And the home goes to...

It may come as a surprise that Dubai, a city renowed for its high-end property developments, is something of a stranger to the auction. Yet as it moves from an off-plan, investor-driven market to an end-user market, putting properties under the hammer may become more common.

Last week, real estate agent Madania Real Estate, a subsidiary of Al Tamimi Investments, auctioned off four properties, while this week Sherwoods Independent Property Consultants will conduct an auction at the Grand Hyatt on Thursday, June 4.

Adam Fenwick, property consultant and a member of the Sherwoods auction team, says auctions are an accepted way of selling in many parts of the world.

"Auctions have been documented as far back as Babylonian times. Sotheby's first property auction was in 1744. In the UK, property auctions are now a tried, tested and trusted marketplace for property disposals."

As the UAE real estate market becomes increasingly end-user oriented, Adam says property auctions are likely to become more popular. Mohanad Alwadiya, director of Harbor Real Estate, says auctioning is popular in many countries around the world.

"Typically, the auction method is utilised for existing, completed properties," he says. "Prior to the recession, the Dubai property scene was a strong seller's market, characterised by a high proportion of off-plan property sales which were sold very easily and rapidly, due to the high levels of demand. This characteristic would have delayed the adoption of the auction system of selling simply because sellers and/or agents didn't require auctions to sell properties quickly and profitably."

How it works

The auction team, after speaking to various sellers, creates a catalogue of properties and plots to go under the hammer. A group of potential buyers are then invited to attend, as well as invariably some curious observers.

A potential buyer can win a bid at the auction, provided his/her bidding price matches or exceeds the seller's reserve price. (The reserve price is the lowest a seller will accept.) "All the details of the lots are clearly described in the auction catalogue," says Adam.

"Potential buyers should consult the catalogue before attending the auction as it will provide them with all the details of each property, from title deeds to payment plans." Upon request, buyers will also be shown a sample MOU (Memorandum of Understanding). The potential buyer is encouraged to view the property prior to the auction and ask questions about it.

"The purpose of a property auction is to create a transparent environment for motivated sellers to present the property to committed buyers," says Adam.

"Of course, there is an element of chance involved, but that might be to the advantage of both buyer and seller."

With 52 lots being auctioned off on Thursday, Sherwoods is confident that the event will be successful anough to warrant another one in the fourth quarter of 2009.

Advantage buyer

For the buyer, an auction allows them to avoid the hassle of numerous visits to brokers, lengthy negotiations and legwork. "While there is the perceived idea that a property bought at an auction will be at a heavily discounted price, the truth is that the real opportunity to bag a bargain is if there is little or no competition from other parties when a buyer is bidding," says Adam.

Sherwoods says that every effort is being made to provide interested parties with all the relevant information on the property they are interested in, including a description of its condition.

Prospective buyers could inspect the property before the auction once they have seen the details in the catalogue. Adam advises potential buyers not to bid "if they are not 100% comfortable about the lot."

Mohanad says the advantage for buyers at an auction is that the properties they are bidding on are usually reasonably priced. "If the auction system is well-regulated and administered, buyers would know they are competing fairly and on the same terms as everyone else in the room."

Like Adam, Mohanad believes that the system of auctioning properties provides a form of transparency, where competing bidders are quite often standing just a few metres apart. It can be exciting and nerve racking at the same time, but ultimately rewarding for the winning bidder.

Advantage seller

Homeowners often prefer to sell through auctions as they provide a fast, efficient and convenient means to sell the property with increased probability to generate a higher sales price.

"An auction provides a clear shop widow for sellers' properties to be exhibited. The seller is also secure in the knowledge that if their reserve price is met and a sale agreed, the successful bidder will have to place a deposit amount and sign an MOU at the time of the auction. The transfer of the property will occur after 30 days," says Adam.

"Auction prices can quite often exceed the price of a negotiated sale and an auction exposes the property to a large number of pre-qualified buyers who already have finance available to complete the purchase," says Mohanad.

Money matters

Although bidding for a property has its advantages, getting a mortgage is another matter altogether. Sherwoods will offer property financing options as part of the auction. "We will also have our mortgage consultant present on the day of the auction, especially since many of the lots are on payment plans".

What's crucial, is that buyers are aware of their budget limitations, he says. "It's important that buyers have their finances organised and are clear about the budget cap, before they start bidding."

Details

Where The Grand Hyatt
When June 4, 6.30pm
Entrance Free
Contact auctions@sherwoodsproperty.com