Buying a home on auction can be an alternative way of becoming a home owner.  However, these properties need thorough inspection and a good understanding of the risks and costs prior to bidding as well as the responsibilities when a bid is accepted.

Properties sold on auction have ended up there for various reasons, either the customer has defaulted, or it is a deceased estate where the surviving relatives were unable to take over the bond or the customer is sequestrated, which is court ordered.

The sale is conducted through a Sheriff of the court at a public sale in execution. The Sheriff is appointed by the courts to act within specific areas or regions and is considered an unbiased party between the execution debtor and successful bidder.

The most important aspect of buying on auction is doing your homework beforehand. A potential purchaser needs to do all the research he or she would normally do when buying a house through an agent, including a detailed inspection, an understanding of the market value and any renovations or repairs that would be required.

Once viewing the property, the potential purchaser will need to register as a bidder. The sheriff will start the process by accepting the registered bidders and going through the conditions of the sale. He will start at a specific price and all registered bidders are free to start bidding.

There are a number of costs involved with buying at an auction. These include a non-refundable deposit of 10% of the purchase price, value added tax (VAT) and the Sheriff’s commission of 6% on the first R30 000 plus 3.5% on the balance of the price up to a maximum of R7 000, all due on acceptance of the bid.

Once your bid has been accepted you will be expected to accept and sign the conditions of sale and pay the deposit as per the different banks requirements.

It is a common misconception that banks don’t finance properties on auction. The process is the same for any other property. However, if a purchaser bids on the property, pays the deposit and the Sheriff’s commission and if the bank financing doesn’t go through, the bidder will lose that initial outlay.

There are a few potential risks that purchases need to be aware of.

  • It is the purchaser’s responsibility to know the condition of the property before he or she bids on the sale. Properties at sales in execution are generally sold “voetstoets”- a South African term which means ‘as is’. This implies that there is no recourse if you are unhappy with the state of the property once you have made the purchase.
  • If the property is on auction because the client defaulted, it is very likely they were unable to pay their rates and taxes. Because the property is bought  “voestoets” you are liable for the outstanding rates and taxes on the property, which may results in a fairly heft bill.

Other responsibilities for the purchaser include the payment and obtainment of electrical compliance certificate – the law requires a home owner to be in possession of a compliance certificate before taking ownership. In a usual sale it would be the seller’s responsibility, however in the case of an auction it is the purchaser’s responsibility.

Lastly, a major consideration when buying a house on auction is if there are currently tenants. In the event that the tenants do not vacate the property, the purchaser will have to follow a legal process (which can take up to 3 months) in order to evict non-paying tenants. The purchaser is liable for their eviction and the associated costs.