Bank Sales Properties in Possession: What You Need to Know

Buying a property in possession (PIP) at an auction is a lesser-known way to become a homeowner or property investor in South Africa and for a "first timer" can seem a little daunting! Properties in possession are typically sold through auctions for several reasons, including owners defaulting on bond repayments, properties in deceased estates where beneficiaries cannot or do not want to take over the bond, or properties sold as a result of a court order due to the owner's sequestration.

Understanding Properties in Possession and the Auction Process

PIPs are sold at public auctions conducted by a sheriff of the court, who is appointed to facilitate the sale. These auctions happen across South Africa. All properties for sale in execution must be advertised in the Government Gazette and a local newspaper in the relevant area.

Before you take part in an auction, you need to thoroughly inspect the property and do some detailed research. This includes understanding the true market value (give your local Chas Everitt agent a call), potential renovation costs, and any repairs needed. If you are buying the property to let it out, get a handle on what similar properties in the area rent out for. You also have to be aware of the financial and legal risks involved in purchasing a PIP.

Key Considerations and Potential Risks

When buying a property in possession, several costs are involved, which are due upon acceptance of your bid. These include:

- A  deposit ( non-refundable) of 10% of the purchase price.

- VAT of 15% of the purchase price.

- The sheriff's commission, which is 6% on the first R30,000 and 3.5% on the balance of the price, up to a maximum of R7,000.

In addition, properties sold at auction are generally sold "voetstoets," meaning "as is." This implies there is no recourse if you are dissatisfied with the property's condition after purchase. If the previous owner defaulted on bond repayments, there might also be outstanding rates and taxes, which you, as the new owner, will need to settle.

If there are non-paying tenants who do not vacate after the sale, you will be responsible for initiating the eviction process, which can take up to three months and incur additional costs. You will also need to obtain certificates of compliance for electrical, gas, plumbing, electric fence installations and solar as required by law before taking transfer of the property.

Getting Started with Auctions

To take part in a property auction, you must 1st register as a bidder. At the auction, the sheriff will outline the conditions of sale and announce a starting price. Only then can registered bidders start placing their bids. If your bid is accepted, you will need to sign the conditions of sale and pay the required deposit.

For more detailed information and guidance on purchasing a property in possession, reach out to your local Chas Everitt office. As local experts, they can help you check recent local sales, prices and rental levels.