Buying Property on Auction

Buying a property on auction, while potentially offering valuable investment opportunities, can be daunting to those not familiar with the process. But with some basic background and know-how, it need not put off potential buyers.

Buying Property On Auction | Property Blog Articles

When a home owner is declared insolvent by a court of law, a fixed property registered in the owner’s name will devolve upon the liquidator of the insolvents estate. This property will then most likely be sold on auction, although it can be sold on the open market as normal.

In the case of insolvencies, the liquidator or the bank being the preferred creditor will pay rates and taxes. The liquidator will sign the transfer documents and the sequestration order must be noted at the Deeds Office prior to the lodgment of the transfer.

When a home owner fails to pay monthly bond installments to a bank, last mentioned being the mortgagee will “foreclose” on the property in terms of their security (the bond registered in their favor). The bank will repossess the property through intervention of the courts and this will then be a PIP (“properties in possession”). This property, once repossessed, will then most likely be sold on auction by the sheriff. Should the reserve price not be met on such an auction, the bank will buy in and the property will be held on their books and may later be sold on the open market. The purchaser of the PIP is liable to pay rates and taxes as well as transfer duties on arrear rates and taxes. The transfer documents will also be signed by the sheriff.

Any home owner may decide to sell his or her property on auction in any other circumstances, although this is not a common method of selling property in South Africa.

The auction process

Normally a 10% deposit is payable on fall of the hammer. The sheriff will insist on this, although in the case of insolvencies, the liquidator might be more lenient with deposits.

While not essential, a pre-approval from a bank would be advantageous. Access to sufficient cash to pay the deposit is, however, essential.

Costs such as rates arrears and taxes, as well as transfer duty will be payable by the purchaser, except in situations involving insolvency. In such cases, the liquidator or the bank as the preferred creditor will pay rates and taxes.

The rest of the transfer process is exactly the same as a conventional transfer.

Tips for buying on auction

Access to sufficient funds is essential, as buying on auction requires quick action. As such, a buyer will need to make sure that he or she has funds available immediately to cover the required deposit.

As the arrear rates are payable by the purchaser (except in the case of insolvencies), it’s important to investigate the outstanding amounts as these can add significant costs to the property purchase.

In addition, finding out as much as possible about the property can help ensure an informed decision is made regarding the value of the investment. Since properties are generally transferred through auction as a result of payment defaults, it should be expected that these properties have not been properly maintained. Therefore, a thorough property inspection will assist in determining any additional costs that may be incurred in fixing or renovating the property after purchase.

10115

Recommended for you

Snymans Attorneys | Residential and Commercial Property Transfers
Contractual Matters

How to ensure a quick and smooth property transfer

4134

There will always be elements in a property transaction that will be out of your control as the purchaser or seller, however some elements can be managed in a way as to avoid unnecessary delays.

Read More
What Happens To The Ownership Of My Property When I Get Married
Contractual Matters

Marriage in or out of community of property?

4466

The marital regime selected at the time of entering into a marriage will have a significant impact on how ownership of property is dealt with within the marriage, which is why it is important to understand the different options available and select the one that best suits you.

Read More
Property Transfers | Bond Registrations | Snymans Attorneys
Contractual Matters

Minors and immovable property

4030

While the process for transferring ownership of immovable property remains largely the same in cases where one of the parties to the transfer is a minor, the minor’s contractual capacity must be carefully considered.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Contractual Matters

Cash is king – what you need to know as a cash buyer

7091

The general sentiment is that a cash purchase is always a better option when buying property. However there are many factors to be considered before putting pen to paper.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Contractual Matters

Always look under the rug

6988

While a property seller is legally required to disclose any known defects of the property, what can a buyer expect when it comes to unusual characteristics, quirks or abnormal qualities?

Read More

Need more Snymans content?

Sign up for our monthly newsletter.

Buying Property on Auction

Buying a property on auction, while potentially offering valuable investment opportunities, can be daunting to those not familiar with the process. But with some basic background and know-how, it need not put off potential buyers.

Buying Property On Auction | Property Blog Articles

When a home owner is declared insolvent by a court of law, a fixed property registered in the owner’s name will devolve upon the liquidator of the insolvents estate. This property will then most likely be sold on auction, although it can be sold on the open market as normal.

In the case of insolvencies, the liquidator or the bank being the preferred creditor will pay rates and taxes. The liquidator will sign the transfer documents and the sequestration order must be noted at the Deeds Office prior to the lodgment of the transfer.

When a home owner fails to pay monthly bond installments to a bank, last mentioned being the mortgagee will “foreclose” on the property in terms of their security (the bond registered in their favor). The bank will repossess the property through intervention of the courts and this will then be a PIP (“properties in possession”). This property, once repossessed, will then most likely be sold on auction by the sheriff. Should the reserve price not be met on such an auction, the bank will buy in and the property will be held on their books and may later be sold on the open market. The purchaser of the PIP is liable to pay rates and taxes as well as transfer duties on arrear rates and taxes. The transfer documents will also be signed by the sheriff.

Any home owner may decide to sell his or her property on auction in any other circumstances, although this is not a common method of selling property in South Africa.

The auction process

Normally a 10% deposit is payable on fall of the hammer. The sheriff will insist on this, although in the case of insolvencies, the liquidator might be more lenient with deposits.

While not essential, a pre-approval from a bank would be advantageous. Access to sufficient cash to pay the deposit is, however, essential.

Costs such as rates arrears and taxes, as well as transfer duty will be payable by the purchaser, except in situations involving insolvency. In such cases, the liquidator or the bank as the preferred creditor will pay rates and taxes.

The rest of the transfer process is exactly the same as a conventional transfer.

Tips for buying on auction

Access to sufficient funds is essential, as buying on auction requires quick action. As such, a buyer will need to make sure that he or she has funds available immediately to cover the required deposit.

As the arrear rates are payable by the purchaser (except in the case of insolvencies), it’s important to investigate the outstanding amounts as these can add significant costs to the property purchase.

In addition, finding out as much as possible about the property can help ensure an informed decision is made regarding the value of the investment. Since properties are generally transferred through auction as a result of payment defaults, it should be expected that these properties have not been properly maintained. Therefore, a thorough property inspection will assist in determining any additional costs that may be incurred in fixing or renovating the property after purchase.

10115