Is It a Good Idea to Buy Repossessed Houses?

With the potential for cheap purchase prices, the idea of buying repossessed houses is appealing to many people shopping the property market. Whether looking for a primary home, an investment property, or a property to sell on for a profit, a lower purchase price holds immense attraction for buyers.

Bank-assisted property sales, sales in execution, and sheriff’s sales come with a range of caveats, however. As this can involve many pitfalls, it is important to buy property with open eyes and after conducting thorough research. In this blog, the property specialists at Property.CoZa explore the pros and cons of buying bank repossessed houses and give you the tools to make the best choices when exploring property for sale in South Africa.

Are Repossessed Houses Cheaper?

It is possible to pick up real bargain property by buying repossessed houses. As creditors are focused on regaining monies owed, repossessed houses often come with low purchase prices. In many cases, these sales are also made urgently – another factor acting in favour of the buyer when it comes to purchase price.

The Lungelo Lethu Human Rights Foundation has brought a R60 billion class action in which they are seeking relief from a range of banks for allegedly selling repossessed properties for a fraction of what they were worth. There are also allegations that properties were sold under unnecessary circumstances. The banks deny the claims. However, the scrutiny of this process means reasonable selling prices and procedural processes can be expected into the future.

A 2018 case also brought by the Lungelo Lethu Human Rights Foundation has also culminated in a reserve price being placed on repossessed properties at sheriff’s auction. If the reserve price is not met, the bank buys the property at the reserve price to ensure fairness.

It is important to remember that these properties also have the potential of attracting expenses too. This makes it prudent to place yourself in the know before taking the plunge by signing a purchase agreement. Keep reading to find out what happens with costs around repossessed property and what to look out for.

The Possible Benefits of Buying Repossessed Houses

No Transfer Fees

When a repossessed property is part of a sale in execution, no transfer duty is payable on the sale.

Waived Rates, Taxes, and Levies

It is important to look into the status of rates, taxes, and levies – and independently verify this information prior to the auction and sale. The sale of repossessed properties by means other than sheriff’s and court auction usually comes with the benefit of waived rates, taxes, and levies until the date of registration. If you are purchasing a distressed property through sheriff or court auction, the responsibility of settling these amounts up to the date of registration will fall with you (bearing in mind that transfers may be extended with bank repossessed properties), which is an important consideration when it comes to final costs.

Discounted Legal Fees

When a bank sells a repossessed property, this often comes with reduced attorney fees.

Possible Cons and Things To Look Out for Before Buying Repossessed Houses

Check For Occupation

The integrity of current leases is upheld in the sale of repossessed properties. This means you may inherit a tenant by purchasing a repossessed house. Eviction could be as easy as issuing notice and waiting for tenants to leave the property. With tenant rights well-protected in law, it also has the potential to be a sticky process – and one that involves time and cost of court proceedings.

Additionally, it is important to find out whether the previous owner is still in occupation of the property. The reason for this is that the new buyer will bear the responsibility of going through formal eviction proceedings. He or she will also have to pay all rates and taxes for the duration of the eviction process – and this procedure can only be initiated once the property has been registered in the new owner’s name.

Vacant properties tend to attract higher selling prices. This comes down to the time and cost that comes with evicting occupants. Only around one in ten repossessed properties are vacant, so this is an important consideration – especially if your intention is to live in the property.

The Condition and Value of the Property

A repossessed house is usually sold voetstoets – as they stand with no recourse for defects. With limited viewing opportunities on these properties, this puts potential buyers at risk of being landed with faulty premises that could be expensive to repair. It is also fair to expect that, as the previous owner experienced financial difficulties in the build-up to the auction, general maintenance and repair of the property has fallen by the wayside. It is important to determine the scope of this to avoid the potentially heavy financial burden of repairs.

Another factor that impacts the condition of property before auction is whether it has been standing empty and for how long. Where properties have been vacant for long periods of time, the possibility of vandalism or crime increases. This could mean expensive damage.

Whether you have the opportunity to inspect or not, prospective buyers should look into the neighbourhood, nearby amenities, and similar property values as an indicator of value.

Insist on a Property Inspection

The more you have a chance to assess, the better equipped you will be to make a choice about the property. A property viewing of a repossessed property can be difficult. This is especially so where the previous owner is still in occupation of the property. If the previous owner refuses to vacate the premises, the new owner may have to bear the cost of formal eviction proceedings and lengthy delays in taking possession of the property.

Find Out About Finance

In the case of repossessed properties, many lenders will not agree to conditional sales. This makes financing a top consideration before going into any auction. Crunch the numbers to see what you can afford – and use handy tools like our bond calculator and affordability calculator. Getting pre-approval is a good idea for any property buyer.

Investigate The Title Deeds

Find out if there are any servitudes or restrictions on the property’s title deeds.

Get Ready For Auction

To participate in a distressed property auction, you will need to register. This requires a registration fee, which is refundable if you do not ultimately buy the property. Find out if this is affordable beforehand to avoid disappointment. For sheriff and court auctions, you will also be required to provide FICA documentation upfront.

The Offer to Purchase, Deposits, and Commission

If your bid is successful, you will be required to immediately sign an offer to purchase. You also need to pay a deposit. This is a minimum of 10%. The balance will become due thereafter. The sheriff or court commission will also need to be paid – starting at an amount of 5% plus VAT.

Prolonged Transfer Times

While transfers usually take three months, bank repossessed property transfers can take four to six months to go through.

Moving In

While you are finding out about the status of municipal rates, taxes, and levies, find out if any services have been suspended in the absence of payment by the former owner. If this is the case, prepare yourself for the time and effort involved in getting the property reconnected. If you have had a chance to assess the condition of the property, you will be ready for renovations and making the property habitable and attractive for occupation, lease, or resale.

Property.CoZa: Property Experts On Your Side

If you are enticed by the appeal of the low purchase price of a repossessed home, make sure you do your homework to ensure expenses don’t tip the scales and place you under financial stress. At Property.CoZa, we are deeply committed to helping buyers and sellers enjoy simplicity and positive experiences in their property transactions.

Visit Property.CoZa today to make use of our online tools, read advice and news, or for listings in your area. Our site is also a hub for top agents – specialists who are on hand to assist with the purchase and sale of property, commercial property, letting and rental properties. Contact us today to find out more about our services.