Auctions - The Need To Know On Buying And Selling
There are four different types of property auctions when looking to buy
- Voluntary Auctions: The main purpose for a homeowner selling their property on a voluntary auction is to get a better price for the property through playing buyer against buyer in a live atmosphere. In this case, the homeowner is not interested to wait it out in the property market. These auctions can work well for the seller in an active property market but rarely work for the buyer as the seller has a reserved price and the sale is subject to the seller’s acceptance.
- A bank auction: This sale is caused by the financial distress of the property owner. This auction is organised by the bank, giving the distressed seller, who is significantly in arrears with their bond, an ultimatum to sell the bonded property at an auction which is subject to the bank accepting the offer. In the case of a bank auction, most of the properties are sold at a marked-down price and the bank then agrees to write the shortfall off on the outstanding bond. When buying on a bank auction, you are buying a home from a seller with all the normal assurances and on transfer the rates and taxes will be sorted by the seller.
- Sheriff auctions: This sale is the ultimate source of great value property. When the bank is unable to rehabilitate the bond holder to such an extent that there is no way of recovering their funds, the bank will appy to court to attach the property to sell it to the highest buyer as it stands, this being called a sale in execution. This sale is executed by the sheriff of the court. Seeing that the bank often will let the property go at a massive discount that goes up to 50% of the value.
- Property in possession (PIP): This is property that was bought back by the bank, in other words, a repossessed property. This is when the bank buys the property at a sale in execution, they acquire substantial costs by means of transfer, evicting residents, improving the damages and securing the vacant property. There are also various time-wasting tactics that can hold the process back. The bank must deal with all the litigation involved, preventing them from selling the property on. They add all those costs sustained and will need to try and recover the total when they sell the property and are therefore PIP’s are not always great buys.
Tips on how to buy property on auction
- Firstly, you need to get registered: In order to receive a bidder’s card and sales catalogue, you’ll need to attend a voluntary or bank auction and register. You’ll receive the bidder’s card and sales catalogue two to three weeks prior to the auction date. The information pack includes the conditions of the sale, a copy of the title deed, plans, zoning certificates and any applicable lease agreements. To register, you will need your Identity Document, proof of residence, and the fee for registration.
- It is very important to make sure you can financially go through with the purchase, to ensure you do not to lose your deposit. If you can’t make the guarantees, you will forfeit the deposit and still be liable for sheriff’s fees. Auctioneers fees are also payable on the day of the auction. These fees are generally a percentage of the value of the sale. Check that you are aware of what all the extra costs are and that you are financially prepared to pay. Also remember when buying a property at a sale in execution, you need to make sure you will be able to pay all other outstanding rates. So, remember do your homework.
- Request to see the sale agreement that you will be required to sign from the auctioneer and read it through thoroughly. If you are uncertain about something, rather ask the auctioneer to clarify the terms or ask an attorney before you attend the auction.
Tips on selling your property on auction
- Look for an auctioneer who has experience in selling residential property on auction. Start by checking the newspapers and look out for the following qualifications: Graduate of South African College of Auctioneering; Registered with the South African Institute of Auctioneers; Member of the Institute of Valuers; Registered with the South African Property Valuers Profession.
- Once you have selected the auctioneer, ask them to explain the various types of auctions best suited to sell the specific property and then select the type of auction that is the most appropriate in terms of your needs. Make sure that the auction company that you have chosen is willing to undergo an aggressive marketing as well as advertising campaign for your property.
- Establish whether the auctioneer already has a list of qualified buyers. The great advantage is that bidders at an auction are normally financially qualified and ready to buy on the spot and auction sales generally don’t accommodate suspensive conditions as the property is sold ‘as it stands’ / voetstoots’ with no bond clause.
- Determine the market value of your property before it goes on auction. This is important as it will assist you to assess whether the price achieved at auction is reasonable or not. Remember it is important to set a minimum price in line with the market value and with the current conditions in the market. The seller will not be involved in the negotiating process, unless the minimum asking price is not achieved.
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