15
Dec
2008
BUYING PROPERTY ON AUCTION

When driving through our cities, and especially Pretoria where I live, I can’t help to see the increase in properties on Auction. I did a bit of a study on these types of properties in the last month and went to a property auction to experience it first hand. These were my findings…

The first thing I found out was that a property auction board doesn’t mean that there will be an auction, to be honest, most of the auctions I phoned had no auction date and the auction house was only accepting pre-auction offers.

I was particularly interested in a 3 bedroom 3,5 bathroom +-260m2 on a 645m2 erf property in Kamdeboo estate in Bakkies street in Die Wilgers. I ran a deed search and saw that the property had two separate bonds registered, one for R1.5 million and another for R355k. I phoned and asked for papers to make an offer. A week later I received the offer document with an email stating the bank would accept offer from R1.8 million (which made sense). The offer document (which was worded as if it should have been used after an actual auction) stated the following:

  • The offer price was excluding VAT
  • The offer price was excluding the auction house commission of 5% (excluding VAT) of the purchase price including VAT
  • And then there was this little paragraph stating: “The PURCHASER shall be bound by the terms and conditions of all existing leases, of which he acknowledges he is fully apprised.” - I replied to the initial email from the auction house and was informed that there was a lease agreement in place until November 2009 for R8000 per month.

I know of two other units in this complex that was for sale this year out of desperation and insolvency, one was eventually sold for R1,42 million and the other is still for sale. This gave me the feeling to come in with a price close to R1.5 million (taking into account that my bond repayment would be nearly R20000 per month for the next year while getting only R8000 from my tenants till November 2009).

The math looks as follows:

Offer Price: R 1 244 835,00

VAT on Offer Price: R 174 276,90

Total offer Price: R 1 419 112,00

Auction House Commission: R 80 889,40

Total Price: R 1 500 001,00

I did not bother making this offer as I know from experience that the bank won’t take a 21% (nearly R400 000,00) knock on their investment in the first month of “auction”. My eyes did open to the following regarding pre auction offers of property:

  • Just because it’s an auction doesn’t mean it’s a bargain
  • Auction houses take 5.7% commission, non negotiable
  • Auction offers are excluding VAT and Auction commission which make them sound cheap. If this had been an auction and the bid was closed on R1244835,00 I’d have to pay R1.5 million, that’s a quarter of a million rand difference.
  • Property is sold subject to all existing tenancies.

My next post will deal with the lies and deception of property auctions, or to be more correct, of the property auction I attended in Wingate Park, Pretoria. I’ll touch base on the thrill of the bid, the bank buying back the property and the two people standing between you and a genuine bargain!

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