Real Estate Investor Magazine South Africa July 2018 | Page 24

INVESTMENT SERIES
INVESTMENT SERIES
8 First Time Investor Guide
PART
the benefits in terms of warranties. The seller is also responsi-
ble for the payment of all rates and taxes upon selling.
“The ultimate source of great value property is of course the
sheriff auctions,” Clarke explains. There are several reasons for
this. These auctions are typically not widely advertised, lead-
ing to a poor turnout. “In most cases the only party at the
auction is the bank,” says Clarke. These auctions often end
up in a situation where the bank offers a massive discount
- around 50% of the value - in order to get the deal done.
Sheriff auctions take place when the bank has been unsuc-
cessful in rehabilitating the bond holder and are unable to
recover their funds.
The final type of auction is the property in possession (PIP).
Clarke warns that these aren’t always great buys. “Understand
when the bank buys the property in at a sale in execution
they have to incur significant costs, transfer, evicting the er-
rant occupants, making good the damage and securing the
vacant property. On top of that there are many stalling tactics
that can hold the process back and the bank gets locked up
in litigation, preventing them from selling the property on.
They add all the costs incurred and try to recover the total
when they sell.”
Advantages for sellers
Voluntary auctions are becoming increasingly popular with
property owners. The first clear advantage is the fact that the
property is sold “voetstoots”. The auction process also elimi-
THE BUYER’S CHECKLIST
Bidding on Profit
Top tips for buying on auction
BY MONIQUE DU TOIT
F
or the keen buyer, real estate auctions offer an exciting
opportunity. This month, we unpack the advantages and
disadvantages of buying (and selling) a property on auc-
tion - and how to get the most bang for your buck.
Not all auctions created equal
Justin Clarke, co-founder of Private Property and now Ex-
ecutive Chairman of Wealth Migrate, breaks down the four
types of auctions you could find yourself at. First up: Volun-
tary auctions. “In South Africa there is a growing trend to
sell your house through an auctioneer in a voluntary auction,”
says Clarke. These types of auctions are typically beneficial
to sellers in active markets, since they have a reserve price
and the sale is subject to the seller accepting. Clarke points
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JULY/AUGUST 2018 SA Real Estate Investor Magazine
out that, for these reasons, these types of auctions rarely work
for the buyer. “The prime purpose is to get a better price for
a property by playing buyer against buyer in a live environ-
ment,” he explains.
The second type of auction is the bank auction. These auc-
tions are organised by the bank when the distressed seller, sig-
nificantly in arrears on bond repayments, is given an ultima-
tum to sell at auction. The bid is subject to the bank’s approval.
“In this case, most of the properties are sold at a discount and
the bond holder agrees to write off the shortfall in the out-
standing bond,” Clarke explains. Buying from a bank auction
therefore offers buyers a good chance at picking a property up
at a bargain price. In addition to this, the buyer is getting all
When you bid at property auctions, you must be confi-
dent that you will qualify for a home loan, because
you can’t afford to default on the sale. If you can’t
come up with the finance, you could face legal action
from the seller. You will have to fulfil the contract or
forfeit any money you have already paid, including the
deposit. You can budget 10% of the purchase price for
that. The payment of the deposit is usually required
immediately, in cash, after the winning bid. The auc-
tioneer also requires a commission payment worked
out as a percentage of the auction price.
Get your prequalification taken care of. Prequalifi-
cation is a process conducted by bond originators,
helping you to work out what you can afford on your
monthly bond repayment, with or without a deposit,
and find the best home loan options for you. They’ll
also be able to highlight what else you can expect to
pay when you purchase a property.
You must register beforehand and pay a refundable
deposit. And don’t be afraid to ask questions. Ask the
auctioneer for the sale contract, read it carefully, and
ask for clarity if you’re unsure of anything. Consult an
attorney if necessary.
Make sure you arrive early, before the auction starts,
so that you can be present when the auctioneer reads
out the terms and conditions of the sale.
Property auctions feature an inventory of homes that
are sold voetstoots, faults and all. That means that the
seller is not legally responsible for fixing any faults
nates the need for the seller to pay commision - instead, the
buyer pays a market-related auctioneers commission (up to
10%). In terms of achieving a good price, auctions can work
in a seller’s advantage. Having an open forum with motivated
and financially qualified buyers will often lead to higher pric-
es being reached. It’s important to be realistic with your price,
however, since an uninformed seller can complicate matters.
Greg Tarrant, author of Sheriff Auctions: How to Pur-
chase Property at Sheriff Auction & Tax Tips and Tricks for
Residential Property Owners, explains his thinking when de-
ciding how much to bid for a property: “How much you are
prepared to bid depends on why you want to buy the property.
My goal is to acquire buy-to-let investments, so I focus only
on properties that will be cash-flow positive from day one and
that have low outstanding levies and rates, because the buyer
has to settle these in cash (they cannot be financed). I also
focus only on sectional title properties that are not situated
on the ground floor, because I do not want the hassle and
expense of garden maintenance.”
Whether you’re a buyer or seller at an auction, knowing
the value of a property is crucial. Getting a property valuation
report (that includes information like comparative sales in re-
cent months, amenities, municipal valuation, and the average
price and size of properties in the area) is vital in preparing
yourself for a property purchase - no matter how you end up
buying.
after the sale. Successful bidders at home auctions will
also be liable for any outstanding municipal rates, tax-
es and levies on the property. It’s therefore important
to do your homework beforehand to find out what
the market value is of the property you’re keen on,
and factor in the potential for additional maintenance
and repairs so that you don’t overbid in the heat of the
moment.
Part of your preparation should be attending a few
property auctions as an observer to get a feel for how
they work.
When you’re ready to participate and you spot a
property you’re keen on, ask the auctioneer for copies
of the title deed, the site diagram, the property plans
and the zoning certificate if relevant. Being able to
inspect the property yourself before the real estate
auction will prove invaluable in terms of assessing
the condition of the property. Seeing the property
beforehand might pave the way to making an offer to
purchase, too.
Take a closer look at the Conditions of Sale before you
decide to participate in a real estate auction as these
can be amended until the auction date. Another thing
to look out for is the interest clause. The Conditions
of Sale might state that the price of the winning
bid carries interest until the transfer of ownership is
registered.
Also check the Conditions of Sale to see if there’s a
lease agreement in place. If there is a tenant on the
property, that agreement must be honoured.
Source: ooba
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