Why Choose an Auction for Your Property Sale?
A property sale by auction is a dynamic and structured method for selling real estate, offering transparency, speed, and the potential to achieve true market value in a competitive bidding environment. Unlike a private treaty sale which can involve lengthy negotiations, an auction sets a specific date for the sale, creating urgency and focusing buyer attention. In Kenya, this process is meticulously regulated to ensure fairness for all parties. Swipe Recoveries Experts Ltd, operating from our offices at International Life House, Nairobi, provides professional auctioneering services, guiding clients through every step of a successful and legally compliant property sale by auction.
Governing Rules: The Auctioneers Act and Property Laws in Kenya
Every property sale by auction in Kenya is underpinned by a robust legal framework designed to protect sellers, buyers, and creditors. The cornerstone of this regulation is the Auctioneers Act, 1996, and its detailed Auctioneers Rules. This legislation mandates that only a licensed auctioneer, who is in good standing with the Auctioneers Licensing Board, can conduct such a sale. The Act outlines the auctioneer's responsibilities, including proper advertisement, setting conditions of sale, and handling of funds.
Beyond the Auctioneers Act, property-specific laws like the Land Act, 2012, and the Contract Act (Cap. 23) are integral. The Land Act is particularly important as it dictates the procedures for forced sales (by a lender) and requires a current valuation to establish a reserve price. The Contract Act governs the binding agreement created at the fall of the hammer, known as the Memorandum of Sale. There are two main pathways for an auction: a 'voluntary auction', where the owner chooses this method of sale, and an 'involuntary auction' (forced sale), compelled by a court order or a lender's power of sale. Each path has specific legal protocols that must be followed.
The Auction Sale Process: A Guide for Sellers and Buyers
The process of a property sale by auction involves distinct steps for both the seller and potential buyers, culminating in a transparent public event.
For the Seller:
1. Instruction & Agreement: The seller engages a licensed auctioneer and signs an instruction letter outlining the terms, including commission and costs.
2. Valuation & Reserve Price: A professional valuation is conducted. Based on this, the seller and auctioneer agree on a 'reserve price'—the confidential minimum sale price.
3. Marketing Campaign: The auctioneer launches a marketing campaign, which must include a formal newspaper advertisement, to attract a wide pool of potential buyers.
4. Auction Day: The auctioneer conducts the public auction. If bids exceed the reserve price, the property is sold to the highest bidder.
For the Buyer:
1. Due Diligence: Before the auction, a prudent buyer must perform due diligence. This includes conducting a title search at the Land Registry, inspecting the physical property, and checking local development plans.
2. Arrange Finances: Buyers must have their finances in order, specifically the deposit amount (usually 10-25%), which is payable immediately upon a successful bid.
3. Auction Registration: On the day, buyers register with the auctioneer, providing their details and sometimes a refundable bidding deposit.
4. Bidding & Purchase: The buyer bids openly. If successful, they sign the Memorandum of Sale and pay the deposit. The balance of the purchase price is typically due within 90 days.
Understanding the Financials: Auction Fees and Costs (KES)
Both sellers and buyers need to be aware of the financial commitments involved in a property sale by auction. All costs are transacted in Kenyan Shillings (KES).
For the Seller: The main cost is the Auctioneer's Commission, which is a percentage of the final sale price, as stipulated in the Auctioneers Rules or as agreed upon. Additionally, the seller bears the Marketing & Advertising Costs, which can range significantly from KES 20,000 to over KES 100,000 depending on the property's value and the campaign's scale. The fee for the mandatory Valuation Report is also the seller's responsibility.
For the Buyer: The largest cost is, of course, the Final Bid Price. Immediately upon winning, the buyer must pay a non-refundable Deposit, typically 25% of the purchase price. After the sale, the buyer is liable for paying Stamp Duty to the government, which is 4% of the value for properties in municipalities like Nairobi and Mombasa, and 2% elsewhere. Finally, the buyer will have their own Legal/Conveyancing Fees for the title transfer process.
