Bargain Buys at Repossession auctions come with a host of extra costs
The number of buyers attending sheriff/liquidation/repossession auctions has increased exponentially since the onset of the recession, says Tony Clarke, MD of Rawson Properties.
“Two years ago such sales attracted only three or four cautious buyers – if the auctioneer was lucky. Today they can be attended by 20 to 30.”
This, said Clarke, is due to the perception that, in today’s market, it is likely that the shrewd buyer may be able to pick up a real bargain.
But, he warns, this type of buying can be beset with difficulties and, especially in the property field, can be accompanied by a whole range of extra costs.
“At many of the repossessed properties sales which I have attended, the home is in a shocking state as there has been no money available for repairs. The owner or tenant has all too often totally neglected the upkeep. Geysers, electrical wiring, sewerage systems, window frames, woodwork and roofing are all falling apart. Often, too, where repairs have been done, they have been carried out with shoddy replacement materials and poor workmanship.”
In one case, he said, the sewerage system had been linked to the bath water system to save repair costs – resulting in a diffusion of unwelcome smells.
In some cases, added Clarke, the evicted owner or tenant will deliberately damage the home before leaving – and these repairs can cost thousands.
In other cases, the deed of sale will stipulate that the property is sold on the understanding that the buyer is responsible for evicting the previous owner or the tenant – this can be costly and exceptionally time consuming.
Then, too, the buyer who at the auction could be congratulating himself on getting a bargain at a 50% (or more) discount, will have to find the cash for the sheriff’s commission, the transfer costs, or VAT, the attorneys transfer fees, all outstanding rates and taxes owed by the previous owner on the property, any unpaid water or electricity or sewerage bills and all levies owing to the body corporate or the homeowners association (where these are applicable).
And - that is not the end of the story: the buyer will also have to pay monthly instalments on 15% interest on the sum agreed and the deposit paid, from the time the auctioneer’s hammer falls to the date he takes transfer.
“This can be a burden,” said Clarke. “On a R800 000 home, for example, the monthly interest would amount to ±R9 000 per month, despite the fact that other interest rates have dropped by 4,5% – and it is quite possible that delays in transfer can extend this interim period.
“All in all, therefore, although now is a good time to buy, the purchaser of repossessed property,” says Clarke, “has to be very careful: bargain hunters can only too easily find that due to the hidden costs, they have bought a headache, not a quick-buck money spinner.”
For further information contact Tony Clarke on 021 658 7100 or email email@example.com.
Article by: Rawson Properties