Buying a property on auction
Category Advice
Purchasing property that's on auction might seem like a great way to land a bargain, but a bargain is not always guaranteed. Those who wish to go this route should understand that there is a lot to know about auctions beforehand and, importantly, there is no room for buyers remorse in an auction.
"There is a lot that needs to be understood about auctions before making a bid on a property," says Floris de Kock of Leapfrog Polokwane. "While many potential buyers head to an auction looking for a good deal on property, they have to understand that it's not always the place for this. It is, however, an interesting and exciting way to buy property if you know what to do."
De Kock advises that buyers first familiarise themselves with what an auction is and how it works before bidding any money on property. Here is some advice from de Kock on what to know and how to best prepare.
Know the different types of auctions
In this space, you get various types of auctions and different reasons as to why a property is being auctioned off. "Historically banks used auctions to sell properties in cases where a court order authorised an execution sale but lately we're seeing more sellers opting to have their properties auctioned," de Kock says. "This is called a voluntary auction."
In a voluntary auction, the seller is hoping for the best price possible by essentially pitting buyers against one another. And the seller also has to accept the price before the sale can go through.
Another type of auction is a bank auction.
"In this instance, the home is being auctioned off by the bank when a seller is in arrears with their bond," de Kock explains. "Here, a bank will accept a bid amount that will assist the seller in settling their bond, while also entering into a potential agreement with the seller for any shortfall that might occur even after the sale takes place."
Sheriff auctions are where buyers are perhaps able to scoop up a property at a lower rate than usual.
"In a sheriff auction, the bank has already accepted that they are not going to get anything more out of the bondholder and there is little chance of recovering any further funds," de Kock says.
The bank has to apply to the court to attach the property and sell it off at auction.
De Kock notes: "Banks often let properties go at a big discount."
There are many different types of auctions. It's good for buyers to know the difference so that they will be aware of which ones will likely offer the best value.
Be prepared before you attend an auction
We've all seen auctions on TV and they make it look so easy, don't they? But it's not as simple as walking in and grabbing a number with which to bid with. There is a significant amount of preparation that buyers need to do ahead of an auction.
"It's up to the buyer to get familiar with the auction process and ensure they do the necessary homework before making a bid," says de Kock. "This way, they know exactly what to expect and what their plan of action should be".
Things to do before the auction include:
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Obtain a copy of the conditions of sale and carefully study it
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Inspect the property as closely as possible
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Find out if the property is currently being leased
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Enquire about levies and rates in the case of a sectional title unit
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Research the neighbourhood and what properties are currently going for in the area
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Apply for pre-approval if you are going to need to finance the bond with a home loan provider
In addition to this, prospective buyers and bidders need to register and pay a refundable deposit to show that they are interested in participating in an auction.
"Once a bid is final, the bidder will need to pay 10% of the sale price and will have around 30 days to settle the balance."
Be aware of additional costs
"There will be other costs to consider as well," cautions de Kock.
This includes sheriff's commission in the case of a bank auction, as well as the auctioneer's fee. Rates and levies will also need to be settled and in some cases, an eviction process will need to be started if there are tenants in the property.
"Properties sold at auction are sold as is. This means that any issues, defects or problems that the property may have will become the problem of the buyer," says de Kock. "The costs to fix these can add up, so the research you do beforehand on the property is of utmost importance."
Buying property whether it be privately, through an agent or via auction, is a big decision and can be life-changing.
"No matter which way you choose, ensure that you work with a trusted property adviser to ensure that you and your investment are being taken care of," concludes de Kock.
Author: Leapfrog Property Group
