In today’s tough economic climate, buying bank repo homes on auction allows you to take advantage of great opportunities in property sales. In the case of homes repossessed by the bank, one man’s loss is another man’s gain – people who have had their property repossessed have had the misfortune of having it taken away from them, but those who buy repossessed property can take advantage of property that is sold for a much lower price than regular market value.
Property is repossessed if the owner is unable to make the required instalments to the lender or defaults on payments. A property repossessed by the bank is a home loan agreement that has been cancelled. Before a house is repossessed by the bank, the borrower is provided with legal notices and if the borrower has no means of coming up with the money, the house will be repossessed. Legal action is taken by attorneys and the High Court issues a judgement against the defaulter.
These properties are then sold by the lender (usually on auction) for lower prices than they would fetch on regular markets. This is because the bank is not concerned with making a profit; they just want to recover any money they may have lost in the transaction. If the reserve price set by the bank is not received on auction, the property will be bought into possession of the bank to be sold at a later stage.
Properties repossessed by the bank can be purchased in 3 distinct phases:
- Distressed sales: When the property has been repossessed
- Sales in execution: When the property is sold at auction
- Properties in Possession: when the reserve price is not met at auction and the bank buys back the property itself.
What makes bank repo homes on auction popular?
Although repossessed home may be sold on different terms, there are usually a number of benefits relating to properties in possession:
- There is no transfer duty (this is quite a substantial saving, as a transfer duty for a R1 million property could run into R25 000).
- Because the bank wants to get rid of repossessed property as soon as possible, it is more likely that the bank will grant the home loan (subject to terms and conditions). Banks will often have on-site finance stands at property auctions to help you get the financing you need before you decide to bid.
- Repossessed property has the reputation for being good value for money.
- The property may not be in good nick (due to the financial predicament of the owner). This means that the home will sell for a low price, but it also gives the new owner the opportunity to fix up the home and resell it for a much higher price, thus making a profit on the purchase.
Remember that bank repo homes are sold “voetstoets” (meaning “as is”), so the house will be bought in the condition in which the owners left it. It’s best to research the property beforehand so that you can see what kind of condition it is in before you decide to buy it as the banks are not liable to make any repairs to the property.
Major banks such as Absa, Nedbank, First national Bank (FNB), and Standard Bank have a great number of properties to offer on auction and these banks will usually be willing to provide financing or a bond for the purchase of these properties. To find listings of the properties available, you can enquire at the bank or use the internet to see if there are any properties that interest you. Bank auctions take place regularly in all major cities such as Cape Town, Port Elizabeth, Pretoria, Durban and Johannesburg. To find out where auctions will be taking place next, you can enquire at your local bank branch.
Key to finding a good deal is doing your research – check the value of similar properties so that you can compare the price you will be paying and see whether or not the property is a good deal.