Buying a Repossessed Property at Auction: What does the Purchaser really pay?

The hammer falls. You have bought the property. But what exactly have you bought and what are you still expected to pay?

Buying a repossessed property at auction can present an attractive opportunity, but the purchase price is only one part of the equation. Before raising your hand or clicking the bid button, a Purchaser must understand the Conditions of Sale and, importantly, which additional costs and liabilities will fall on the Purchaser.

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The fall of the hammer

At a sale in execution, the fall of the hammer generally creates a binding sale, subject to the specific Conditions of Sale and any applicable confirmation process.

The Purchaser may be required to pay a deposit immediately and must then secure or pay the balance of the purchase price within the period stipulated in the Conditions of Sale. Some auctions require a 10% deposit immediately after the sale, although the precise requirements must always be checked for the particular auction. (saSheriff.co.za)

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What about Auctioneer’s commission?

The Purchaser will commonly be responsible for the Sheriff’s or Auctioneer’s commission.

The applicable tariff can be significant. Under the current High Court Sheriff tariff, for example, the commission on the sale of immovable property by the Sheriff is calculated on a sliding scale and is subject to a minimum and maximum. Where an Auctioneer is employed in the circumstances contemplated by the Rules, a different commission scale applies.

The important point is not to assume that the Auctioneer’s commission is included in your bid. Check the Conditions of Sale.

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VAT or transfer duty?

The Purchaser must also determine whether the transaction attracts VAT or transfer duty.

If the Seller is a VAT vendor and the sale constitutes a taxable supply, VAT may be payable. If the transaction is not subject to VAT, transfer duty may be payable by the Purchaser.

The Conditions of Sale should clearly state the VAT status of the transaction. A Purchaser should therefore establish this before bidding, because the difference can materially affect the total acquisition cost. (saSheriff.co.za)

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What about municipal rates and arrears?

This is where Purchasers can get caught out.

There is no safe assumption that municipal arrears disappear because the property was repossessed.

Section 118 of the Municipal Systems Act provides important protection to municipalities in relation to amounts owing in respect of property and the Supreme Court of Appeal has dealt specifically with the effect of municipal claims in the context of sales in execution. (Acts Online)

More importantly for the Purchaser, the Conditions of Sale may expressly make the Purchaser responsible for rates, taxes, municipal charges and other amounts necessary to obtain the required clearance certificate. Courts have dealt with auction conditions containing precisely such provisions. (SAFLII)

Accordingly, a Purchaser must obtain the municipal figures before bidding, rather than assuming that the Bank or Sheriff will settle everything.

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And sectional title levies?

The same caution applies to Body Corporate levies, Homeowners’ Association contributions and other amounts associated with the property.

Some auction Conditions of Sale expressly place outstanding levies on the Purchaser, while others may allocate them differently. The Purchaser must therefore read the Conditions of Sale and obtain the relevant figures before committing to the purchase. (Sheriffctnorth.co.za)

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Other costs

Depending on the particular auction, the Purchaser may also have to budget for:

• Auctioneer’s or Sheriff’s commission;
• VAT on the commission where applicable;
• VAT or transfer duty on the purchase;
• Conveyancing fees;
• Deeds Office fees;
• Rates and municipal clearance-related charges;
• Outstanding levies or HOA charges where the Conditions of Sale make these the Purchaser’s responsibility;
• Interest on the purchase price pending transfer, where applicable;
• Compliance certificates or other transfer-related requirements, depending on the Conditions of Sale;
• Occupational rent or other costs associated with occupation; and
• Costs of securing vacant occupation or eviction where the property is occupied.

Some sale conditions expressly require the Purchaser to bear transfer costs, rates, taxes, levies, transfer duty/VAT and Deeds Office charges.

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The Golden Rule:-

Never bid on the purchase price alone.

Before bidding, calculate the true acquisition cost:

Purchase price which includes:

• Auctioneer/Sheriff’s commission
• VAT or transfer duty
• conveyancing and Deeds Office costs
• rates and municipal charges payable by the Purchaser
• levies/HOA charges payable by the Purchaser
• interest and other auction-specific charges

= REAL COST OF THE PROPERTY**

The advertised auction price may therefore be considerably lower than the amount ultimately required to take transfer.

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My advice to Purchasers

If you are considering buying a repossessed property, obtain and read the Conditions of Sale before the auction.

Do not rely solely on the auction advertisement or on what the Auctioneer says verbally. Establish in writing:

Who pays the rates? Who pays the arrear levies? Who pays the Auctioneer’s commission? Is VAT or transfer duty payable? What deposit is required? When must the balance be secured? Who pays the transfer costs? Is the property occupied? Who bears the cost of eviction?

Only once these figures are known can a Purchaser determine whether the property is genuinely a bargain.

The hammer may determine who bought the property, but the Conditions of Sale determine what that Purchaser has agreed to pay.