Buy online
You’ve probably heard one of those stories. The cousin of a friend once knew someone who bought a house in Houghton on auction for R600 000 and laughed all the way to the deeds office. You’d like to get in on the cheap-property action, but you aren’t exactly sure what’s involved in buying a house on auction. Here is a quick guide to get you familiar with the process.
Low-cost auction properties definedA distressed property auction takes place when the owner is in financial difficulty and unable to make their monthly bond repayments. By agreement with their bank, they put the property up for auction with the intention of covering the outstanding debt at the bank and the hope of making some small profit for themselves. You can often buy distressed properties at a rate that is lower than the market value.
With a repossessed property, the bank has taken control of the property and is selling it to cover only its costs. Because of this, the reserve or minimum price on repossessed properties is often quite low, and this is where the real bargains can be picked up. But it is important to remember that in an auction multiple bidders may push the price up until it reaches market value, so there are no guarantees of a low-cost sale.
Get prequalified before you buy on auctionIf you are serious about buying an auction house, the first thing that you should do is speak to your bank or a bond originator about a prequalification. This is an affordability check and credit assessment that gives you the facts and figures you need to stop bidding at a realistic ceiling. It is very important to do this because unlike making an offer on a house on sale through normal channels, you can’t make your offer conditional on getting a bond. An auction offer is legally binding and you have to be sure that you can obtain the finance. And almost all auctioneers require a 10% deposit to be paid immediately.
Find a property and do your researchTo find out whether there are any properties on auction in the area you want to live or invest in, search online for auction houses, property websites with an auction section and banks’ repossessed homes. In many instances, it pays to go directly through the various banks because they offer finance on auctioned houses, may waive the deposit and can help with a reduction in lawyers’ fees.
When you have found a home that you would like to bid on, it is very important to go to a showday or make an appointment to see it. In auction buying there is no cooling off period after the purchase so once you’ve bought the house, you are stuck with it. Ask the auctioneers for any papers relating to the property like building plans, lease agreements and municipal accounts, as well as the conditions of sale.
You will need to pay careful attention to the conditions of sale – and even ask a lawyer to look them over – because they explain the rules of the auction and sale and act as the binding agreement on the winning bidder when the auction is concluded. It is very important to check whether or not you are responsible for any outstanding municipal rates and taxes and the costs of evicting the current owner or tenant from the property.
Be sure that you’ve done your research thoroughly before the big day. Speak to estate agents about the going price in the area and search property websites for homes of a similar value to get a clear idea. You can visit websites like Lightstone or Afrideed for a history of property sales with prices in the area. It’s also a good idea to attend other auctions before the one at which you intend to make a purchase to get a sense of how the process works.
Auction dayOn the day itself, you will need to register as a bidder. This means that you will have to show your FICA papers – proof of address and your barcoded ID. You may have to pay a registration fee, which could be a flat fee or is often 10% of the market value of the property, and is refundable if you do not bid or if your bid is unsuccessful. You will get a number or bidder’s paddle to use in the bidding process. You should also check if there have been any amendments to the conditions of sale.
Then, when the bidding begins, make your bids up to the ceiling that you have set for yourself. Do not get caught up in the moment and exceed your maximum because an auction purchase is seen as a contractual agreement
CostsIf your bid is successful, you will sign the conditions of sale and pay 10% of the purchase price immediately, which can come out of the registration fee. You will also be responsible for the auctioneer’s commission of not more than R8 750, transfer duty and conveyancing fees. It is important to remember that the fees you will pay can differ depending on the type of sale and some banks might waive or discount certain costs.
Remember to find out exactly when the property will be transferred to you, as you will be responsible for rates and taxes from then on, and should take out insurance to be sure you are covered for natural disasters or damages to the property.
Happy house hunting!Buying a house on auction is an exciting process with the possibility of huge savings, but there are many potential pitfalls along the way. Be sure that you’ve done your research properly before auction day because once the hammer falls there’s no going back.
