Buying property at auction

Auctions can be lots of fun and very exciting for the bidders. Home auctions are becoming increasingly popular in South Africa, and it is possible to find a great bargain. Potential buyers can find properties on auction through their estate agents, property websites, or auction houses themselves. Be careful though; buying a home at auction does come with considerable risk to the buyer, and you should familiarize yourself with the details of property auctions before you try to bid on one.


Type of auction

There is more than one type of auction at which a property can come up for sale.

Voluntary auctions are ones where the seller has placed the property up for auction usually in the hope of receiving the highest purchase price. The sale is often subject to the seller’s acceptance and the auction favours the seller.


Bank auctions are ones where the bank voluntarily places the property on auction because the seller is significantly in arrears on their bond payment. Properties are often sold at a reduced price in these situations with the usual warranties and on transfer, the seller is liable for the rates and taxes. The auction usually favours the buyer.


Sheriff auctions are where the property is sold in execution. The court has ordered for the property to be attached and sold so the owner’s debt can be settled. The property is sold by the sheriff of the court to the highest bidder voetstoots, in other words, it is sold as-is with faults and all. The buyer will need to settle all outstanding debts on the property. It often happens that the bank purchases these properties themselves.


What you should know

One of the most important things to know about buying a property at auction is that, in most cases, you will not be able to view and inspect the property beforehand. At the very least you will be able to do so for a short time. These homes are often sold voetstoots and the seller is not responsible for fixing any damage or faults on the property. The buyer is then also responsible for all outstanding municipal rates, taxes, levies, etc. Though the property can be bought at a great price, these hidden expenses can quickly rack up. If you see a property advertised as being sold at auction and you are interested, you should do your homework before you attend the auction and get a property professional to provide you with an accurate market value for the property. It can greatly assist you in deciding what the maximum is that you are willing to pay for the property and when you should stop bidding, so you don’t get carried away by the excitement of the moment.


There are other fees that you also need to consider and that will become payable immediately. This includes the auctioneer’s commission, which is usually 10% of the purchase price plus VAT, and a deposit on the property, which is at least 5% of the purchase price, less your initial registration fee. If you are going to bid at an auction, you need to be absolutely sure that you have the finances ready to back up your bid. Getting preapproval for a loan is a wise move. Before you leave the auction site, the risk of the property passes to you and you enter a sales contract. If you cannot honour it, it could have serious financial implications for you and the seller can take legal action.


What you should do

It would be a good idea to attend an auction and just observe so you know exactly how it works before you want to bid on a property yourself.


Read the Condition of Sale before you decide to participate in an auction. These can be amended until the auction date. If there is a lease agreement, this will also be in the Condition of Sale, and you will have to honour it if the property has a tenant.


When you do attend the auction that you are interested in, make sure you arrive early so you can be there when the auctioneer reads out the terms and conditions of the sale. Find a way to evaluate the property. You could request the title deed, site diagram, property plans, zoning certificate, etc from the auctioneer. If it is at all possible to view the property before the auction, do that.


Once at the auction, you will need to register to get a number and a bidder’s paddle. You’ll need your FICA documents (ID, proof of residential address) and to pay the registration fee.


Place your bids and know when to stop. If you know the proper market value of the property, it will just be so much easier.


If you require any assistance with an auction property that you find appealing, let us know at Karis.