- There’s no room for buyer’s remorse at home auctions. Once you make the winning bid, that property is yours. Defaulting on the deal can incur legal costs.
- Bond originators such as ooba Home Loans can assist you with the prequalification process so that you have bond pre-approval before you attend a real estate auction.
- Homes are sold voetstoots at property auctions. Depending on the condition of the property, you may be in for maintenance costs and repairs.
- Study the Conditions of Sale so that you know and understand the contract.
A real estate auction is an exciting environment for prospective buyers keen to make a winning bid on a new home. It’s important to be fully prepared for the extra expenses involved.
The sound of a gavel coming down at an auction can be exciting or sobering, depending on how prepared you are for the consequences of making that winning bid. Property auctions can be as stimulating and promising as any other auction environment, with many a prospective buyer on the lookout for a bargain. But that’s not what home auctions are all about. Bargains are not guaranteed and there’s no recourse for buyer’s remorse.
With that in mind, we answer some of the questions you may have about property auctions, and provide some helpful tips.
How do I find a property auction?
Resources for finding auctions include websites such as greengazette.co.za, newspapers, real estate agents and websites of property groups. You could also browse the websites of various auction houses to see what’s in the pipeline.
Bear in mind the different types of auctions:
- A voluntary auction is where the seller has freely decided to put the property on auction, hoping to get the best deal by playing buyers against each other in a live venue or online. These auctions usually favour the seller rather than the buyer.
- A bank auction is organised by the bank, usually on behalf of a seller who is in arrears with his or her bond. This type of auction benefits the buyer as the property is sold at a reduced price, and the rates and taxes are handled by the seller.
- A sheriff’s auction occurs when the bank is unable to recover the funds from the current bond holder, and instead 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.
What do I need to attend a property 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.
Registering for a bidder’s card does not obligate you to make a bid. In fact it may be a good idea to attend a few auctions as an observer so you can get an idea of how it works.
Can I inspect a property before attending the auction?
In many cases you will not be able to inspect the property before attending the auction. You can try a drive-by viewing, but if this is not enough to set your mind at ease, you should ensure the auction you are attending does allow for home inspection.
Attending a house auction: 10 Important things to remember
Here are some guidelines for attending a real estate auction with the intention to purchase property.
1. Ensure you can finance the purchase
When you bid at property auctions, you must be confident that you will qualify for a home loan (unless it’s a cash deal and you don’t need a bond) 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.
The payment of the deposit is usually required immediately, in cash, after the winning bid and the auctioneer also requires a commission payment worked out as a percentage of the auction price.
2. Get prequalified
As South Africa’s leading home loan comparison service, ooba Home Loans can guide you through the prequalification process.
What is prequalification? It’s a process conducted by bond originators such as ooba Home Loans when they help you work out what you can afford on your monthly bond repayment, and what home loan amount the bank is likely to approve you for. They’ll also check your credit score, to see if you qualify for a home loan.
The good news is that no transfer duties are payable on the purchase of a repossessed property, which is a property available to purchase via public auction when the owner defaults on home loan payments and the bank needs to recover that outstanding debt.
The prequalification process is vital because without it, you could bid on properties for which you require a home loan, and only find out after you win the bid that you do not qualify for the required home loan.
What you’ll need for prequalification
- proof of residence
- proof of income
- details of monthly expenses
- last three months’ bank statements
- a list of assets and liabilities
3. Read the sales contract
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.
4. Arrive early
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.
5. Do your research
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 after the sale.
Successful bidders at home auctions will also be liable for any outstanding municipal rates, taxes 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.
Estate agents are a useful resource in this regard. They will be able to prepare a comparative market analysis for you, which details actual sale prices received for similar properties in the area.
6. Attend auctions as an observer
Part of your preparation should be attending a few property auctions as an observer to get a feel for how they work.
7. Find ways to evaluate the property
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.
8. Be prepared to seal the deal
Be absolutely sure of your bid strategy because if you secure the winning bid at an auction, there’s no going back. That gavel coming down seals the deal and you will also be liable for outstanding municipal rates and levies, if the seller has fallen behind in their payments. That’s how property auctions work.
9. Check the Conditions of Sale
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.
10. Check for a lease agreement
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.
When you’ve pinpointed a property that you’re interested in, ooba Home Loans — South Africa’s largest home loan comparison service, can make it easier for you to ensure you have the necessary funding, by prequalifying you as well as assisting in the home loan application process. Start off with their home loan calculators; then use the ooba Bond Indicator to determine what you can afford. Finally, once you’ve secured your dream property, you can apply for a home loan with ooba Home Loans.
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