It’s a well-known fact that it is possible to purchase quality properties on auction. However, as is the case with most high–involvement purchases, it’s important to fully understand the intricacies of buying via this platform before committing to bidding.
Establish your budget
According to Jaco du Toit, head of Park Village Auction’s property division, the first thing to consider when sizing up an auction property is your budget.
Notes Du Toit: “In order to determine what you would be prepared to spend on a property, you first need to ascertain what it is actually worth and what it is worth to you as the purchaser.
Take a good, hard look at it on the viewing day. Take into account the area and surrounding amenities and examine current area listings. Remember, location, location, location. Any repairs and modifications you would want to make would also have to be factored in.
“The trick is to stick to your budget once you’ve settled on a number. It’s easy to get swept up in the excitement of the auction or get into a bidding war with another buyer and go over your limit. Remember - once that hammer goes down, the deal is sealed.”
Conditions of sale
Another aspect which Du Toit says should be carefully considered are the Conditions of Sale. Issues such as the confirmation period, outstanding rates and taxes, the commission and VAT are typically dealt with under this banner. Ideally it’s best to obtain a copy of the Conditions of Sale before the auction which will allow you to peruse them at your leisure. And don’t be afraid to ask questions on the day of the auction either, notes Du Toit.
“Simply put, the confirmation period relates to a period of time (usually 14 days) during which the bidder’s offer will be considered. It may well be that there is a reserve on the property in which case the winning bid will either be accepted or rejected based on whether or not it has met the reserve price.
In terms of rates and taxes associated with an auction property, Du Toit explains that the nature of the sale will dictate who would be liable for this expense, if applicable.
Notes Du Toit: “No hard and fast rule applies when it comes to arrear rates and taxes. That said, it is customary for the seller to bear these costs if the property is being liquidated by trustees or a liquidator. If the sheriff sells the property the buyer will be responsible for the arrears. The moral of the story is the Conditions of Sale dictate who pays.”
As for the auctioneer’s commission which differs considerably from auctioneer to auctioneer, Du Toit explains that a trend has emerged whereby the commission (which is typically paid in addition to the final price bid) is paid by the buyer. But again, Du Toit urges bidders to refer to the Conditions of Sale to determine what the facts are in this respect.
In terms of VAT, Du Toit explains that this will depend on whether or not the seller is registered for VAT which can add significantly to your costs. If not, transfer costs will still apply.
The Voetstoets clause
Du Toit adds that potential bidders must keep in mind that auction properties are sold voetstoets or ‘as is’. This means the property is sold faults and all, and the seller has no legal obligation to rectify any faults you may find post purchase.
Fixtures and fittings
“Of course there are other factors which need to be considered,” notes Du Toit. “For instance, you should also ask if any fixtures, fittings or plants have been excluded and if there is currently a lease in place (which you should have sight of) which will have to be honoured. You will also need the necessary deposits and applicable commission and VAT.
“The upshot is that if you are going to buy property at auction, it is absolutely imperative that you do your homework and make the best informed choice you possibly can. Auctions are a great way to invest in property but they can also backfire if you aren’t aware of the potential pitfalls.”