAT thereon can be transferred into the auctioneer’s trading account. If the deposit received incorporates the auctioneer’s commission, then the commission plus VAT thereon is apportioned and transferred as above,” elaborates Philip.

“Buyers should also remember the standard costs involved in purchasing property such as transferring attorneys, transfer fees and VAT (whichever is applicable),” adds SAIA board member, Marc Roberts.

Fellow SAIA board member, Nico Maree also added that with the promulgation of the new Property Practitioners Act it must also be noted that commissions by the transferring attorneys can only be paid out if the auctioneer has a valid fidelity fund certificate (FFC).

This commission is payable on registration or in terms of the agreement between parties as prescribed by the Consumer Protection Act read together with the Property Practitioners Act.

Additional fees

“Buyers and sellers should pay attention to additional fees and costs depending on the type of items they will be purchasing on auction. These may include the cost of marketing which can either be absorbed by the auctioneer or paid by the seller. This is usually determined by the risk involved in selling in the specific auction. The documentation or administration fee is more likely to be charged on vehicle type auctions where registration documents are involved. In addition, valuation, site preparation and online auction platform fees can be applicable’” concludes Jacques van der Linde.

It should be remembered that auctions are a transparent and fair process where all bidders bid under the same terms and conditions. By accessing all the necessary information prior to taking part in an auction and keeping in mind that all bidders are held to the same requirements, all parties involved will ensure that this facilitates the fairness of the process and hopefully renders faster results for all parties.

Should a buyer be unsure of any details regarding an auction, SAIA is always willing to assist in verifying auctioneers’ membership as well as credentials.

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