Important Steps and Key Tips for Buying and Selling at Auction
Auctions – Important Steps and Key Tips for Buying and Selling
What is a property auction?
Property auctions have become popular in South Africa, especially during economically difficult times, for example, the recent economic downswing caused by COVID-19. Buyers are looking for good bargains and sellers are looking to make as much as possible by selling to the highest bidder. There are numerous reasons why a property is put on auction. Some examples include homes that need substantial renovation to be sold at a decent price, property that is difficult to value – like a lighthouse, or a home that has been repossessed. Auctions can be exciting, bidding is done in real time and a bidder can walk away with a property. The length of an auction process can change to suit the seller’s circumstances and personal timeframe. On average the auction can take up to 7 weeks. The marketing of a house can take 3 weeks and 4 weeks to finalize contracts and complete transactions. If this timeframe is too long, an online auction may be a quicker option.
Many South Africans buy property at physical auctions, and in more recent times, at online auctions. Online auctions make bidding easy. Many variables go into the process of buying and selling at auction which depend on participants’ circumstances. Online auctions typically run for a specific amount of time, for example 12 hours. The property is awarded to the highest bidder within that time. Persons from the auctioning website arrange meetings between the buyer, seller and respective lawyers to seal the deal thereafter. Auctioning online can potentially allow the seller to cast a wider net and is a hassle-free option for a property to sell in South Africa. At auction, the bid will only be awarded once the reserve price is exceeded. Sellers can choose to include property professionals or sell privately.
Types of Auctions
1. Voluntary Auction
Selling a property through an auctioneer and vying for a better price by pitting buyers against one another in a high-stakes, real-time environment.
2. Bank Auction
This kind of auction is organised by a bank for a homeowner has been in arrears on their mortgage bond for some time. Their home is put on auction to repay the bank. The bank will generally accept the bid. Due to the circumstances, properties in bank auctions are usually sold at a discount to pay the bondholder the shortfall (outstanding bond payments). Rates and taxes are settled by the seller.
3. Sheriff Auction
A sheriff of the court holds this auction. It is commonly known as a ‘sale in execution.’ At this point the bondholder is unable to recover funds and the bank applies to the court. An execution creditor is asked to repossess assets and/or the immovable property and the home and/or assets are sold to the highest bidder. Participants in this auction predominantly include banks. Sheriff-sold properties are bought as is, with all damages and outstanding rates, levies, and taxes from the body corporate and municipality. Buyers will most likely have little to no time to view the property for damages, so it can be quite risky. If there are occupants on the property, it becomes the buyer’s responsibility to evict them. The winning bidder is responsible for commission paid to the Sheriff. The amount is based on a percentage of the purchase price, plus VAT.
Steps for selling a property at auction
- Find a qualified auctioneer that has experience selling residential property on auction.
- Get a free auction appraisal. Find an agency with an auctioneer who specializes in the same type of property as yours. An auction valuer will assess the house and give a realistic price.
- Decide what your reserve price is. This amount is confidential between you and the auctioneer. It is a minimum bid amount you will accept for the purchase of the house. You can also choose a guide price, which is how much you would like to sell the property for.
- Create a legal pack with your attorney to hand out at the auction. This includes terms and conditions of sale, lease and planning information, and land registry. All documents will allow you to legally hand over your property.
Tips for sellers:
- Attend an auction to get an understanding of how it works.
- Don’t look at other properties on the market – what properties are being marketed for isn’t necessarily what they are sold for.
- Make sure your property is being extensively advertised on the auction website, social media, and property portals.
- As a seller, you are not legally required to fix any of the faults on the property.
- Don’t be hasty to reject offers – confer with your property professional. You don’t know where you will be in 6 months’ time; you may end up selling it for much less.
- It is your responsibility to insure the property until it transfers to the new owner.
- You can auction the house you are living in as long as you move out before completion, which is around 28 days after the auction.
Steps for buying property at Auction:
Property auctions can be found at auction houses, newspapers, and websites of property groups or by consulting with property professionals.
- Attend an auction and register to receive a sales catalogue and free bidders card. You will need your FICA documents to do this, i.e. your current Identity Document and proof of residence. You will receive the catalogue two to three weeks before the auction. This information pack will show you the title deed, zoning certificates, site plans, lease agreements and rental schedules, and all other necessary information on the property.
- Get prequalified for a loan with a bond originator. You can use a bond calculator or affordability calculator to check your ability to buy. You will need to take your ID, proof of residence, proof of income, details of monthly expenses, last three months’ bank statements, and a list of assets and liabilities. Make sure you have preapproval from a financial institution before you attend an auction if you require a bond. The bond originators will check your credit score and how much you can afford on bond repayments.
- Try to ensure that the property you are viewing allows for a property inspection before the auction.
- Make sure you look closely at the title deed, conditions of sale, property plans, and any other documents the auctioneer will allow you to see.
- Ensure you bring enough cash or a guaranteed cheque to pay the 10% deposit should you win the bid. You will usually have to provide an immediate cash deposit. The auctioneer also requires a commission worked out to be a percentage of the auction price, generally 10% of the price.
Tips for buyers:
- If you feel unsure, attend an auction as an observer to get a better idea of the process.
- Do your homework – research the market and get as much information on the property as possible before bidding. Make sure you know the condition of the property as you may need to pay for repairs.
- Make sure you understand the conditions and contracts of sale – if unsure consult a property professional or attorney.
- Arrive early, register and get your bidder’s paddle with a number on it.
- Lift your paddle to make a bid and say your amount When the auctioneer exceeds your bidding amount and asks you, say ‘No.’
- Stick to how much you are willing to spend and don’t go above that amount – do not exceed what you can afford. Also be prepared for extra expenses.
- Consult with our skilled property professionals in your area or suburb, follow this link to find an agent – request a qualified auctioneer to get good advice.
- Ask the auctioneer questions about the property. You can even talk to the owners and neighbours, if possible.
- Try not to assume what will happen – you may lose the property if you believe others will bid higher or lower.
- There is no room for buyer’s remorse; defaulting on the deposit will incur legal costs. Be sure you understand the implications of bidding.
- Good news! There are no transfer fees on repossessed properties.
- Check the conditions of sale for a lease agreement. If there are tenants on the property, that lease agreement must be honoured after purchase.