07
Jan
2009
BUYING A HOUSE AT A PROPERTY AUCTION

All of us have heard the following buzz words:

  • Property Auction
  • Repossessed
  • Repo
  • Property in Possession (PIP)

and with that the term "absolute bargain"... well, I beg to differ. Yes, it's a bold statement and I'm sure there are serious bargains at property auctions, all I'm saying is that it is not always the case.

I recently witnessed an auction in Wingate Park, Pretoria. The property in a small estate of about 13 units was repossessed. Viewing the property was done from 10:00 with the auction starting at 11:00.

The first thing I noticed was that the outside of the property needed some major attention with paint pealing from all walls suggesting a problem with the waterproofing. The bottom floor had a kitchen, lounge/dining area and double lock up garage. Things looked really nice with plants and a flat screen TV as well as leather furniture (I could hear people speculating that the furniture was sold with the house - which off course was not the case). I opened a single cupboard in the kitchen - it was stuck, I forced it open, this was no easy task, I left it open as I could not close it... I did not touch anything else. The first floor looked horrible. It seemed that the people left this morning and the housekeeper had not been there yet. The beds weren't made, there were clothes on the floor, some broken glass, open cupboards etc.

Working with property every day I estimated the floor are to be 210 square meters (I felt generous). Floor area is a funny thing, most people think they live in way bigger houses than they actually do - I think it has something to do with the person who sold them the house...

About 15 people arrived for the auction, many just to see what happened, about 5 looked like serious buyers. I reckoned I would not pay a sent over one million rand in total... at last the clock struck 11:00.

The auctioneer stepped out, he started painting the following picture:

  • Massive house in security estate (I'm not convinced that a shared gate for 13 houses makes it a security estate)
  • Once in a lifetime opportunity (I see many auctions in this area)
  • Building cost in Pretoria - nothing under R6500 per square meter (I think not)
  • House area - 300 square meters - thus this properties value is at least two million rand - without the erf (what utter rubbish)

I was stunned, everyone just stood there - getting ready to make a bid... I made a vow never to stand at an auction and be lied to again. The first bid was put in at R700 000, the auctioneer went into his horse racing voice, seconds later we were at 1.1 million (only three people were actually bidding) - the auctioneer said he could not believe this, he looked around, he must have seen someone hit a fly, he went back into his horse voice, all of a sudden we were at 1.2 million for the first time, for the second time... back to his normal voice - "I cannot believe this, ladies and gentleman, seriously..." All of a sudden he sees another bid, (from the man who initially helped the horse whisperer get from R700 000 to 1.1 million in 3 seconds flat) 1.22 million for the first time, for the second time, he does his pause again... it's highly frustrating to me and to the old man to my left who asks him impolitely "Do you need a hammer"... and SOLD.

The question is, did the mysterious man buy a bargain, let's do the math:

Winning bid: R1 220 000,00

Vat: R168 000,00 (14%)

Auctioneers commission: R85773.60 (6.27%)

Total buying price for this bargain: R1 453 774,00

I think not, not in the December 2008 market, not by a long shot! Yes, it is a thrill, it feels like fun, it sounds cheap when it starts, but I'd make up my mind on exactly what this property is worth and what I'd be willing to pay after VAT and Auctioneers commission before the auctioneer starts working the crowd.

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