A brief introduction on how to buy property at auction
In recent years, auctions have been a viable way of purchasing property in South Africa. Most people believe that houses only go to auction when the owner has lost the property due to financial distress. However, this is not always the case.
Let’s take a look at the types of properties that will be sold at auction and how the auction process works.
There are generally three types of properties that will be sold at auction:
- Regular property: This is on sale by owners who do not want to, or are not able to wait out the property market.
- Sale in execution: 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 property themselves.
- Property in possession: When a bank buys back a sale in execution, it becomes a repossessed property or a property in possession.
How does the process of bidding on a property work?
There are multiple sites that will give lists of houses that are about to be put on auction. Typically houses are advertised at least 3 to 4 weeks before the auction date and will include a viewing date. This is when you register your interest in the property by notifying the auctioneer so they can keep you updated with any changes in the process.
After you’ve registered you will get a bidder’s card and an information pack or sales catalogue. The information pack will include things such as the conditions of sale, copies of the title deed, site plans, zoning certificates, lease agreements and rental schedules.
Costs to you
Despite the fact that it can be much less expensive than the regular housing market there are still various costs involved in buying a house at auction and it is good to be aware of those. Some of those costs are:
- A direct deposit the day of the auction. This is the auctioneer’s commission and range from between 5% and 10% of the total cost excluding VAT.
- All unpaid levies, municipal rates and taxes, water and electricity accounts.
- Sheriffs commission, calculated at 6% of the first R30 000 and 3.5% of the balance of the purchase price. (capped at R10 777 excluding VAT)
- Conveyancing fees and bond registration costs
What to look out for
Unwelcome tenants: If the property is occupied, it’s your responsibility to ensure you it’s vacant when you move in. If you need to get an eviction you’ll have to go to the High Court for an eviction order. These can be complex due to laws created to prevent unlawful evictions. Find out if the property is occupied before taking bidding on it as legal costs resulting from evictions can quickly escalate.
Make sure to view the property before you bid on it, take a witness and also take photos, this way you will have evidence of any problems with the property. Also, do your research into the area and what similar properties are selling for to make sure that you will be able to make a profit reselling the property.
Learn more about buying houses at auction and much more at one of our free property seminars. Book your seat at one of our free seminars in February!