Property auctions are becoming increasingly popular in South Africa. This article guides you on how to find an auction, attend it, and the bidding process.
Buying a house on auction in South Africa
If you are a new buyer in the auction sale property market, the first question you may have is: How do I find a property auction? Resources for finding auctions include websites such as https://greengazette.co.za/ newspapers, real estate agents and websites of property groups. You could also browse the websites of various auction houses to see what’s in the pipeline.
Before you consider buying a property on auction, bear in mind the different types of auctions: A voluntary auction is where the seller has freely decided to put the property on auction, hoping to get the best deal by playing buyers against each other in a live venue or online. These auctions usually favour the seller rather than the buyer.
A bank auction is organised by the bank, usually on behalf of a seller who is in arrears with his or her bond. This type of auction benefits the buyer as the property is sold at a reduced price, and the rates and taxes are handled by the seller.
A sheriff’s auction occurs when the bank is unable to recover the funds from the current bondholder and instead applies to the court to auction the property. This is usually the best source of value for buyers as the properties are sold at a significant discount, sometimes up to around 50% of the property’s value.
What do I need to attend a property auction?
You’ll need to apply for a bidder’s card at the venue, which is a quick and easy process as there’s no registration fee. All you need are your FICA documents. Registering for a bidder’s card does not obligate you to make a bid. In fact, it may be a good idea to attend a few auctions as an observer so you can get an idea of how it works.
What you need to know about house auctions in South Africa
Can I inspect the house before attending the auction?
In some cases, you may not be able to inspect the house before attending the auction. You can try a drive-by viewing, but if this is not enough to set your mind at ease, you should ensure the auction you are attending does allow for a home inspection.
The following are some guidelines for attending a real estate auction with the intention to purchase the house.
1. Ensure you can finance the purchase
When you bid at property auctions, you must be confident that you will qualify for a home loan (unless it’s a cash deal and you don’t need a bond) because you can’t afford to default on the sale. If you can’t come up with the finance, you could face legal action from the seller. The payment of the deposit is usually required immediately, in cash, after the winning bid and the auctioneer also requires a commission payment worked out as a percentage of the auction price.
2. Get prequalified
Taking the above into consideration, if you will not be buying in cash, it is best to get prequalified for a home loan before you can make an offer for an auction sale. You can get pre-qualified from your bank or any bank that offer home loans for a prequalification. Alternatively, there are service providers who help you get the best home loan comparison and prequalification such as ooba Home Loans, whom you can contact on this link: https://www.ooba.co.za/ or Better Bond, available from this link: https://www.betterbond.co.za/
A prequalification is a process conducted by bond originators such as ooba Home Loans and Better Bond linked above. Through their services, they help you work out what you can afford on your monthly bond repayment, and what home loan amount the bank is likely to approve you for. They can also check your credit score, to see if you qualify for a home loan.
3. Do your research
Property auctions feature an inventory of homes that are sold voetstoots, faults and all. That means that the seller is not legally responsible for fixing any faults after the sale.
Successful bidders at home auctions will also be liable for any outstanding municipal rates, taxes and levies on the property. It is therefore important to do your homework beforehand to find out what the market value of the property is so that you can factor in the potential for additional maintenance and repairs so that you don’t overbid in the heat of the moment. Estate agents are a useful resource in this regard. They will be able to prepare a comparative market analysis for you, which details actual sale prices received for similar properties in the area.
Ensure that you read the sales contract diligently. Don’t be afraid to ask questions. Ask the auctioneer for the sale contract, read it carefully, and ask for clarity if you’re unsure of anything. Consult an attorney if necessary.
As part of your preparation should be attending a few property auctions as an observer to get a feel for how they work. When you’re ready to participate and you spot a property you’re keen on, ask the auctioneer for copies of the title deed, the site diagram, the property plans and the zoning certificate if relevant.
Being able to inspect the property yourself before the real estate auction will prove invaluable in terms of assessing the condition of the property. Seeing the property beforehand might pave the way to making an offer to purchase, too.
4. Sealing the deal
Take a closer look at the conditions of sale before you decide to participate in an auction as these can be amended until the auction date. Another thing to look out for is the interest clause. The conditions of sale might state that the price of the winning bid carries interest until the transfer of ownership is registered. Also, check the Conditions of Sale to see if there’s a lease agreement in place. If there is a tenant on the property, that agreement must be honoured.
Be sure of your bidding strategy because if you secure the winning bid at an auction, there’s no going back. The property is sold as-is, you will also be liable for outstanding municipal rates and levies if the seller has fallen behind in their payments. That’s how property auctions work.
The good news is that no transfer duties are payable on the purchase of a repossessed property, which is a property available to purchase via public auction when the owner defaults on home loan payments and the bank.
