Auctions : Road to Heaven or Highway to Hell?
Auctions are a great way to pick up properties at next to nothing. Everyone knows that, right? But is it true? Let’s take a closer look…
There are two kinds of auctions:
• Private auctions
• Sheriff auctions
Private auctions which takes place at the house. The auctioneer deals directly with the seller.You don’t take on owners debt so there is less risk involved. This is a fairly safe way of buying a property, less chance of picking up a deal but equally, less chance of picking up a lemon.
The second, hugely risky kind of auction is the Sheriff’s Auction.The sheriff will only sell banks or body corporate properties. If your bid wins, you also ‘win’ all the outstanding debt on the property such as rates and taxes, water and lights. You also ‘win’ the tenant (if there is one) which can be very risky as they might refuse to allow the bank access which in turn, means no bond for you. To make matters worse, they might refuse to leave!
Do not attempt this strategy unless you are well prepared!
No no wait, just before you run away screaming…it is possible to manage the risk!
Do mock charges, go to auctions, pretend to buy – but don’t. Get there half an hour before hand. Sit at back to see who you are ‘bidding’ against. It is absolutely critical for you to practice being at auctions, get used to the feel of the room, the energy of the room, the tension, the excitement and the anxiety in the room. You’ll learn who the various players are in the room–the bankers will l be dressed in suits and will nod when the reserve price is reached, signalling to the auctioneer that the they are happy for the property to go for any price from here on out. Watch for the professional property investors, looking casual, hands in pockets, leaning up against the wall. The newbies will be right in front, wringing hands, dripping in sweat, wide eyed and terrified! The main point of doing mock charges is to ensure you don’t look like the newbie. Confidence and determination are key to success with this strategy.
Once you feel ready to actually bid at an auction, go to the green gazette.co.za/auctions or www.sheriffhq.co.zato find local auctions. You can search for properties by province or by sheriff. Find out where and when the property is being auctioned. Get the details of the lawyers involved; call them to find out what the outstanding rates and taxes are as well as the water and lights bills. Take this figure OFF the amount you plan to bid at.
Next step is to do your due diligence. Check up on sales in the area.Are properties selling and if so, for how much?What are the demographics? What is the average age of the area, are there schools, universities, parks, shopping centres?
If it all adds up, drive past the property. The key is to GAIN ACCESS. DO NOT buy a property you have never seen! Get creative, pay R50 to the gardener to get in, be nice to anyone there to gain access. You need to check the structure of the buildings on the property. Buying a property with someone living in it can be very risky as they might not let the bank in which in turn means you won’t get a bond against the property.The nightmare could continue if they refuse to leave. If you can’t establish if there are people on the property or not, drive past the property at night looking for any light. If there are any lights on or candles burning, chances are excellent people are living there.
Everything still on track?Head for the auction!
Get the cash together for the deposit you’ll need to pay in order to participate in the auction. Most auctioneers demand R30,000. You’ll also need to pay sheriffs commission which can be up to a max of R13000 and you’ll be liable for a 10% deposit within 10 minutes of you winning the bid. When you are at the auction, the auctioneer will disclose the outstanding figures on the property. Remember to deduct this amount from the maximum bid you were planning on going to.
• STOP bidding when you reach your limit, go with your calculator not your heart!
If your bid is successful, you will be required to sign the terms and conditions which will include a clause stating that you have 21 days to pay the balance of the purchase price. In reality, you have 28 days because when 21 days lapse, the sheriff will send a letter saying you have breached it but you have 7 days to fix it.
• If you cannot raise the cash, the property will be put back on auction and buyer liable for all costs!
Now you can finally visit your new property and get a decent look at it. Remember, you buy the property ‘voetstoets’, which means once the hammer falls, you as the buyer must:
• insure the property
• get electrical certificate
• cover all the outstanding Rates and taxes, water and lights
° Please note that these figures will accumulate against you until transfer – don’t forget to take that into account!
The Do’s and Don’ts are more to this strategy than meets the eye. Make sure you do your homework. This is a great strategy but it is NOT for the faint hearted!