Bok Test Nerves? Buying Property at Auction in South Africa
TL;DR: Auction property can sell well below market value, but the sale is binding the moment the hammer falls. Before you bid, read the conditions of sale, confirm how long you have to arrange finance, find out what's owed to the municipality, inspect what you can, and decide whose name you're bidding in.
Okay so, at an auction the hammer falls once. Everything you didn't check before that moment is now yours.
You've seen the prices. Well under market. You've thought about bidding. Lekker. Now let's talk about what that discount is often paying for.
Ja, but is buying property at auction a good idea?
It can be. Some of the best-priced property in the country goes through auctions.
But a low price is a price for something. At an auction, it's usually a price for risk and speed. You're taking on problems a normal buyer would refuse, and you're doing it without the usual escape routes.
What is the auction discount often paying for?
Money owed to the municipality. Rates and services in arrears.
Occupants. People living in the property, sometimes with no intention of leaving. Removing them is a court process, and it's yours to run. I've had an occupant who wouldn't leave on a deal in Pretoria. Yoh. Price it in.
No inspection. On many sales you can't get inside before you bid.
The property as it stands. No list of defects. No comeback.
Extra costs. Buyer's commission on top of the bid, plus transfer costs.
Tight deadlines. A deposit on the day and a short window for the balance.
None of that makes it a bad deal. It makes it a deal you price properly.
Decide the container before the deal. The Directors Fortress shows you how to set up the company and buy in it. R99 once off. Start here
What should you check before you bid?
1. The conditions of sale. Read them before the day. They're the contract, and you agree to them when you raise your hand. Who pays arrears? What's the commission? What happens if you can't perform?
2. The finance deadline. How long do you have to deliver the money or a bank undertaking? If your bond isn't approved in time, you can lose the deposit. Many auction buyers arrange finance in principle first.
3. What's owed. Ask the auctioneer and the municipality. A property can't transfer without a rates clearance certificate, and somebody has to settle the account to get one.
4. The property. Drive past it. Three times at least. Morning, evening, weekend. Is it occupied? What state is the street in? What are the neighbours' places like?
5. Your ceiling. Decide your maximum before you walk in. Write it down. Auctions are designed to make you go one bid higher, and the room gets you going like the last ten minutes of a Bok test.
Whose name should you bid in?
Decide before you walk in.
At most auctions the bidder who signs is the buyer. Once you've signed, changing the buyer to a company usually isn't a simple edit. Depending on the terms, it can be treated as a second sale, with a second transfer and a second set of costs. That's a kak way to pay twice.
So if you want the property in a company, have the company registered and the directors' resolution ready before auction day. Ask the auctioneer in advance what they need to register a company as a bidder.
How is a sheriff's auction different?
Broadly there are two kinds. A sale in execution, run by the sheriff after a court judgment, and a private or bank-mandated auction run by an auction house.
The rules, the paperwork and the risks differ between them, and between auctioneers. Don't assume what applied at one applies at the next. Read the conditions for the sale in front of you.
The catches
There's usually no cooling-off period at an auction.
Finance isn't an excuse. If the bond falls through, the deposit is at risk.
Occupants are your problem after transfer. Evictions need a court order.
Arrears can be large, and the conditions decide who carries them.
The reserve. The seller may still have to confirm a bid below reserve. Winning the bid isn't always the end.
Where the company fits
An auction rewards the buyer who is ready. Finance lined up. Conditions read. Ceiling set. And the right name on the bidder's card.
Get the company ready before the auction, not after. Where to find properties, auctions included, is a module in The Vault. Container first.
FAQ
Can you buy a house at auction with a bond in South Africa?
Yes, but the deadlines are tight. Arrange approval in principle beforehand and check how long the conditions give you.
What costs do you pay when buying at auction?
Typically a deposit on the day, the auctioneer's commission, transfer costs, and any arrears the conditions make the buyer responsible for.
Can you back out after winning an auction bid?
Generally no. The sale is binding on the fall of the hammer, and you can lose your deposit.
Can a company buy property at auction?
Yes. Register the company as the bidder beforehand and bring the documents the auctioneer asks for.
Who pays outstanding rates on an auction property?
It depends on the conditions of sale. Often the buyer does. Confirm before you bid.
Related reading
Start with the container
The Directors Fortress gives you the investor-friendly offer to purchase, the blueprint for registering the entity, and a walkthrough of the structure I use. R99 once off, yours to keep.
Education only. This article is general information, not tax, legal or financial advice. Speak to a registered tax practitioner, attorney or financial adviser about your own situation.
Sources
Consumer Protection Act 68 of 2008, auction regulations
Local Government: Municipal Systems Act 32 of 2000, section 118
About the author
Michael Bowen co-founded ZAHomes. He bought his first property in 2003 on the outskirts of Amsterdam, with a 100% mortgage, at the wrong point in the cycle, and lost over €14,000 on it while sanding the floors himself in a heatwave. Twenty-odd years, 40-odd countries and a lot of property school fees later, he lives in Cape Town and teaches South Africans to buy and hold property inside a company. His view hasn't changed: an investor's greatest assets are the lessons from their failed deals.
