Buying a property on auction is a new and exciting way to buy property in South Africa, but there’s a good reason it’s become so popular in countries like Australia. Auctions are gaining momentum in South Africa as well. The reason so many people are selecting the auction option is because it's fast, and the seller's price is protected by the mandate. There are no advertising costs or auction fees charged to the seller. The seller's reserve price is protected by the sole and exclusive mandate.
According to Tanya Jovanovski franchisee of Rawson Auctions Western Cape, the immediacy, transparency, and thrill of a live auction are hard to beat. Add the potential to secure a property at a fair market value to both buyer and seller.
If you’re keen to try your hand at a new way of buying property, these are basics you’ll need to know:
How does a property auction work?
“A property auction is a public sale facilitated by an auctioneer where the highest bidder gets the property,” provided the reserve is met explains Jovanovski.
Bidders need to register to receive a bidder’s card. For that, they’ll need to provide their FICA documents, namely their ID and proof of residential address. No registration fee is required for buyers.
Please do your homework before the auction date, like viewing the property, getting comparative prices in the area, and knowing what your final bid will be on the auction day as bids are legally binding and cannot be withdrawn if you change your mind.”
Types of property auctions
“There are a few categories of property auctions, each with its own value proposition,” says Jovanovski. “The first is a voluntary auction, which is a strategic decision made by the seller to put bidders against each other with the hope of getting the fairest sale price.”
She explains that voluntary auctions favours both the buyer and seller.
“They’re still much faster than conventional sales,” Jovanovski notes, “cutting out the long and often slow negotiation period. They also give buyers some peace of mind, knowing that others were willing to pay very close to what they were.”
Bank Auctions (Distressed Auctions)
The second type of auction is a bank auction, organised by a bank on behalf of a seller in serious and irrevocable arrears on their bond.
“These auctions – sometimes called distressed auctions – are done with the seller’s permission, but prioritise speed over final sales price,” says Jovanovski. “As a result, bidders can often secure properties at below-market prices, and have the added benefit of knowing any outstanding rates and taxes will be handled by the seller.”
Sheriff’s Auctions (Sales in Execution)
Sheriff’s auctions happen when a bank is forced to take legal action against a property owner who has defaulted on their loan and is unwilling or unable to collaborate on a solution.
“These court-mandated auctions are about debt recovery, not about big profits,” says Jovanovski, “which means you might find properties going for a little less than their actual market value.”
Standard auction costs
In addition to the normal property purchase costs, like transfer duty or VAT and conveyancing fees, Jovanovski says successful bidders will also need to prepare for some immediate costs on the fall of the hammer.
“Auctions move quickly,” she says. “All the sale documentation is signed as soon as the bid has been awarded. As part of this, the successful bidder will normally need to put down an immediate deposit of 5%, and pay the auctioneer’s commission of another 10% plus VAT.”
Potential hidden costs and complexities
One of the biggest risks of buying on auction is the fact that auctioned properties are sold as is, and buyers need to view the property in person before the purchase and do their DD.
“The title deed, property plans, and zoning certificates are normally available before the auction, and all effort is made to provide an accurate bidpack of the property. All agents ensure that a defect list is completed. Although we sell the property Voetstoets, we have to give full disclosure of any known defects disclosed by the sellers. That said, it’s always smart to budget for some extra expenses like repairs or renovations, or even eviction expenses if the property is occupied.”
Despite the potential challenges, Jovanovski says buying on auction is still one of the best and most exciting ways for savvy investors to secure unbeatable value.