Author : Homeloans SA
How to Buy a Property on Auction
When we hear that a property is being sold on auction the first thing that comes to mind is that it’s a sale in execution – where the owner could no longer afford the bond repayments. But times have changed and our assumptions may be rather incorrect.
Who sells property on Auction?
Although it is true that auctions are the preferred way to sell property where the bond has fallen into arrears, any home owner who wants to sell his property can decide to put the property up for auction. As a matter of fact this way of selling property has increased considerably as it has definite benefits attached to it.
In the USA auctions are very popular way of selling fixed property and in Australia more than 80% of all property is sold on auction.
How is the process of auction controlled?
An auctioneer who sells fixed property is classified within South African law as an Estate Agent in terms of the Estate Agent Affairs Act of 1976 and must therefore be registered as such and be in possession of a valid Fidelity Fund certificate.
When you deal with an auctioneer it is best to look for one who is a member of the South African Institute of Auctioneers as well as the South African Estate Agency Affairs Board.
So, I am interested in buying property on auction, how do I go about it?
If you have never been to a property auction before and do not know how the process works it’s time to do your homework.
Preparation is the key to success
Reading articles such as this is a good way to increase your knowledge. Then, for some practical training, attend a few property auctions where you just observe the entire process. If you have any questions the auctioneer will usually be more than willing to answer them for you after completion of the auction.
To find properties you are interested in you can look at advertisements in the local media and on the internet. Auctioneers will also have a list of upcoming auctions that you can look it.
Previewing the property
Nobody can expect you to buy a property on auction without having had the opportunity to inspect the property. Usually the auction house will have a viewing date on which you can inspect the property. Do so properly!
Ask the auctioneer as many questions as you want to; talk to the owners if they are available, talk to neighbours and have a good look at the area.
Find out about the nitty gritty before the time
Obtain the terms and conditions of the sale you are interested in beforehand from the auctioneers, as well as a copy of their operating policies so that you can be properly prepared.
What about the finance, must I pay cash?
A big difference between buying a house on auction and buying one through the normal channels is that with an auction there can be no conditions. You cannot buy a property on auction on condition that the bank will grant you a mortgage bond. Yet, 95% of all auction sales are financed through bond finance, so it’s not only cash buyers who can buy property on auction.
Only the required deposit in the form of a bank guaranteed cheque or cash must be available at the auction; this amounts to usually five to ten percent. Establish before the time what type of payment is acceptable to the auctioneer.
Having said that, you must know beforehand that you will qualify for a bond by making bond arrangements with your bank before the sale. If your bid is accepted at an auction you will be legally bound to buy the property – you need to be 100% sure that finance will not be a problem.
So, decide what the maximum amount will be that you will bid on before the auction, then stick to it – don’t get caught up in the moment and over commit yourself.
Hush, don’t say a word
A very important point: Do not tell any other bidders or the auctioneer how much you are prepared to pay or even how badly you would like to buy the property. Dummy bidders can be used to push the price up – yes, it’s illegal but it may still take place.
Who pays the commission?
When you buy property through an estate agent the seller pays the agent’s commission. In case of an auction the buyer is liable to pay commission on the sale to the auctioneer. Get details regarding this from the auctioneer beforehand.
Finally, it’s Auction Day
If you have done proper preparation you can look forward to the excitement of the auction. What needs to be done on the day?
1. Get there ahead of time and register
You need to register as a bidder and will be issued with a bidder’s card and a paddle with your bidder’s number on it. Before the official start the auctioneer will give information such as the lot number and description – make sure you are bidding on the right property! There is usually time allotted for questions; ask if anything still bothers you.
2. The bidding finally gets underway
Three things to remember here:
a. Lift your hand or paddle if you wish to bid.
b. State the amount clearly – even shout if you have to.
c. Make eye contact with the auctioneer to ensure he acknowledges your bid.
If the bidding exceeds your limit clearly say “no” when the auctioneer asks you.
3. The final bid is awarded to you, now what?
If the final bid is awarded to you, you will sign the sale conditions, pay your deposit and make arrangements of how you will pay the balance still due.
Buying a house on auction does not guarantee you a bargain, but you may still be able to buy it for much less, so do your homework and see what’s available. Right now bargains are indeed available for qualified buyers. Enjoy!