The popularity of auctions in South Africa has grown tremendously over the years, with the many people in search of bargains and deals in these tough economic times. Auctions are a public sale in which goods or properties are sold to the highest bidder.
There are great opportunities for buyers at property auctions, but you need to understand the rules of the game. If you’re planning to buy a house at an auction there are a few things you should note.
Buying a house on auction no longer means that you are only looking at distressed property sales. In fact, homeowners today are turning to auctions more often to sell their homes as quickly as possible for as high a price as possible.
Types of houses on auction
Regular property that is for sale by owners who are not keen to wait it out in the property market.
Sale in execution. These are properties where the owner has fallen into financial trouble. Banks often send their own representatives to these auctions and sometimes the banks will buy back the properties themselves.
Property in possession. When a bank buys back a property at a sale in execution, it becomes a repossessed property or a property in possession.
Types of auctions
With a voluntary auction, the prime purpose is to get a better price for the property by playing buyer against buyer in a live environment. These auctions can work well for the seller in an active property market but seldom work for the buyer. The seller has a reserve price and the sale is subject to the seller’s acceptance.
A bank auction could also work like a voluntary auction (sort of). It organised by the bank but where the distressed seller (who is significantly in arrears with his bond) is given an ultimatum to sell at the auction, subject to the bank accepting the bid. In this case most of the properties are sold at a discount and the bond holder agrees to write off the shortfall on the outstanding bond. In this circumstance you are buying a home from a seller with all the normal warranties and on transfer the rates and taxes will have been sorted by the seller.
Sheriff auctions are often seen as the ultimate source of great value property. This is where the bank is unable to rehabilitate the bond holder and they see no chance of recovering their funds, the bank applies to the court to attach the property and sell it to the highest buyer as it stands, called a sale in execution. These transactions are executed by the sheriff of the court. The bank will let the property go at a big discount, often around 50% of value.
What to look out for
To buy a house at auction you’ll need to attend a voluntary or bank auction and register to receive a bidder’s card and sales catalogue. You’ll receive this two to three weeks before the auction.
The information pack will include the conditions of sale and copies of the title deed, site plans, zoning certificates, lease agreements and rental schedules.
Here is a look at some things you should look out for if use find yourself purchasing property at an auction:
- Make sure you can follow through with the purchase. If you can’t make the guarantees, you will forfeit the deposit and still be liable for sheriff’s fees.
- The property is sold as is and it is your responsibility to settle all outstanding rates, taxes, municipal services, body corporate levies and don’t rely on the figures given by the sheriff.
- Most of these properties are occupied, and it is your problem to evict the occupants.
- If the owner is sequestrated, the transfer can be held up for extended periods of time. The owner is often allowed to have occupation while this is in process and you cannot get transfer, so your deposit and costs are locked up.
- You will have little time, or often no access to the property before the auction, so there is considerable risk that the property is not in a reasonable condition.
Whether it’s a foreclosed house, a repossessed car or tons of appliances on offer, it’s important to have a basic understanding of how auctions work. It also helps to attend a few auctions before committing to make a purchase, this will allow you see trends and insight of how the game is played.