A property auction offers unique benefits to both homebuyers, as well as to home sellers. It allows buyers to buy a property at a much-reduced price when compared to that of the market price. On the other hand, it allows sellers to dispose of their property quickly as well as to get the instant cash. At the same time, the property auctions in South Africa have their own pros and cons. If you are expecting to buy a property through a public auction, it is vital to know the differences between a traditional property acquisition and an auction. Here are the factors that you need to know about the property auction and its advantages and disadvantages.
What is a property auction?
A property auction is a legal action when a borrower fails to pay the property tax or the mortgage. It is of two types, namely a tax lien auction and a foreclosure auction.
The tax lien auction will take place when the owner of the property fails to pay the property tax to the government. A local sheriff will conduct this auction.
On the other hand, a foreclosure auction is a legal action when a borrower fails to repay the mortgage within the stipulated time laid down by the lender. Here, the lender, such as banks or private financial institutions that have lent the property owner will hold the auction.
The working mechanism of a property auction
Usually, a property auction will take place at regional government courts and other places, such as in a hotel meeting room, according to the discretion of the lending institutions. Winning the assets at these public auctions will work in two dissimilar ways. During a lender corroboration auction, the private lender has no need to acknowledge the offer even if it is the highest bid. In an absolute public sale, the winning offer will acquire the property. Property auctions in South Africa will be carried out online, as well.
Whether it is a tax lien auction and a foreclosure auction, the preliminary price may be the balance credit amount or it will be a lower sum designed to encourage bidding. However, in the foreclosure auction, the private lender is not permitted to gain from the property auction. Most property auctions in South Africa will result in a loss, meaning the properties will be sold at a lower price than that of the remaining liability. Even, if the auction price goes higher than the balance amount, the excess amount will be paid to the property owner after deducting the amount to be owed.
Pros and cons of property auctions
Some of the pros of the property auctions include:
The homebuyer can purchase the property at a lower price than that of the traditional way of acquisition.
Bidders will have the chance to buy sought-after properties, which are anticipated to increase considerably in value.
The loan defaulter will get instant cash.
Some of the cons of these auctions include:
Homebuyers should have adequate cash on hand to buy the properties.
As the properties will be sold on an as-is basis, they are less prone to inspection.
Auction corporations may not promise a clear title, leaving the new property owner accountable for paying the unpaid utility bills as well as the outstanding property tax.
Therefore, prior to committing to buying a property through an auction, it is safe to ensure that the bidder understands the auction process as well as its pros and cons thoroughly.