New auction laws will “change the industry forever”

People should find it easier to get involved in real estate auctions, with the new auction laws that come into effect at the end of the month through the Consumer Protection Act. Under the new auctions laws, South African auctioneers will have to implement over 200 rules and regulations, which will change the industry forever. This is the first time in history that auction procedures are being legislated.

The murkiness of reserve prices, vendor bidding, registrations and auction results will be cleared. A controlled set of rules will create an environment of openness and transparency and the new laws will lift the veil on an industry, which for generations has operated under the radar screen. For two decades they have tried to regulate the auction industry and now government has given auctions a full go, making the local industry one of the world’s most regulated auction environments.

The auction laws take modern business practice into account and go into in-depth detail about what an auctioneer must say at an auction, how auction companies advertise and what their contracts say. As an example there are over 20 rules dealing with motor vehicle auctions alone and the laws go into detail about what information auctioneers must disclose to the public. The new auction laws also deal with the growing online auction space as well as livestock sales and even charity auction events.

The South African auction laws are similar to those introduced to Australia in July 2008, which now govern the rules of practice for the sale of all assets by auction. In many ways the new South African auction laws mirror those of the world’s largest auction nation and it creates a narrow path in which auctioneers can now operate. In Australia, when their auction laws came into effect, the auction industry lost many of its less salubrious operators but actually grew in an environment of transparency. We agree these laws need to be clarified to offer a better understanding to South Africans bidding at auctions. When the public become aware of the effects and changes these laws will bring, they will be attracted to an industry that is better regulated and offers them better protection. Assets will be sold in a more transparent manner and the opportunity for people to be duped into paying more than they were willing to bid will be a thing of the past.

The auction industry faces the greatest number of regulations in the entire Consumer Protection Act. Auctioneers need to be prepared for the massive changes these laws will present. We have to totally overhaul our administration and structures to accommodate a myriad of laws that go into finite detail about how we conduct our sales; from marketing to operations, on-line auctions, to how the actual auctioneer conducts an auction.

Besides the various rules pertaining to auctions, the Consumer Protection Act governs the general relationships between sellers, buyers and estate agents. Auctioneers fall under the Estate Agency Affairs Act and will go along with several pieces of legislation aimed at the property industry including consumer protection rights. The good news for sellers and auctioneers is that auctions are excluded from section 55 (1), which expressly states that the cooling off period does not apply to goods bought on auction. This may boost the number of properties coming to auction, since many sellers are concerned that they can sell a property and buyers can then pull out of the transaction.

The Consumer Protection Act’s auction rules are a minefield which auctioneers will be traversing daily. Those auctioneers who are unprepared for April 1, when the laws come into effect, are opening themselves and their sellers to disputes and litigation.

The changes will be the most significant auctioneers have faced in their history. There will be some initial difficulties, particularly for smaller auction companies who do not have large administrative teams. I do think there will be some teething problems as there always is when there’s a significant change to the legislative environment, and both auctioneers and consumers will grapple a little bit with those changes.

These new laws are coming at a time when the market is still weak from the recession, and while the timing is inopportune, in the long term it will clean up an industry which has now come of age.