Auctions are some of the best markets to buy things at a bargain. But getting a good deal at an auction is not always as easy as the fall of the hammer.

You can lose big time, which is why it is important to know your way around an auction before making your bid.

According to Harriet Onyiego, an Advocate of the High Court, it may be difficult to know every particular detail about a property being sold on auction. Nonetheless, it is important to focus on the most important factors that impact the validity of the sale by auction.

“There are instances where as a purchaser through an auction sale could lose legal protection if it is proved that there was an improper or irregular exercise of the statutory power of sale of which a purchaser had notice of,” says Ms. Onyiego.

Is the auctioneer licensed?

Before you attend and participate in an auction, you must know if the auctioneer is licensed or not. Ms. Onyiego says that a licensed auctioneer should be a qualified individual holding a valid auctioneering license issued by the Auctioneers Licensing Board pursuant to the provisions of the Auctioneers Act No. 5 of 1996 Laws of Kenya.

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An auctioneer’s license is strictly issued to an individual and it is not transferable. Apart from a license, the auctioneer must be authorized to sell the item on sale. “The Authority to sell by way of auction may vary depending on the type of auction sale.

The authority may be through a letter of instruction to recover addressed to the auctioneer or through a court warrant or order,” says Ms. Onyiego.

This is determined by whether the sale is a statutory auction sale or an auction sale on behalf of the owner of the property.

Types of auctions

There are two main types of auctions. The statutory auction sale and an auction sale on behalf of the owner of property. The statutory auction sale includes sale of property that has been charged, for example to a bank.

Before this auction is executed, the chargee bank is supposed to issue the chargor 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 auctioneers 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 authorization from the property owner to the auctioneer.

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 beforehand.

According to Ms. Onyiego, every auction is preceded by a preview of the item that is up for bidding. “Being an intended purchaser, you will be expected to do as much due diligence as possible prior to 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,” she 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.

It is important to remember that goods sold on auction are sold as is. This means that 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 at the fall of the hammer. In 2016, for example the Judiciary auctioned 40 high end vehicles for as low as Sh. 25,000.

The initial price range for the 27 Mercedes Benz was between Sh. 210, 000 to Sh. 390,000. However, they were sold at prices ranging between Sh. 650,000 and Sh. 1.7 million. The most expensive Land Rover 110 that was rated at Sh. 455,000 went away at Sh. 2million.

“If possible, get a valuer to check out the property. This will give you a valuation for comparison with what’s in the market, a bidding limit, and if the property is a vehicle, what repairs to expect afterwards,” says Ezekiel Mugonyi, a licensed auctioneer working in Nairobi.

Terms and conditions

Take note of the terms and conditions of a sale. These are usually stated in the auction advert. 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 Sh. 15,000 for vehicles and refundable deposit of Sh. 5,000 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 per cent at the fall of the hammer during the auction.

The balance will thereafter be settled within a period of three months to the chargee’s advocates.

“Please note that failure to pay the balance by the confirmed purchaser will result in forfeiture of all deposits paid,” the auction notice said. In addition, potential buyers will have to make a mandatory deposit of Sh. 10 million before taking part in the auction.

Property withdrawal before sale

According to Mugonyi, the property on sale can be withdrawn before the auction has taken place. 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 Sh. 200 million. The two four-bedroom villas were being auctioned over a Sh. 130 million that Koinange had taken at the NCBA Bank Group.

Out of this total borrowed figure, Koinange owed the bank some Sh. 65 million. He had defaulted on payments in 2019. The two houses were set to be auctioned on April 28, 2020.

“The title is a freehold interest. The current annual rates payable amount to Sh. 16,500. The annual rates payable together with accrued penalties amounted to Sh. 70,291 as at 27,01,2020,” Garam Auctioneers said. Those seeking to buy the two villas through the public auction will need to place a deposit of Sh. 5 million ahead of bidding for the prime homes.

Before the auction day, Koinange struck a deal with NCBA that preserved his homes. At the time the deal was signed to stop the auctioning, Garam had received interests from buyers who were ready to pay the deposit.