Can you find a good property deal at auctions?

You could find a good deal if you purchase a home at an auction, but there are costs to be aware of finds Angelique Ruzicka.

In tough economic times people often find it hard to keep up with their bond repayments. If a homeowner defaults on their bond regularly there is a danger that the bank will repossess the property after it has taken legal action. It could then auction the property to recover money owed. While this is not good news for the homeowner in financial distress, it is an opportunity for those looking to get onto the property market to find a potential deal.

There are different ways a property can be auctioned. Private auctions may not be the best way to find properties at a discount; however Sheriff property sales can offer bargains, provided you do your research. “Properties sold at a Sheriff sale are properties in distress, which means that the owners, for some reason or another haven’t been able to pay the bond repayment and the court has ordered the sale of the property,” says Praven Subbramoney, head of collections at FNB Home Loans.

However, these properties need thorough inspection and a good understanding of the risks prior to bidding and the costs and responsibilities when a bid is accepted. “Because of the nature of the sale, these properties can often be good value for money for a savvy purchaser who has done his or her homework,” says Subbramoney. “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.”

How does the Sheriff sale work?

The sale of the property is conducted through a Sheriff of the court at a public sale in execution. The Sheriff is appointed by the courts to act within specific areas or regions and is considered an unbiased party between the execution debtor and successful bidder.

You need to know the condition of the property before you bid on the sale. Properties at sales in execution are generally sold “voetstoets”, which means ‘as is’. However, if the bank is aware of any material defects it is required to let the Sheriff know, who must read these out before the sale.

Will banks finance me?

It is a common misconception that banks don’t finance properties on auction. The process is the same as with any purchase through an estate agent. However, getting pre-approved finance is ideal because if you bid on a property, pay the deposit and the Sheriff’s commission and the bank financing doesn’t go through, you will lose that initial outlay.

What are the costs involved?

There are a number of costs involved with buying at an auction.  “These include a non-refundable deposit of 10% of the purchase price, value added tax (VAT) and the Sheriff’s commission of 6% on the first R30 000 and 3.5% on the balance of the price up to a maximum of R7 000, all due on acceptance of the bid,” says Subbramoney.

Another potentially major cost is the payment of arrears on taxes, rates and levies. “If the owner of the property was not able to repay the bond, it is unlikely that he or she has been paying rates and taxes, this could lead to a potentially hefty bill which you as the purchaser need to be happy to take on before bidding on the property,” warns Subbramoney.

Other responsibilities for the purchaser include the payment and attainment of an electrical compliance certificate. The law requires a home owner to be in possession of a compliance certificate before taking ownership. In a usual sale it would be the seller’s responsibility, however in the case of an auction it is the purchaser’s responsibility.

“A major consideration when buying a house on auction is if there are currently tenants,” says Subbramoney. “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. ”

If you do decide to purchase a home in this way, remember to keep your emotions in check on the day of the bid. “Remember, auction sales are final: don’t go over the price you can afford no matter how badly you want the property,” points out James Dall, joint managing director at High Street Auctions.

Where can I find information about Sheriff sales and auctions?

  1. Look out for notices in the Government Gazette and the local newspaper. Properties have to be advertised in the Government Gazette as well as in any one local newspaper distributed in the area in which the property is situated. Generally there is a section reserved for notices of sales, deceased estates and insolvency auctions.
  2. Some banks have a section of their website dedicated to repossessed properties. Check out FNB, Absa, Standard Bank, and Nedbank‘s pages to find a deal near you.
  3. If you don’t want to purchase a distressed property, try private auction houses, such as ClareMart or High Street Auctions.
  4. To find a Sheriff near you, go to the South African Board of Sheriffs, where you can search for them by name, province, magisterial district or service area they operate in.