Get bond pre-approval before making a bid at that auction!
Bidding for a house or flat on auction can be a brilliant — and fun — way to acquire a home at an amazing price (those bidding paddles!), but the process is a bit more complicated than most people think — and there are some potential pitfalls and precautions that prospective purchasers need to keep in mind.
Before you set out to bid and buy, you'll need to determine the market value of the property ahead of the auction, so that you can set a limit for yourself on how much you're prepared to bid — and so you don't get too caught up in the excitement and competitive atmosphere of the auction.
And the best way to do this is to seek help from an experienced estate agent who's familiar with the particular area, and who can draw up a comparative market analysis (CMA) for you. This will give you a clear sense of what similar properties in the area sell or have recently sold for.
Good auctioneers should also be able to supply you with copies of the title deed, the site diagram, plans of the property, any lease agreement and the zoning certificate. And a little online research will reveal even more details about the area, like local schools, shopping centres and other sought-after facilities.
But don't get too carried away with the thrill of the bid. Properties may look fabulous on paper, but could be up for auction because the owner was forced to sell due to financial difficulties. If that's the case, there's a good chance that they've neglected to maintain the property. And because all properties on auction are sold 'voetstoots' ('as is'), you need to factor in the costs of possible repairs before you make your maximum bid.
If you're able to, inspect the property ahead of the auction to see what condition it's in — or get someone you trust to do this for you if the property is out of town. You should also check out the Conditions of Sale before the auction, so that you understand exactly what's being offered for sale, and what else you might be taking on. If you're a bidding beginner, just remember that a winning bid at an auction is legally binding and you can't withdraw your bid later on without hefty losses.
There's also often a provision that the buyer will be responsible for any outstanding municipal rates, or levy arrears in the case of a Sectional Title property. This could mean a considerable cash payment in addition to the auction price, which could make that adorable auction property look much less attractive.
The Conditions of Sale could also stipulate that the auction price carries interest from the time that hammer falls until the transfer of ownership is registered. And there could still be a tenant in residence whose lease needs to be honoured. In fact, the Conditions of Sale can be amended right up to the day of the auction, so it's worth double-checking them before you sign acceptance and get busy with your bid.
Budding bidders should also make sure that their financing is in place well before the auction, because auction sales are non-suspensive — they don't depend on you being able to get a bond or not. If you win the bid, you have to pay the price. You'll usually be required to pay a deposit of 5% to 10% of the purchase price immediately, in cash, and possibly also the auctioneer's commission, which is usually around 10%, plus VAT. And you'll probably need to give the seller's attorneys a 'guarantee' for the balance of the purchase price within 30 days — whether you've secured that bond or not.
Not to curb your enthusiasm, but there are a few more precautions you should be aware of: like the fact that if you default on the sale after the auction, the seller has the right to take legal action against you to force you to fulfil the contract — or to lose the deposit and any other cash that you have already paid as 'rouwkoop' (Dutch for 'regret purchase').
Unless you're paying cash for the property, the 'guarantee' you have to provide will be an assurance from your attorney that your bank has granted you a bond for at least the balance of the purchase price and is ready to pay that over to the seller's attorney on transfer of the property into your name.
So, before you bid, get pre-approved with a reputable bond originator like BetterBond. There'll be a bit of paperwork upfront— but you'll be in a better position to bid once you're pre-approved. And despite all the pitfalls and precautions, you'll now have peace of mind, knowing you're able to secure a bond and tie up the transaction. And, more importantly, you won't be tempted to overbid!