Buying on Auction? What You Need to Know!
Projections have suggested that almost a third of all houses will be sold and bought on auction by the end of the year. This does not mean that show houses will be replaced any time soon but sellers are more attracted to a less invasive process.
The time period for selling a house is also shorter and there is no limit to the amount that the bidder can offer. This means that the house can be sold for way more than its market value.
With this in mind, here are a few tips to consider when buying property on auction:
#1 – Do your homework
If you are a first-time bidder, it would be better for you to observe a few auctions first before jumping into it. This will give you a general idea of how it works.
You will need to register ahead of time in order to become a bidder and you’ll have to keep a close eye on the Government Gazette for potential houses.
Before that, however, you need to do your research properly as you would when buying a house through an agent. This includes a detailed inspection and an understanding of market value relating to any repairs or renovations.
#2 – Understand the costs involved
To start off with, in the case of an auction sale, the buyer is liable of paying the commission, not the seller as in a traditional house sale.
There is a 10% non-refundable deposit of the purchase price that is due in order to participate in this event.
You need to also consider the VAT as well as the Sherriff of the Court’s 6% commission on the first R30,000 and 3.5% on the balance of the price up to R7000 or between 5% and 10%. These costs will be payable as soon as the bid is accepted.
Once the bid is accepted, you will have to accept and sign the terms & conditions of the sale and pay the deposit as per the bank’s requirements.
There is a common misconception where buyers think banks won’t finance this sale and therefore need access to liquid cash!
This is not true: financing will work in the same way as any other type of property sale. The most important part to know is that if the financing deal does not go through then you as the bidder will lose the deposit.
#3 – Potential risks and what to watch out for
There are a lot of reasons why properties go on auction besides it being a repossessed house.
It could be a deceased estate or a sale in execution which comes with certain liabilities. If you buy a sale in execution, then it means that you buy the house as it is. You are also responsible for any outstanding levies, rates, taxes and accounts that are in arrears.
Potential buyers need to be aware of the condition of the house before buying it. This is important because there will be no recourse after the sale has gone through.
A major consideration to take into account is whether or not there are any tenants currently renting on the property. If the tenants do not vacate the property, the buyer will have to follow procedure that can take up to 3 months to finalize and they will have to carry the eviction costs.
It would be a good idea to look for items that may have been stripped or fixtures that may have been removed. Take someone with when you view the property so that you have an extra set of eyes.
Always take pictures in case you need evidence of the property at a later stage.
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