For many South Africans, buying residential property at auction is a new and unfamiliar prospect. This article will detail the important things to keep in mind when buying residential property at auction.
Prepare To Buy Residential Property At Auction
Go to a few auctions and see how they work. Familiarise yourself with the system and the procedure. Talk to the auctioneers before or after the auction, or even make an appointment. The auctioneer will be happy to clear up any uncertainties and questions about the auction process before you bid. That way you will not be easily intimidated or driven to bid a higher price than the limits within which you feel comfortable.
Get the money ready
Reportedly, over 95 percent of property purchasers at auctions use mortgage bonds to fund the purchase. The only difference between buying residential property at an auction and a traditional property sale, is that auction buyers have to make their bond arrangements before the auction day and not after the sale. Buyers cannot bid on the condition that they get mortgage bond approval after the auction. Auction buyers have to have the money immediately available.
You usually have to put down a deposit of five to ten percent, so be prepared with either cash or a bank guaranteed cheque at hand.
Know what is on offer
Read the catalog or pamphlet available from the auctioneers. Most auction houses have a viewing date or preview before an auction. Attend the preview and examine the house thoroughly. Let's say that again; Inspect the property carefully! Attend to your due dilligence homework. The auctioneer should disclose all information they have, but it is your responsibility to check on any material detail that the auctioneer doesn't know the answer to.
Know what you will be agreeing to
The policies of the relevant auction house and the terms and conditions of the sale is usually included in the catalogues and brochures provided. This gives you general information on the auction, whether there will be "buyers premiums" added to the final price, etc. Ask questions at the preview. Listen to the conditions of sale when the auctioneer reads out the terms before the auction commences.
Auction buyers should understand the conditions of sale before the auction. If you are planning on buying residential property at an auction, make sure you know all the issues and understand what you will be agreeing to.
Set a price limit
Determine a price you would be willing to pay before you set off to the auction and stick to it. It is easy to get caught up in the bidding excitement and over commit yourself. So, stick to your bid limits.
Don't forget the commission
Buyers should keep the auction commission in mind when deciding on their bid limits. Auction commissions can vary, but are normally 10% of the purchase price. Auction buyers pay the usual transfer costs and duties, but the seller usually pays for all the advertising costs.
Commission and taxes may be payable over and above your bid price at the auction.
Knowledge Is Power
It is always wise to find out as much as possible about the property before making any bid. As a registered estate agent, the auctioneer has a responsibility to disclose any invisible defects that he/she is aware of, but it is still your responsibility to familiarise yourself with all the details about the property. So, scout ahead!
Speak to the owners, if you can. Chat with the neighbours. Search the title deed for restrictive conditions or servitudes that might influence your use of the property. Get a list of recently sold properties in the area and compare them to the property to get an idea of the market value.
Advice that might seem very obvious to many is to; keep your cards close to your chest. For example: It is best not to let the auctioneer or fellow bidders know too much about how much you desire the property, or are prepared to bid at an auction. It is possible that there might be dummy bidders in the crowd who will bid against you to push the price up to the maximum of what you are willing to pay - even if you could have gotten it for less. This is illegal, but has been known to happen.
What To Do On Auction Day
For any auction buyer the auction day has the potential to turn out either exciting, profitable and a pleasure, OR intimidating, costly and a terrible mistake. The kind of auction day you experience will depend on your preperation for and dissipline during the auction day.
Register as a bidder
The first thing to do when you arrive at an auction on the auction day, is to register as a bidder. The auctioneer will take down your particulars and may issue you with a bidder's card or paddle, featuring your unique bidder number.
Don't lose your bidders card or paddle! If you do, report it immediately.
Ask for a copy of the Conditions of Sale
If you did not receive one when you registered as a bidder, ask for a copy of the Conditions of Sale and thoroughly inspect them.
Ask the auctioneer about any conditions of sale that you feel is unclear, or any other relevant questions before the start of the auction sale.
Inspect the property
Inspect the property fully before the sale commences. Remember that auction sales are not subject to any suspensive conditions and "voetstoots". So, dont be shy to inspect to property thoughrowly, and remember to do your due dilligence homework
Listen to the auctioneer
Before the auction sale on a property begins, the auctioneer will give information on the property - the lot number and description. Listen for any changes to the catalogue.
If you have any unanswered questions or some new ones, ask relevant questions at the designated question time. There might be other buyers with similar questions who would be too happy to get some answers, so don't feel shy about asking questions if you are not 100% sure of all your obligations as purchaser. Remember: It is what you don't know that can hurt you!
Bidding
During the auction, you should make eye contact with the auctioneer and lift your hand or paddle when you wish to bid.
Shout out your bid if necessary and attract the auctioneer's, or the ring men's attention.
Don't hesitate or procrastinate when bidding because you may loose the deal!
Be confident and do what you came to do - buy a house at auction. Don't be intimidated by other bidders as they may be trying to put you off bidding, but also don't be arrogant, bombastic or intentionally loud as this will irritate the auctioneer and your fellow bidders
When you no longer wish to bid on an item and the auctioneer looks at you for a bid, signal "No" clearly to the auctioneer by shaking your head (from side to side - not up and down!) or just clearly say "No".
Watch, listen, ask and only bid when you feel comfortable to do so.
You should only bid if you have the money available or have made financial arrangements, because you are legally bound by any bid you make. Most auctions are taped in order to avoid confusion and disputes, and each auction is audited
Don't contact the auctioneer after the sale to offer any higher bids, because it will most likely be too late. As they say: "Wa lala la wa sala!" - If you snooze, you lose!
Finalise your bid
If you have successfully bid on a property, before you leave, you must sign the conditions of sale directly after the auction and arrange to settle or complete payment for your purchase immediately.
The auctioneers might not accept any cash at the auction, so make sure of the payment procedure before the auction.
All deposits are paid into valid Trust Accounts in terms of relevant legislation
An Electrical Compliance Certificate is required by any purchaser of immovable property in South Africa . At an auction, this certificate of compliance usually must be provided for by the Purchaser, at his own cost.
Auctioneers who sell immovable property clearly fall within the definition of an Estate Agent in terms of the Estate Agent Affairs Act 112 of 1976 and must be registered with a valid Fidelity Fund certificate
Auctioneers are usually trained and qualified members of the South African Institute of Auctioneers and the South African Estate Agency Affairs Board
Buying Residential Property At Auction
Auctions of various kinds happen almost every day in South Africa. If you feel as if you need some experience before buying residential property at auction, try your hand at buying something small at a goods auction first. You'll see, its easier than you thought, and not that much different from buying residential property at auction!
