What to Look For When Buying a Property at Auction

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What to Look For When Buying a Property at Auction

AuctionHammerOnHouseIt is indeed possible to find quality homes sold on auction, and often these are cheaper to buy than doing through a real estate agent. It is, however, quite easy to make mistakes, and it is very important to understand how auctioning works before putting in a bid. Here are some guidelines and things to consider when buying property at auction.

  • Set a budget: Decide how much you can spend and stick to it. Often buyers get carried away in the bidding process and overcommit themselves. Once the budget has been set, view the properties on sale and decide how much the property is worth to you as a buyer. Take into account the location, local amenities, current listings in the area and also any repairs or maintenance that will have to be done.
  • Condition of Sale: Auction properties often come with various conditions for the sale, and the buyer has to fully understand these. It is crucial that a copy of the Conditions of Sale is obtained and thoroughly examined before starting to bid. Buyers are also encouraged to ask questions at the auction to get further clarity. The conditions of sale should provide information about the following:
    • Confirmation period – this is the period of time during which the offer of the bidder will be considered by the seller. Sometimes there is a reserve on the property which means that that bids lower than the reserve price may or may not be considered, depending on the seller.
      o Rates and Taxes – there are no set rules for the payment of rates and taxes for an auction property, but generally the seller will be responsible for the settlement of these costs before the sale. In certain cases, however, the buyer could be responsible for any arrears.
    • Commission – there is no set rate for auctioneers’ commission, and this may vary from one auctioneer to another. Typically the commission is paid by the buyer, and the rate and the person responsible for paying this commission will be stated in the Conditions of Sale document.
    • VAT – If the seller is VAT registered it could add to the cost of the purchase.
    • Transfer – this is the cost to transfer the property from the seller to the buyer. Standard rates are available but should be confirmed before the sale to work out the exact purchase cost.
  • Voetstoots sales: Often auction properties are sold voetstoots or “exactly as is” – this means that the property is purchased in its current condition and that the seller cannot be held responsible for any defects, repairs or faults found after the purchase.
  • Fittings and Fixtures: In some cases fixtures, fittings and other items such as plants are not included in the sale, and if there is a current lease in place, e.g. for office plants, this lease will have to be honoured by the buyer.

The moral of the story is that it is vital to do all the homework and research necessary to find out everything about the property, and that the decision to bid is a well-informed one. It is possible to get a great investment on auction, but buyers have to know about all the potential factors that could affect the sale when buying property at auction.

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