While the classic open-house Sunday and view-by-appointment models won’t be replaced any time soon, more sellers and buyers are attracted to the less intrusive process the auction model provides.
From a buyer or seller’s perspective, the time it takes to conclude a sale is considerably faster than a traditional sale, and there’s no ceiling on the amount that a prospective buyer can bid on the property, meaning a homeowner could potentially sell a house for more than the market value in a competitive bidding. Conversely, if buyer interest is low, prospective buyers could purchase residential property for a steal.
But, buying property on auction also comes with its own risks and upfront costs before you even get to the auction, so before you consider going this route, here are a few things to note.
Do your homework
If you’re a first-time bidder, the best place to start is to attend a couple of sales as an observer before you try your hand at it. This will give you a feel for how the auction process works so you know what to expect.
Properties up for auction are usually advertised in local newspapers or in the Government Gazette and you’ll need to register in order to become a bidder.
But before you get there, Dr Simphiwe Madikizela, head of projects at FNB Housing Finance, says the most pertinent aspect of buying property on auction is doing thorough research.
“A potential purchaser needs to do all the research he or she would normally do when buying a house through an agent, including a detailed inspection, an understanding of the market value and any renovations or repairs that would be required,” he says.
Understand the costs involved
For starters, unlike in the case of a traditional sale, the buyer as opposed to the seller, is responsible for the commission payment.
There is also a non-refundable deposit of 10% of the purchase price that is due in order to participate in the auction in the first place.
Then there’s also VAT and the Sheriff of the Court’s 6% commission on the first R30 000 and 3,5% on the balance of the price up to R7 000 or between 5% – 10%.
All of these costs are payable as soon as the bid is accepted.
“Once your bid has been accepted you will be expected to accept and sign the conditions of sale and pay the deposit as per the different banks’ requirements,” Madikizela says.
A common misconception around buying property via auction is that banks won’t finance these properties and therefore you need to have access to liquid cash in order to participate.
Madikizela says this isn’t true and that financing for auction properties works in the same way as any financing for any other type of property sale.
But what is important to note is that if for whatever reason the financing deal doesn’t go through, then you, as a bidder, will lose your deposit.
Potential risks and what to watch out for
There are a number of reasons properties go on auction besides a house being repossessed. It could be a deceased estate or a sale in execution, which come with certain liabilities.
If you’re buying at a sale in execution, which are generally sold ‘as is’, you will be responsible for paying any outstanding levies, municipal rates and taxes, water and electricity accounts in arrears. Plus there’s conveyancing and bond-registration fees.
Madikizela advises potential buyers of a ‘voetstoets’ property to make sure they are fully aware of the condition the house is in before bidding.
“This is a very important aspect to take into account because there is no recourse if you are unhappy with the state of the property once you have made the purchase,” he says.
“A major consideration when buying a house on auction is if there are currently tenants. In the event that the tenants do not vacate the property, the purchaser will have to follow a legal process, which can take up to three months, in order to evict non-paying tenants. The purchaser is liable for their eviction and the associated costs.”
It would also be a good idea to look for items that may have been stripped, or fixtures that might have been removed. Try take someone along with you when you view the property for an extra set of eyes to pick up any possible problems and always take pictures in case you need evidence of the condition of the property at a later stage.