Bank Repossessed Houses – A Guide to Buying Affordable Property

Article summary:

• A repossessed property is a property taken over by the bank because the previous owner couldn’t keep up with their bond repayments.
• Such properties are usually sold in auctions at a reduced price, sometimes as much as 50% of the original value.
• Pros include the reduced price, the lack of transfer duty, and the greater likelihood of being granted a bond.
• Cons include the difficulty of arranging a home viewing, and the possibility that the property is still occupied.

Buying a home is an exciting prospect, but many may be put off by the price tag.

Repossessed houses present an opportunity to snag an affordable property. It makes your dream of property ownership more achievable.

Here we provide a guide to buying repossessed homes and a summary of the pros and cons.

What is a bank repossessed house?

A repossessed house is a property that has been taken over by the bank because the previous owner couldn’t keep up with their home loan repayments..

• The previous owner is given opportunities to pay off the home loan, but if they cannot keep up with the debt and multiple warnings, and cannot come to an arrangement with the bank, then the bank repossesses the property as a last resort.
• The bank attempts to recover what’s owed on the bond by selling the repossessed property, usually at a reduced price.
• The most common way for the bank to sell the property is by putting it up for auction. This is known as Sale in Execution.

How do I buy a repossessed house?

• As mentioned, the common way is to buy the property at an auction.
• However, you can also buy the property straight from the bond owner. This is known as a distressed sale.

What you need to know about auctions

• A bank auction is when the bank organises the auction on behalf of the bondholder.
• A sheriff’s auction is when the bank applies to the court to auction the property. This is usually the best source of value for buyers as the properties are sold at a significant discount, sometimes up to around 50% of the property’s value.
• Once you make the winning bid, you are committed to buying the property. Pulling out can incur legal costs.
• Properties sold at auction are sold “voetstoots” (as is). This means the property is sold in the condition it is and what you see is what you get. The seller (in this case the bank) from any complaints you may have about defects in the property, patent or latent.

How do I attend an auction?

You’ll need to apply for a bidder’s card at the venue, which is a quick and easy process as there’s no registration fee. All you need are your FICA documents.

Note An estate agent can be invaluable in keeping abreast of property auctions and where/when they are occurring.

Pros and cons of purchasing a repossessed house

The advantages:

• As mentioned, the bank usually sells the property at a reduced price, in some cases as much as 50% of the original value.
• There is no transfer duty (a tax paid to SARS on property transfers). You can use our Transfer Cost Calculator to determine what the transfer duty would be and consequently how much you’ll be saving.
• The bank is more likely to grant a bond on a repossessed property as they are more eager to offload it.
• The bank will need to ensure that municipal accounts are paid.

The disadvantages:

• As mentioned, the property is sold “voetstoots”, so you’ll need to pay special care to the condition of the property and may have to pay a sizeable amount for repairs.
• It’s more difficult to arrange a home viewing, especially as the property may still be occupied.
• The transfer of property process, which usually takes about three months, may take longer in the case of a repossessed property.
• The property may still be occupied, and the tenants may be legally protected for the duration of their lease. You should seek legal advice before attempting to evict tenants.

What you should look out for when purchasing a repossessed property

With the above information in mind, here are some factors that require additional scrutiny on your part:

• Location. Don’t allow the temptation of a good bargain to draw you into buying a repossessed home in a bad location. Location is key with any property, including repossessed ones.
• Market value. Look into market value in the area and consult an estate agent. This is especially important if you can’t view the house beforehand.
• Repairs and maintenance. If the previous owner couldn’t afford monthly repayments, they may not have kept up with repairs either. The property may need a fix-up and renovation. Factor the potential cost of this into the cost of the property as a whole.

The potential for house flipping

Flipping houses is when you purchase a property with a view to fixing it up and reselling it for a profit.

Buying a repossessed property may be a perfect way for first-time property investors to open their portfolio, since you’ll be able to purchase it at a reduced price.

In this case, the condition of the property actually becomes an advantage, as you purchase it at a reduced price, fix it up and sell it for a significant profit.

Find out what you can afford

Although buying a property at a reduced price can be appealing, it’s essential to know what you can afford before attending an auction. This helps you set a realistic bidding range.

Getting pre-approved with ooba Home Loans will give you a reliable estimate, so you can bid confidently.

You can then plan your budget accordingly, including factoring in what you may have to pay for repairs and maintenance.

You can get pre-approved by contacting an expert at ooba Home Loans or by using our free, online pre-approval tool, the Bond Indicator.