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Advantages of Purchasing Property at Auction

Property Auctions have become progressively more widespread, with owners, occupiers, developers or investors choosing to buy or sell their properties by this method.

An auction is an outstanding environment to purchase that bargain property you have been waiting for, but ensure you do your own investigations, to avoid any nasty surprises. The key benefit of purchasing a property at an auction is that you evade the prolonged procedure of purchasing a property in the traditional way. At an auction, the property buying process can transpire in a matter of minutes, instead of months of negotiation! When that hammer falls, you will now own that property.

Auctions are a good way to obtain property lower than the regular price, but there are many other advantages of purchasing property at auction. We have listed the main advantages below:

Reduced prices

The number 1 benefit of buying at auction is possible achieve a significant discount on the property, in comparison to the price you would pay if the property was marked via the normal way. You may find properties on offer at auction, with striking low guide prices, Now and again winning purchasers can get a property at 20% under the normal market price or better. This amount of reduction involves two occurrences to transpire:

  • A low reserve price to be agreed by the seller
  • Little or no competition from other auction-goers.

Thousands of properties are sold at auction in South Africa each year, normally they are tough to value, this means they frequently sell at a reduced price. You will often find that properties are reasonably priced to sell instead of to stay on the normal market for months. You must remember though that the final sale price may be decided by the amount of competition for that particular property.

No fixed asking price or negotiation

You will not have to go through the negotiation process or haggle with the seller at auction. Make sure you do your initial homework and set a maximum price for the property. Then you can bid up to that price, knowing you will not go any higher. If you are lucky enough to be the highest bidder, you could get the property at an even lower price than you originally going to bid up to. Once that hammer falls, it is now a legally binding contract, which subsequently means the seller has now sold that property to you. It now means that the vendor is unable to continue to market the property in the hope of obtaining a higher price in the future.

Short-term financing

Temporary lending facilities are typically accessible, which can allow you to complete on the purchase with short-term funding. You can then look to a more long-term option such as a mortgage.

Speed of purchase

The procedure of purchasing a property at auction is quick and easy, compared to a normal purchase. It is likely you will know someone who has gone through a long drawn out process to purchase a property. The normal buying process has numerous factors that can affect the time it takes to complete, such as gazumping, long chains, marital disputes and other problems. This is definitely not a problem with auctions, as there is a definite timescale from the beginning. The date of the auction is agreed and the timescales from winning to completion is normally 28 days or 20 working days or it may otherwise be stated that longer is needed within the special conditions of sale. In order to complete within the 28 days, it depends on a number of factors such as having finance in place, being properly advised and being well organised.

Equal playing field

In the Auction you have an equal chance of success with your bid, the same as anyone else in the auction room.

The majority of properties subject to auction are normally sold and purchased under the hammer on that very day. On the odd occasion pre-auction offers can be accepted by the seller. As a prospective purchaser, you are firmly in control, you decide when to bid and the highest price you will go to, if your bid is the winning one, then the property will be yours on completion.

You will avoid “gazumping”. This is a practice that occasionally occurs within the normal buying process. It transpires when another prospective purchaser offers a higher price for the property after you have agreed to buy from the vendor. You are therefore “gazumped” if the vendor opts to go with the higher offer, this can often mean you have put a large amount of funds into the buying process, which you will lose. It can be frustrating for this to happen and your only possibilities are to withdraw from the purchase of go back to the vendor and offer an even higher price. It is impossible “gazumping” to happen at auction, the highest bid wins and once the hammer falls that determine the winner, who is then entered into the legally binding contract.

No property chain

Properties acquired at auction have no upper chain. This therefore means that you do not have to concern yourself about the chain falling through. If you are the highest bidder when the hammer falls, completion will normally happen within 28 days.

An advantage for First Time Buyers

If you are first time buyer you will have no property to sell and no finance to repay. You are therefore in a better situation to purchase at auction than somebody who now has a property to sell in order to finance the acquisition at auction.

Good Opportunities

Do not turn down the chance that a good project can present you. Do not disregard a property in the auction, just because it looks a bit dilapidated. Various properties listed in auction are exceptional investment opportunities, which can be developed to provide a profit at resale. Ensure you do your homework on the lot first before making a bid, in order to establish what you can and cannot do with the property. All in all, auctions can offer a great prospect to develop.

Buy to let income

Many Investment properties are now being sold at auctions without vacant possession being acquired in advance. This can be a win-win situation for both the seller and the purchaser, as the seller will continue to receive rental income up until the completion date, and the purchaser will start receiving rental income as soon as completion takes place, with no risk of periods when the property is not tenanted. All in all, this means that you will have the advantage of the investment from the moment of completion, resulting in making any finance repayments easier.