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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 as a means to sell their homes as quickly as possible for as high a price as possible. Neesa Moodley has a look at what buyers need to know
Property buyers often have the idea that they can find a tremendous bargain if they buy a property on auction, but this is not necessarily the case if the property in question is not being sold due to financial distress.
The different types of property you can buy on auction include:
. 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.
There are several websites you can access to find properties on auction. Typically, a property is advertised for auction at least three to four weeks before the auction date and auction houses will often advertise a “viewing” date. If you are interested in a property that is about to be auctioned, it is at this point that you would register your interest in the property.
This means that you notify the auctioneer that you are interested and they can then keep you updated on any changes in the process.
When you register, you will receive a bidder’s card and information pack or sales catalogue. You can get a bidder’s information pack two to three weeks before the auction. The pack is comprehensive and will include the conditions of sale as well as copies of the title deed, site plans, zoning certificates, lease agreements and rental schedules.
The conditions of sale document will include important information, such as whether or not you are required to pay transfer duty. Transfer duty is sometimes waived if you are buying at a sale in execution.
It is in your best interests to ensure that you view the property beforehand. You should also canvas other property sales in the area to ensure that you do not end up paying an unrealistic or exorbitant price for the property.
You can identify available properties by approaching:
. The banks directly and requesting a list of all their repossessed properties;
. An auction house;
. The sheriff’s office; or
. You could simply check the legal notices in the Government Gazette or local paper.
Costs
When you purchase a property via the auction mechanism, you are required to pay a deposit on the day of auction. This amount is the auctioneer’s commission and the figure ranges between 5% and 10% of the total purchase price. The commission figure may vary from property to property and this depends on the nature of the sale. Note that the auctioneer’s commission excludes 14% vat, for which you are also liable.
For example, the ClareMart Auction Group will only accept bank-guaranteed cheques and electronic transfers for the deposit and auctioneer’s commission, which are both payable on the fall of the hammer. You are allowed to pay the balance on transfer of the property.
However, note that the purchase of the property at the auction is not subject to you obtaining a home loan and you are still liable for the agreed price even if you are unable to obtain a home loan. You should ideally make finance arrangements with your bank prior to the auction. This means you have to apply for a home loan, pay the bank’s valuation fee and have a copy of your home loan offer from the bank in writing before the auction takes place.
If you are buying at a sale in execution, remember that you are responsible for the following costs:
. All unpaid levies, municipal rates and taxes, water and electricity accounts;
. Auctioneer’s commission, which is usually between 4% to 10% of the sale price;
. Sheriff’s commission, which is calculated at 6% of the first R30 000, plus 3.5% of the balance of the purchase price, and is capped at R10 777 excluding VAT;
. Conveyancing fees and bond-registration costs; and
. On the day of the auction, you will be expected to meet immediate costs, such as the deposit, sheriff’s commission and auctioneer’s commission.
If you buy a repossessed property or a property in possession, the bank will pay the outstanding rates and utility accounts (such as water) up until the property is transferred into your name. However, you are responsible for the beetle and electrical compliance certificates. Note that if it is a very old property, these compliance certificates can be quite costly
WHAT TO WATCH OUT FOR
Property purchases are the biggest purchases you are likely to make in your lifetime, so you really want to make sure you are aware of any potential pitfalls. Here’s what to watch out for:
1. Unwelcome tenants If you buy at a sale in execution, you should be wary of properties that are tenanted. If the property is occupied, it is up to you to obtain vacant possession. This means that if the previous owner, tenants or squatters refuse to move, you will have to apply to the High Court for an eviction order.
Evictions are regulated by the Prevention of Illegal Eviction and Unlawful Occupation of Land Act, so procedures have to be followed carefully, giving special consideration to certain categories of people: the elderly, children, the disabled and households headed by women.
However, after a reasonable period of time, if there is no legal defence for the occupation of premises, a court order must be granted.
Legal costs involved can mount up quite quickly, so it is worth your while to find out if the property is occupied before the sale in execution takes place.
2. Neglect If a property is being sold at a sale in execution, chances are that the previous owner was in financial distress and it is unlikely that the property was maintained. Check out what repairs are required so that you don’t have any nasty surprises.
3. Theft and vandalism The former owner or vandals could have stripped the property prior to the auction. Check that fixtures such as geysers and electrical fittings have not been removed.
When you view the property, take a witness with you and take photos so that you are able to prove the condition of the property at a later date, if necessary.
USEFUL WEBSITES
Use the following websites to identify homes available for sale by auction:
. claremart.co.za
. quicksell.co.za
. sheriffhq.co.za
. sasheriff.co.za
. greengazette.co.za
. auctioninc.co.za
. myroof.co.za
