The Risks and Return of Buying Properties at a Sheriffs Auction
An auction or 'Sale in Execution' (a term used by financial institutions) is held by a sheriff of the court and occurs as a result of the financial institution having taken legal steps to recover debt on a home loan.
The financial institution has, through a court order, attached the property, but is not yet the legal owner of the property.
The property auction is advertised in the Government Gazette, two independent newspapers, and at the local sheriff office.
On the day of the auction, the successful bidder has to pay the sheriffs commission and a 10% deposit in cash or with a bank guaranteed cheque, immediately on a successful bid, and takes immediate benefit of the property although he has to arrange for occupation of the property.
Guarantees or cash normally need to be provided within 14 days.
The buyer is also responsible for paying any outstanding levies, water and electricity, rates and taxes, and buys the property as is, more commonly known as 'voetstoots'.
The financial institution will have a representative bidding at the auction with a predefined maximum bid price mandate.
This mandate can be as much as 50% below the properties market value.
The financial institution will be forced to buy back the property at the auction and then legally take ownership of the property if its maximum predefined bid price is not exceeded.
These properties are then known as 'Properties in Possession' (PIPs) and are then offered to the public for sale, and any offer to purchase on the properties must be made directly to the financial institution.
The advantage of buying a PIP is that no transfer duties are payable.
The financial institution will also, up to the date the property is transferred into the purchasers name, pay any outstanding rates and taxes on the property in full.
Although properties on sheriff auction are commonly bought for as much as 50% BMV, auctions are not without risk.
Some of the risks of buying properties at the sheriff auction are: Major arrears on levies and rates and taxes come into play on properties going to auction, as the owners normally do not even have the funds to pay their bond.
It is the buyers responsibility to determine the outstanding costs on the property, and the sheriff usually gives a detailed account of the outstanding costs before starting to auction the property.
It is possible to determine the outstanding levies and/or rates and taxes from the management agents of the complex and/or the local municipality if time permits.
The outstanding rates and taxes form part of the sales price, and transfer fees are calculated on the sales price PLUS the outstanding rates and taxes.
There is limited time to do a proper due diligence or any due diligence on the property, leaving you with potential major refurbishment costs.
The owners or tenants occupying the property may be hostile.
You could end up having to legally evict them from the property, which will cost you legal fees and could take anything between three and six months.
Sales are final and without recourse, and the terms of the sale are not negotiable.
Remember to always do your due diligence, remain within your affordability ratio and stick to your maximum offer price when buying BMV properties at the sheriff auction.
The financial institution has, through a court order, attached the property, but is not yet the legal owner of the property.
The property auction is advertised in the Government Gazette, two independent newspapers, and at the local sheriff office.
On the day of the auction, the successful bidder has to pay the sheriffs commission and a 10% deposit in cash or with a bank guaranteed cheque, immediately on a successful bid, and takes immediate benefit of the property although he has to arrange for occupation of the property.
Guarantees or cash normally need to be provided within 14 days.
The buyer is also responsible for paying any outstanding levies, water and electricity, rates and taxes, and buys the property as is, more commonly known as 'voetstoots'.
The financial institution will have a representative bidding at the auction with a predefined maximum bid price mandate.
This mandate can be as much as 50% below the properties market value.
The financial institution will be forced to buy back the property at the auction and then legally take ownership of the property if its maximum predefined bid price is not exceeded.
These properties are then known as 'Properties in Possession' (PIPs) and are then offered to the public for sale, and any offer to purchase on the properties must be made directly to the financial institution.
The advantage of buying a PIP is that no transfer duties are payable.
The financial institution will also, up to the date the property is transferred into the purchasers name, pay any outstanding rates and taxes on the property in full.
Although properties on sheriff auction are commonly bought for as much as 50% BMV, auctions are not without risk.
Some of the risks of buying properties at the sheriff auction are: Major arrears on levies and rates and taxes come into play on properties going to auction, as the owners normally do not even have the funds to pay their bond.
It is the buyers responsibility to determine the outstanding costs on the property, and the sheriff usually gives a detailed account of the outstanding costs before starting to auction the property.
It is possible to determine the outstanding levies and/or rates and taxes from the management agents of the complex and/or the local municipality if time permits.
The outstanding rates and taxes form part of the sales price, and transfer fees are calculated on the sales price PLUS the outstanding rates and taxes.
There is limited time to do a proper due diligence or any due diligence on the property, leaving you with potential major refurbishment costs.
The owners or tenants occupying the property may be hostile.
You could end up having to legally evict them from the property, which will cost you legal fees and could take anything between three and six months.
Sales are final and without recourse, and the terms of the sale are not negotiable.
Remember to always do your due diligence, remain within your affordability ratio and stick to your maximum offer price when buying BMV properties at the sheriff auction.
