This article was first published in the 1st quarter 2018 edition of Personal Finance magazine.
Auctions tend to make news when they get stratospheric prices for rare and precious artworks, such as the $450.3 million (R6.1 billion) paid for a Leonardo da Vinci painting at New York auction house Christie’s in November. Such jaw-dropping moments are unlikely to encourage you to think of auctions as a prime source of affordable furniture, carpets, appliances and other relatively mundane household goods, but they can be just that.
People auction goods for all sorts of reasons other than realising value on art and antiques: businesses in liquidation sell furniture, fittings and unsold stock; large retailers dispose of goods that have been used as demonstration models or slightly damaged on the shop floor; executors of deceased estates auction household contents; and families that are splitting up or downsizing sell all manner of used furniture and household goods.
Bidway Auction House in Woodstock, Cape Town, has no Da Vincis, but you might find that state-of-the-art toaster and kettle you’ve been coveting, a kitchen cabinet to put them on, or the perfect loungers for your patio.
According to managing director Stef Olivier, who founded Bidway after six years with auction giant Aucor, it’s a safe bet that auction buys will be a bargain, “if ‘bargain’ means getting the product at a discount on the store price”, as he puts it.
A typical Bidway auction sells 400 to 600 lots, including 20 or 30 fridges, a range of TVs and small appliances, and an array of furniture and lounge suites. The company does sell household goods on behalf of individuals, but it has found its niche in restaurant and catering equipment (a restaurant or food outlet of some kind goes out of business every week in the oversupplied Western Cape, says Olivier) and new or next-to-new goods from the large retail chains.
Olivier says the hammer price (the price that wins the item for the bidder) tends to be 50 or 60 percent of the recommended retail price of the product. An upmarket kettle that costs R3 000 from a major retailer might go for R1 500 or R2 000 at auction, he says. And an R8 000 fridge might be yours for R4 000. But you must bear in mind that you will pay a buyer’s commission (also called a “buyer’s premium”) of 15 percent. To that, add VAT of 15 percent on the hammer price and the commission. So, for example, the item you secure with a R100 bid has a real cost of R131.10 (R100 plus 15 percent commission plus VAT on R115), plus the costs of delivery if the item is too big to take away yourself.
It is important to note that all auction houses are not equal when it comes to VAT. Bidway and auction houses like it charge VAT on the hammer price, because the bulk of their business is done for VAT-registered commercial sellers. The fine art auctioneers, on the other hand, are regarded as agents acting for the owners/sellers of goods that are generally not subject to VAT, so they do not charge VAT on the hammer price. VAT always applies to the commissions paid to auction houses.
Commission rates vary from auction house to auction house and according to the type of goods being auctioned – for example, fixed property and motor vehicles have their own rates of buyer’s commission, while 15 percent is the industry standard for movable property. The fine art auctioneers tend to have two levels of commission: Omni (Cape Town) and Strauss and Co (Johannesburg) charge 15 percent on a hammer price of R10 000 or less and 12 percent on prices above that. The rates are the same at Johannesburg-based Aspire Art Auctioneers, but 12 percent kicks in only when the price exceeds R20 000. So make absolutely sure you know the real cost before you enter the fray … and set your spending limits beforehand.
Seeing is believing
Every auction is preceded by at least one viewing day (two or three in some cases), and prospective buyers are urged to use the opportunity to examine the goods on offer for themselves and form their own opinion as to quality and value – or even obtain an expert opinion.
Auction goods – including new/unused items – do not come with guarantees or warranties and are not subject to the six-month defective goods cooling-off period provided for in the Consumer Protection Act (CPA), or the five-day cooling-off period that applies in all cases of direct marketing. In other words, auction goods are sold “voetstoots” (or “as is”), subject to buyers being given free access to the goods and sellers disclosing any known defects.
The CPA deals with auctions in some detail, with section 28(5) making it clear that auctioneers “must afford consumers a reasonable period of time and opportunity to inspect the goods on offer prior to the commencement of the auction, and no fee may be charged for such opportunity”.
Section 24(m) states that auctioneers “may not knowingly misrepresent, or cause or permit to be misrepresented, the value, composition, structure, character or quality or manufacture of the goods put up for sale at an auction”. Bidway acknowledges this by posting the following disclaimer on its website and ensuring that buyers sign up to it: “The goods are sold subject to the condition report/inspection report furnished for the goods (for the auction) or in a document appended to or alongside the goods.
Bidway is only aware of the condition and state of the goods as they are, and as disclosed by Bidway ... [and] does not have any other knowledge of the goods and the state and condition thereof. Accordingly, the goods are sold in the condition and state that they are in, and the purchaser purchases the goods in accordance therewith.”
The fine art auctioneers issue glossy catalogues that include a description of each lot and a price estimate, but illustrations are limited and may be misleading, so it is important to examine the items in which you are interested and do some research of your own if necessary. As Omni Fine Art Auctioneers states on its website: “Opinions and condition reports are given to the best of our knowledge; however, we do recommend that you consult a professional restorer for more accurate reporting.”
Bidway’s catalogue-free process includes a representative sample of images of the goods on the website (bidway.co.za) and the company’s Facebook page, so you get a good idea of the range of goods on offer. Then it is up to you to take advantage of the preview period. Olivier says great care is taken to display the lots on the saleroom floor so that they can be seen and examined.
All that having been said, the CPA ensures that consumers are not without protection from deliberate misrepresentation and fraud by auction houses. The Goods & Services Ombud, in its “Advisory Note 16: Auctions”, concludes that, “in spite of the exclusion of goods sold on auction from the protection of section 55 (which guarantees the consumer’s rights to ‘safe and good quality goods’), an auctioneer can be held liable for misrepresentations made, particularly those that are made fraudulently. That liability may range from the sale being cancelled to civil liability under the CPA, to the imposition of an administrative fine.”
The CPA sets the bar very high for auction houses when it comes to providing consumers with information and, at the very least, requires them to publish the rules of auctions comprehensively and in good time. Most have their main rules, terms and conditions on their websites, so there’s no excuse for not doing your homework.
“Going ... going ... gone!” is the expression most associated with the drama of auctions. Actually, not many auctioneers use those words. Some just ask: “Any further interest?”, or “Fair warning … selling now ... sold!”. In truth, auctions can be more shabby and routine than dramatic, but they are always nerve-wracking for the beginner.
Whatever approach the auctioneer takes, when the gavel comes down, it’s a done deal and a contract to buy is sealed. The house, car, 1930s tea set or pine coffee table is yours, and you are fully liable for payment – and, if it is movable property, for taking your new possession(s) away. So it is important to understand how it works beforehand.
Pick your method
There are various ways of participating in an auction: you can attend in person and bid in the saleroom, or you can participate in a sale from a distance by bidding by telephone, or online where this is available. If you can’t use any of those methods, you can be an absentee bidder, which means recording your maximum bid per item in advance, in which case the auctioneer will represent you until the bidding reaches your maximum. You can also authorise a representative to bid on your behalf.
No matter what bidding method you choose, you have to register beforehand, either during the preview period or on the day, providing identification, proof of address and, often, a refundable deposit of about R5 000 to cover the auction house’s costs should you renege on the contract. Bidders who do not pay are blacklisted.
If you bid in the saleroom, you are allocated a number, which you hold up to identify yourself as a bidder to the auctioneer. You don’t have to say anything; bidding starts at a price agreed between the seller and the auction house and increases by increments set by the auctioneer, which may get bigger as the price goes up. For example, the bidding might open on R800 with the price increasing by increments of R200, but the auctioneer might move seamlessly to increments of R500 once the price has reached R5 000.
Note that not all auctions are seated, with the auctioneer operating from a podium in the traditional way. Most Bidway auctions move around the floor, from item to item. Olivier says he gets through 120 items an hour, with the average auction lasting about 3.5 hours.
Having registered as a telephone bidder ahead of an auction, you will get a phone call from a representative of the auction house when the bidding opens on the lot(s) in which you are interested. You give your instructions to the representative and stay online until you drop out of the bidding or provide the winning bid. Online bidding operates similarly, with a representative in the saleroom monitoring the website and communicating online bids to the auctioneer. As an absentee bidder, you are in the frame, with the auctioneer announcing to the room that he or she has a written bid exceeding the last bid from the floor until the price exceeds your maximum. If your maximum exceeds all the other bids, you will acquire the lot for one increment above the highest bid.
You can forget those mythical stories of people sneezing at the wrong time and finding they have bought a R200 000 Ming vase. Auctioneers don’t work that way; pity the poor novice who mimics the movies by tapping his nose to signal a bid … auctioneers have been known to bark: “Are you trying to bid? We don’t do it that way.”
So the first thing to know is that the auctioneer will never guess that a person is trying to bid; he or she wants a firm and clear indication. The myth probably arose from the fact that, when two people are bidding for an item, the auctioneer will look at each bidder in turn as the price rises, and, at that point, it just needs a slight nod from the bidder to indicate that he or she is prepared to meet the bid. The auctioneer will continue looking at each of the bidders until he or she sees a firm shake of the head indicating that one bidder is dropping out. In other cases, the bidder may merely hold up his or her card and keep it up until he or she reaches his or her limit, whereupon he or she will lower it.
Although the auctioneer moves fast, don’t be intimidated. You can ponder for a moment when the auctioneer looks at you, awaiting your signal. Often he or she may ask, if he or she sees you hesitating, “Just one more bid?”
The second thing, then, is that there is no point trying to jump in when two bidders are pushing each other to the limit of their budgets. You just have to wait until one drops out, whereupon the auctioneer will look around the room to see if anyone else is willing to pick up the baton and run with it. Make a clear indication by holding up your card, or calling out. When all is done, he or she may ask, “Any further interest?” If there is none, he or she goes ahead with “Fair warning …” and the gavel comes down.
Pay up promptly
Aspire Art Auctions in Johannesburg explains the endgame on its website as follows: “Payment must be made immediately after completion of the auction unless otherwise agreed with Aspire. Once payment for the purchased lot is made and cleared, you may take the lot, or arrange for collection.”
Payment options vary, but are invariably strictly enforced: for example, most auction houses do not accept cash, although they will accept cash deposited at the bank; Bidway accepts payment by electronic transfer or bank-guaranteed cheque only; while the companies that accept credit card payments may charge an extra fee – three percent in the case of Omni Art Auctioneers. Aucor, which does a lot of motor vehicle and home sales, has accounts at four of the major banks and accepts electronic transfers only within those banks: for example, Absa to Absa and Nedbank to Nedbank. At Auction Operation on the West Rand, which also specialises in motor vehicle auctions, only an EFT will do and foreign nationals must pay a deposit of R20 000, also by EFT.
So familiarise yourself with these rules when you register and remember that there may be extra costs associated with collection of your purchases: storage and handling costs charged by the auction house if you can’t remove the goods immediately, delivery costs for large items (the auction house can usually supply the details of delivery services), insurance for items of value when they leave the auction house, and so on.
SIX TIPS FOR BEGINNERS
1. Auctions can be intimidating. It’s a good idea to attend one as an observer before you attend as a buyer so that you can familiarise yourself with the process.
2. Don’t get into a bidding contest with another buyer. Adrenaline tends to boost competitiveness, so set limits on your spending beforehand.
3. Auctions move fast, so stay alert for the item(s) in which you are interested. Don’t be in the loo, or helping yourself to a cup of tea, when your lot comes up.
4. On the other hand, don’t bid unless you really want the item. Remember, a winning bid is binding; you can’t cancel the sale.
5. Some people say the best buys happen in the afternoon. Energy flags after lunch and some of the registered bidders may not return.
6. Leaving one auction empty-handed means you can attend another and have all the excitement again.
AUCTIONS IN HARD TIMES
Is an economic downturn a good time for auctioneers or for buyers? Stef Olivier says when times are tough there is an upturn in attendance at auctions, but less spending. “If things are really bad, we don’t get more stock immediately; about six or seven months later, stock starts coming in (from businesses that downsize or close down),” he says. “We see greater attendance at our auctions, but we sell a lot less.”
This means that auction prices are not likely to reach the levels they might reach in the good times. So don’t be discouraged by the crowd; if you need something, you might get it at a better price now than you would have done when consumer confidence was high.
SO YOU WANT TO BE A SELLER?
The beauty of auctions is that the price is genuinely determined by demand, not by a retailer, although the bottom line may be set by a reserve price. This is a price agreed confidentially between the seller and the auctioneer, designed to protect the seller from letting something of value – such as a property or a piece of jewellery – go for an unacceptably low price. Auctions normally start lower than the reserve to encourage prospective buyers to join the bidding, but auctioneers are required to make it clear that a reserve is in place.
Even with a reserve, it might be a nerve-wracking process for the seller, but remember that it takes just two keen buyers to boost the selling price to a level that surpasses all your expectations.
Sellers should note the following:
• Section 45 of the Consumer Protection Act requires that any person “who wishes to dispose of his or her property by way of an auction signs a declaration stating that he or she is the owner or rightful holder of the goods (who has the right to sell)”;
• As a seller, you can withdraw, in writing, up to a prescribed time prior to the auction, but you will be charged a withdrawal fee;
• The seller pays commission on the hammer price, plus VAT on the commission; and
• The seller may have to wait for payment for a period – often 30 days – even if the buyer pays immediately. Check the auction house’s terms and conditions.