CAN I STILL BUY A BARGAIN AT A SHERIFF’S AUCTION?
26 November 2018
In reality however, there really is no assurance that you will be able to buy a bargain at a Sheriff’s Auction. This is especially true if you lack the necessary expertise and experience such that you do not know what risks to look out for or properly understand the mechanics or the manner in which these types of auctions operate.
Here are a few things you have to know and take into consideration before considering buying a property at an auction from the Sheriff:
- Do your homework thoroughly and ensure that you acquire detailed, complete and correct information that relate to both the property and the associated auction terms. A proper study should be conducted to find out what properties are on auction in the geographical areas that you are interested in. Make use of the publicly available information listed on websites such as www.sasheriff.co.za and property information software applications such as Windeed, Lightstone etc.
- In the event that an interest is sparked to purchase a particular property, it would be highly advisable to physically inspect these properties. This is necessary for several reasons. The first being; the condition of the property and the second is that the property might not necessarily be what you think it is or that which it was innocently made out to be. It should be borne in mind that properties at auctions are typically bought voetstoots and in the condition that they are. If it turns out that the property is a proverbial lemon, you will have to attend to the repairs at your own cost.
- Carefully study the terms and conditions of the Sale or Auction Agreement which you are required to sign when you purchase a property at an auction and understand the implications of signing such an agreement. This agreement sets out the terms and conditions relating to the sale of the property. It may for instance state that the purchaser will be able to occupy the property after signature of the conditions of sale, payment of the deposit and securing the balance of the purchase price provided that the purchaser will be responsible to pay occupation rental at the rate of 1% of the purchase price from date of occupation until date of registration together with all rates and taxes, levies and Home Owners Associations fees (if applicable) necessary to transfer the property. Suffice to state that this would have serious cash flow considerations for a prospective purchaser.
- Find out what the outstanding rates and taxes and levies are in relation to the property you intend to buy. In terms of the sale agreement you will typically be held liable to settle all outstanding amounts due in relation to the property. You will have to take these amounts into consideration when deciding how much you are willing to pay for the property, as you will have to pay these amounts in addition to the purchase price.
- You would be well advised to bear in mind that you would have to have some cash available as you are expected to pay a deposit (typically 10% of the purchase price) to the Sheriff upon the conclusion of the sale, together with the auctioneer’s charges and fees.
- You will also have to furnish guarantees for the balance of the purchase price to the transferring attorneys (typically within 21 days from the date of sale). Make sure you can follow through with the purchase. If you can’t deliver the guarantees, you could forfeit the deposit and will still be held liable for the Sheriff’s fees.
- A Prospective purchaser must take note of penalty interest which may be charged on the purchase price, in certain instances. This interest normally applies when guarantees for the balance of the purchase price are not delivered timeously.
- Costs for the purchaser’s account will include the transferring attorneys transfer fees and if you are registering a bond, bond registration fees. These fees are typically levied at a recommended tariff prescribed to attorneys by the Law Society and are calculated on an escalating scale based on the purchase price of the property and the bond amount respectively. The purchaser will also be responsible to pay either transfer duty or VAT to the South African Revenue Services, dependant on whether or not the Seller is a registered VAT Vendor.
- It would be highly advisable for prospective buyers to ascertain whether anyone is occupying the property (lawfully or unlawfully) as the costs (if the occupier refuses to vacate the property) of obtaining an eviction order may be significant. Obtaining such an order is normally a lengthy process, which will prohibit the purchaser from enjoying his property until such time as the process has been finalised.
It is apparent that there are several pitfalls when buying property at a Sheriff’s auction, but if you understand how it works, know what to look out for and obtain the necessary information, it may still be possible to buy a bargain at a Sheriff’s auction.
I would however strongly advise you to consult an attorney to assist you prior to purchasing a property at a Sheriff’s auction.