The things you need to know before buying property on auction

If you glance at your local dailies you will notice pages upon pages of property up on auction.

Perhaps, you have some money and have been wondering how best to take advantage of the items on offer. While auctions offer things at a bargain, getting a good deal is another story altogether. That's why you need to know your way around before bidding. According to Harriet Onyiego, an Advocate of the High Court, it is important to focus on the most important factors that impact the validity of the sale by auction. Here's what to keep in mind:

Is the auctioneer licensed?

Ms. Onyiego says that a licensed auctioneer should be a qualified individual holding a valid auctioneering license issued by the Auctioneers Licensing Board under the provisions of the Auctioneers Act No. 5 of 1996 Laws of Kenya. An auctioneer's license is strictly issued to an individual and it is not transferable. Apart from a license, the auctioneer must be authorised to sell the item on sale. "The Authority to sell by way of an auction may vary depending on the type of auction sale. The authority may be through a letter of instruction or a court warrant or order," says Ms. Onyiego. This is determined by whether the sale is ordered by law or on behalf of the owner of the property.

Types of auctions

There are two main types of auctions. The statutory auction sale eg by a bank to recover a debt and an auction sale on behalf of the owner of the property. Before this auction is executed, the chargee bank is supposed to issue the charger in default a 40-day notice to sell. "This notice is in addition to the three months' notice and is different from the mandatory notice of 45 days under the auctioneer's rules," says Ms. Onyiego. Where an auctioneer is selling on behalf of a property owner, you should first know if there is an official letter of authorisation from the property owner.

The preview

Not everything that has been put up for auction is worth bidding for. The only way you can determine the worth of the item on offer is to preview and value it beforehand. "Being an intended purchaser, you will be expected to do as much due diligence as possible before attending an auction. The type of auction being conducted and the auctioneer handling the sale will have a bearing on the due diligence information outwardly provided to the buyer," Ms. Onyiego, says.

If a plot of land is on sale, you will need to conduct an official search on the plot to establish ownership and registration of the charge. In the case of vehicles, an auctioneer will give the location where the vehicle is situated for you to go and check its condition and conduct a search. Goods sold on auction are sold as-is. If the item you have bought is faulty, then you will assume responsibility and not charge the auctioneer.

Value

Things on auction may be fairly priced. But this doesn't mean they are always cheap or worth it. In 2016, for example, the Judiciary auctioned 40 high-end vehicles for as low as Sh25,000. The initial price range for the 27 Mercedes Benz was between Sh210, 000 to Sh390,000 each. However, they were sold at prices ranging between Sh650,000 and Sh2million. The most expensive Land Rover 110 that was rated at Sh455,000 went at Sh2million. "Get a valuation for comparison with what's in the market, a bidding limit, and if the property is a vehicle, what repairs to expect afterward," says Ezekiel Mugonyi, a licensed auctioneer working in Nairobi.

Terms and conditions

For example, you may need to confirm whether the property being sold is subject to a reserve price or not, or whether a right to bid is reserved on the part of the seller. "A reserve price means the minimum price that a seller would be willing to accept from a buyer," says Ms. Onyiego. In some auctions, you may be required to pay deposits before taking part in the auction. Check if deposits are refundable or nonrefundable. Deposits will depend on the type of items on sale. For example, during the December 2020 KRA auction, bidders were required to pay a refundable deposit of Sh15,000 for vehicles and Sh5,000 for other goods. "Check the deposit you're required to pay after winning the bid and the period allowed to settle the balance, lest you're forced to forfeit the property and the money you have already paid," says Mugonyi.

After winning bid

Once you win a bid, the auctioneer might demand that you pay a certain percentage at the fall of the hammer and the remainder within a specific period. For example, in the case of Mocha Place, a building in Kisii that is currently up for auction by Garam Investments, anyone intending to purchase the building will have to pay a deposit of 10 percent at the fall of the hammer. The balance will thereafter be settled within three months. Also, potential buyers will have to make a mandatory deposit of Sh10 million before taking part in the auction.

Property withdrawal before the sale

In the first week of April 2020, Garam Auctioneers announced that they would auction two houses belonging to prominent journalist Jeff Koinange. The houses were located in the prime Kitisuru area in Nairobi and were estimated to be worth Sh200 million. The two four-bedroom villas were being auctioned over Sh130 million that Koinange had taken at the NCBA Bank Group. Before the auction day, Koinange struck a deal with NCBA that preserved his homes. Bids had already been placed by then, but the owner took precedence in this case.

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