Virtual push for real estate

EFFECTIVELY opening up the forced sale of properties locally to a global audience, online auctions are being touted as an integral part of the future of Jamaican real estate.

“Online property auctions represent one of the most significant shifts in Jamaica’s real estate transaction model in decades. While adoption is still maturing, the trajectory suggests that they can become a mainstream method of sale, but this will be dependent on digital trust and the growth in market sophistication,” said managing director of A S James & Associates Ltd, Andrew James.

His company was instrumental in staging Jamaica’s first online auction in July 2020, spurred by conditions created by the COVID-19 pandemic that put caps on the number of people allowed to gather in one space. According to James, though Jamaica is about two decades behind global players, it is still among the Caribbean’s early adopters of fully digital real estate options.

“While Jamaica started late globally, the transition was rapid and timely, aligning with a global shift,” said the past president of the Realtors Association of Jamaica.

James stressed, however, that while uptake has been growing, online auctions are still underutilised in the country. He wants to see them more frequently used for high-demand urban properties, unique or luxury assets, and properties with pricing uncertainty. Read on for more of his recent interview with the Jamaica Observer’s Real Estate on the Rock in which he delved into the pros and cons of online auctions, and where Jamaica’s real estate sector goes from here.

What are the main differences between an online and an offline real estate auction?

Andrew James (AJ): With the online option, buyers will be registered on our digital platform. They submit their KYC [know your customer] documents and proof of funds, or a pre-approval letter. They will receive a pre-approval to bid, we’ll check the documents and then we’ll send them an approval that they’re okay to bid.

The bids are placed in real time, over a defined period. For example, the bid is between 9 am and 12 noon. The platforms open and they can go on and bid. They can see what other persons are bidding, but they don’t know who is bidding because everyone’s assigned a number. The highest bidder wins, subject to the reserve price [the confidential minimum amount a seller is willing to accept for an item being auctioned].

The deposit is usually 10 per cent and it is paid within 24 hours of the auction, and the sale is completed through attorneys offline. The rest mirrors the traditional offline auctions. And note that you don’t have to buy cash, you can also take a mortgage when you’re buying auction properties.

And how does an online auction differ from a traditional real estate purchase?

AJ: With a traditional purchase you will contact a real estate agent, they’ll show you the property, they will allow you to think about it, then you submit an offer. Sometimes the owner takes a long time to make a decision. For an auction, once you reach at or above the reserve price, and the time comes to an end, the highest bidder wins.

For a traditional purchase, the amount of time it takes varies, depending on the owner — sometimes they take two weeks to make a decision. An online auction is fast and is completed in a shorter period of time.

What are some other advantages of online property auctions? Please, also touch on the disadvantages.

AJ: In addition to faster transaction timelines, online auctions provide wider participation, transparency in pricing, and reduced negotiations; also, friction and competitive bidding can drive higher prices. In terms of disadvantages, it requires stronger buyer readiness, as in financing and legal preparation. There is also a perceived risk for inexperienced buyers; limited emotional negotiation flexibility; ‘as is’ sales may deter some buyers; and there are technology, access/trust barriers for some demographics.

What impact have online auctions been having, if any, on Jamaica’s real estate industry?

AJ: Online auctions have introduced several structural shifts. One [is] increased accessibility: Diaspora buyers can now participate seamlessly without being physically present. Two [is] digitisation of transaction with movement towards e-KYC, digital contracts, and remote bidding. Three [is] you have greater liquidity for distressed assets: Banks can dispose of non-performing assets more efficiently.

There’s a cultural shift, a gradual normalisation of auctions beyond foreclosure context. Overall, online options are modernising the transaction process and improving market efficiency.

What has been one of the more memorable moments since Jamaica began doing online auctions?

AJ: A compelling example would be the first fully online auction in 2020, which was groundbreaking because it allowed remote participation during [COVID-related] lockdown, attracted Diaspora bidders competing in real time, and demonstrated that property could be sold without a physical auction room. With the first auction we did, the person who won it was someone in Canada so we had to ensure that they got the documents notorised and sent back here by DHL. We proceeded until it went over to the attorneys, who took it over.

Other exciting scenarios often seen include when a conservatively listed property attracts multiple bidders; when competitive bidding drives price well above reserve; or when a seller achieves a premium outcome within days.

These moments highlight the power of auction dynamics versus static price.

If the successful bidder refuses to complete the transaction offline, how is that handled?

AJ: Yes, this can happen, but safeguards exist. If a buyer forfeits the deposit, the seller may re-auction the property or pursue legal remedies for breach of contract. Auction contracts are usually legally binding upon the fall of the hammer — meaning close of bidding — subject to stated conditions.

This is why buyers must be pre-qualified; and, of course, legal due diligence is expected before bidding. We say to our clients, “Ensure that you read the contract. If you have any questions, ask the questions before so we can answer them so you understand fully what you’re getting yourself involved in.”

You can get some good deals from an auction, and when you look at it, what’s the worst thing that can happen? Even if you buy a property on the open market, you’re still going to fix your kitchen, you’re still going to fix your bathroom. If you bear that in mind before participating in an auction, half the battle is won.

If property is being auctioned ‘as is’ and there are breaches, for example a restrictive covenant has been breached, how is that handled? Would it fall on the buyer to fix those breaches?

AJ: The financial institutions that I do work for, if there’s a breach they would correct the breach then recoup those expenses from what would go to the mortgagor. And just to note that, generally speaking, if a property sells for less than what is needed to cover debts owed, the creditor then sues to recover the difference.

What does online auctioning mean for the future of Jamaica’s real estate sector?

AJ: The future is hybrid. Jamaica is likely moving towards hybrid models — online plus live auction, greater integration with prop tech [property technology] platforms, and more data-driven pricing strategies. Preparation is everything. Both buyers and sellers must engage attorneys early, understand auction terms, and be financially ready.