Buying property at Auction

[bromster]

Hi,

So I want to attend an auction and try for a house which I really like. Trouble is, I'm a noob. As always, any advice would be highly appreciated as this will be my first property purchase.

1) In the rules of Auction, it says that each bid will constitute an offer to the Seller, excluding Transfer Fees, Auctioneer's Commission and VAT. But is vat applicable to property at an auction?

2) What if I buy it and the roof falls off within a week? Is the property sold "voetstoots", or will it be sold with certain sureties from the seller as with a normal sale?

3) I have enough money to pay the 5% deposit and 10%(ex. VAT) Auctioneers Fees, as per the conditions of sale. But what happens if I get it? Do I need to have bond pre-approval before I go to the auction? And if so, how long do I have to initiate the bond? And does the 5% initial deposit in 6.1 get paid to i.e SA Home Loans as part of my deposit to them? This is what the rules say:

6. The Purchaser is liable to effect payment of the purchase price by payment of:-
6.1 an initial deposit of 5% of the purchase price at the fall of the hammer;
6.2 the Auctioneer’s Commission of 10% (excl. VAT) at the fall of the hammer;
6.3 the balance of the purchase price, simultaneously against registration of transfer of the property into the Purchaser’s name.




Tricky business this.

 

[Shellyb1]

Good luck.

I think the buyer is also liable for any outstanding rates on the property.

So purchase needs to be at a steal.

Glwp

 

[itareanlnotani]

I go to property auctions.

Its the sheriff giving a short speech, you register to bid with him if you're going to bid, and then arrange payment if you buy.
Usually will be the same people at each auction - flippers, bank people, and bargain hunters. To be honest not many bargains at auctions. Mostly its cash purchasers (like me).

 

[iDOL]

You're only liable at a Sheriffs Auction and where they specifically state that the buyer is liable. Otherwise you pay what you bid, plus vat and commission.

 

[bromster]

Ok. Thanks. So if my budget was R1m, I could bid as follows:

The actual bid: R877'193
VAT: 122807

Total : 1m

+5% of R1'000'000 deposit (still not sure what happens with this)
+10% of R1'000'000 auctioneer's commission
+Transfer fees

Do I have that right?

 

[bromster]

Update for future reference: As it turns out, VAT is not applicable to the property. You only pay VAT on the 10% Auctioneer's fee. So:

Bid: 1'000'000

+10% Auctioneers Fee
+1.4% VAT on Auctioneers Fee
+5% Deposit which, once the auction is complete and the seller accepts the offer, goes to the conveyance attorneys.
+Transfer fees once the sale has gone through.

Also keep in mind that Finance Institutions will see auction property as a higher risk. As such, SA Home Loans would require a 20% deposit, so you need quite a lot of cash on hand to buy at auction.

 

[biometrics]

IIRC SA Homeloans do not do pre approved bonds, they need an OTP (offer to purchase) for approval in principle. Check with them how they deal with auctions, if at all.

 

[itareanlnotani]

SA Home Loans will also change the goalposts, so don't rely on them giving you an offer of funding for XX amount, as they can change it after you put in an offer.

Happened to me. Cnuts. Did all the paperwork, got funding in principle from them - eg you're approved to buy XX amount in writing, made the offer to purchase based on that, then they were like, oh, actually we can't give you the loan you asked for. I ended up having to bring additional funding in (ended up bringing 50% deposit) for that little escapade.
Was not amused at all.

 

[OHNO]

Bromster, I bought my house on auction in 1996. And it took me 2 years of visiting about 45 property auctions, before I could got the property.

I found it to be a very tough experience, and if you don't know what you are doing, you can land in hot water very quickly, and be liable for costs that you were not prepared for.

Note that there is no vat on the purchase price.

Hit the internet and research it all properly before you commit. Things to look out for

1) Is it a insolvency auction, or an estate auction. Avoid insolvency auctions if possible, as these are properties taken by the bank, from people that can or will not pay. You can get stuck here in that the property owner refuses to move out, and to remove them can cost you easily R10,000 to R30,000 in legal costs, and can take months to realise.

2) According to me all auction properties are voetstoots, as is, so even if you buy a property, and discover defects, it is for your cost to fix. Therefore it is vital to inspect that property in depth before the auction, not before the auction, not the day during the auction. Check on internet what to check for to not get caught out.

3) Some auctions do not require you to pay the auctioneer commission, some do. Make very sure of this, before hand.

4) If you purchase an insolvency property, then you are liable for all rates and taxes. This is not so for estate auctions. Try and make sure beforehand, what the outstanding rates and taxes are, or you can be in for a very nasty surprise.

5) You must clear out with your bank beforehand that they will give you a bond for a specific amount. Even if they do, they might still decline the bond if they come and inspect the property, and find problems. So, make very sure of your bank. If you default on the transaction, you will be liable for auctioneers commission, and if you paid a deposit, you lose that deposit.

Basically, buying on auction is for millionaires that can buy cash on the spot, it is not for people that have no money, and must do it on debt.

Also, sad things is, most think you will get serios bargains, this is not so, you do get some once in a while but they are scarce, and even so, if it happens, there are usually many parties that are aware of this, and are experienced, and have the finance, and are going to snap it up before you.

My advice, research this in depth before you try it. I feel you can get great bargains buying normal properties, you just have to look for them, and you have a ton of less pressure than on auctions.

Good luck.