How to buy a bargain home on auction

Going, going, gone! At the fall of the hammer, you could find yourself with the property bargain of your dreams. But don’t rush in until you know the pitfalls, advises property specialist Lea Jacobs

We’ve all heard stories of how people attended a property auction and bought a home for an unbelievably low price. And it’s true, there are some bargains to be found out there. But not every home that goes under the hammer is going to be sold for a song.

There are different types of auction sales, and property is sold using all three models. Firstly, you there is the voluntary auction. The owner puts the property in the hands of an auctioneer in the hope of achieving the highest possible price.

This method is particularly popular in a buoyant market. Generally, the property will sell for a market-related figure rather than a bargain-basement price.

Bank auctions are often used when an owner falls behind with bond instalments. In most cases, properties in this category sell for less, although the bank can reject the highest bid if it believes the amount is too low.

Sheriff auctions are the best place for bidders to secure a property at the lowest price. Various institutions use this method to recoup money from the owner, including municipalities owed monies for outstanding rates.

This is called a sale in execution and the property is sold as it stands. While the property may be sold for peanuts, the successful bidder will have to pay all outstanding municipal rates before transfer can take place.

Regardless of what type of auction you attend, there are some general pointers for success:

* Keep a cool head. Set your maximum bid in advance and stick to it. It’s easy to get caught up in the moment and pay far more than intended or that you can afford. Ascertain what additional costs will be added to the winning bid, such as auctioneer’s fees, VAT, and outstanding municipal rates.
* View the property before attending the auction to understand what you are buying. Homes that fall under the hammer, particularly when it is a sale in execution, may be sold ‘as is’ and subject to you warranting that you are buying the property with all defects, latent and patent.
* The terms and conditions of sale are referenced by the auctioneer prior to the auction. Read these, or have your legal adviser do so and clarify any uncertainties.
* A property that houses a tenant may be subject to a lease. The sale of the home may not infringe on the rights of the tenant, and the new owner generally has to honour the original terms and conditions of the lease.
* Consult with your bank if you are planning to finance the purchase with a bond. Banks have to approve and find value in the home before they will extend finance. While you may dream of buying a fix-me-upper with the grand idea of refurbishing, your bank may not be willing to take the same risks.

Auctions can be daunting. Attend a few before becoming an active participant. Watch other bidders and see how the process works. Frontrunners in the bidding process often fall out quickly. It’s the person who keeps a cool head and a steady hand that ends up winning the race.