Top 10 Tips for Buying A Bank Repossessed Property

Property Bank Repossessed
Property repossessed by the Bank is an attractive buy!

One of the advantages for buyers of property in the current economic climate in South Africa is the increased availability of Bank Repossessed homes on the market.

When borrowers default on the payment terms of the mortgage loan, eventually this will lead to legal action by attorneys instructed by the mortgage holder.

A judgement is obtained in the High Court and the property is then attached and sold by the Sheriff of the High Court at a sale in execution. If the auction fails to achieve the bank’s reserve price, then the property will be bought by the Bank and placed on the market again. This is called a Property in Possession (PIP).

Another source of PIP’s comes from home owners that are declared insolvent. Here a trustee will be appointed, who in turn will appoint estate agents to market the property. If it does not sell, a public auction will be arranged through a qualified auctioneer. Once again, if the property does not fetch a suitable price, the Bank may buy it in and the property will be placed on the market by the Bank.

On average Bank Repossessed properties sell at a huge discount and since banks are keen to find buyers they are often ready to relax their lending criteria, making home loans in these cases a little more accessible. This may include reduced, or even no, home loan registration costs.

Other advantages are that the Transfer process is often much quicker, leaving more time to do any renovations before actually moving in. Also, property rates and taxes (including arrear amounts) will be paid by the seller (the Bank) up until date of registration.

Here are the Top 10 Tips for Buying a Bank Repossessed Property:

1. Make sure you have a plan:
What will you do with your property? Will it be a buy-to-rent purchase, will it be a holiday home or will you live in it.

2. Get a “pre-approval” if you intend to buy with a mortgage bond:
Chances are, if you like the property so will many other potential purchasers. You do not want to lose out to another buyer while you are waiting for your home loan approval. Have your pre-approval in hand when you make that offer to the bank. It will greatly speed up the process of having your offer accepted.

3. Compare the price of similar sold homes to the price of the Bank Repo:
You need to compare “apples to apples” to make sure that your intended purchase is good value. An experienced agent can help you with this by preparing a Comparative Market Analysis (CMA). By accessing Deeds Office records for the selling prices of properties recently sold it’s possible to get an accurate assessment of what your target property’s selling price should be.

4. Know the hidden costs of the property:
Bank Repossessed properties are sold voetstoots (as is) and the bank will not undertake any repairs. Often the property has been stripped of fixtures and fittings and the gutters and down-pipes are missing, for example. Typically the property has been through an extended period of neglect and essential repairs and maintenance have not been taken care of by the previous owners.

Electrical, Plumbing and Gas Installation compliance certificates must be obtained by the purchaser as part of the transfer process. If the property is in a mess the costs of bringing these areas up to scratch could be significant.

5. Get a home inspection:
A thorough inspection for defects carried out by professionals can go a long way to identify all defects and potential defects in the property. Consider investing in a Professional Home Inspection before you make a buying decision.

6. Investigate if the property is occupied:
It can happen that there are occupants living on the property at the time of sale. This could be the previous owners that have not yet moved, tenants that are still there or it may be an illegal occupation. Whatever the case, this automatically becomes the buyer’s problem at the time of sale and the costs of an eviction and relocation may become the purchaser’s liability.

7. Investigate restrictions on the Title Deed:
Any restriction or servitude on the Title Deed may or may not be mentioned in the information provided and it is therefore advisable to look at the Title Deed before making a decision. If the property is owned by the Bank then the Bank will be in possession of the Title Deed.

8. Consider the location of the property:
This may seem obvious but most people in financial trouble will first have tried to sell the property themselves before the bank foreclosed on them. If the home is badly situated this could be the reason the property did not sell in time to save the situation.

9. Make a good offer:
Once you have decided that the property you are considering is a good buy, know that other people will also come to the same conclusion. There is no point in making a low offer. Ideally you should make an offer that is within 90 – 95% of the Bank’s asking price. You will just lose out, and will keep losing out to other purchasers as long as you keep making offers that are too low.

10. What to do if your offer is turned down:
You could up your offer. However, you might consider it worthwhile to wait 30 days and re-submit your offer. Properties in Possession are expensive to maintain. There may be security guards on the premises and the garden must be maintained, for example. The Bank could become more negotiable with the passage of time.

If there is anything else you would like to add please feel free to do so in the comments.

You might also like . .

137 thoughts on “Top 10 Tips for Buying A Bank Repossessed Property”

  1. Hi

    I have been a tenant of a residential property for 10 years or so. The company who owned this property became insolvent in 2008. I continued to stay on as a tenant and I am now paying a monthly rent to the Liquidator.

    Two weeks ago I received notice from an Auctioneer that the property has been revalued and that it will go on public auction at the end of the month. I would like to purchase the property and managed to raise a bond of R1,75 million. The market price of the property is R 720 000.00.

    I have been issued an Approval In Principal from the company who is assisting me with the home loan. However, the actual bond will only be ready in about a months time as I first have to register a Trust in order to obtain the bond. This is after the auction date.

    As a long term tenant of the property do I have a first option do buy the property? Could I make the offer to the Auctioneer on a preliminary bond approval? The auctioneer asks for a R30 000.00 registration fee in order to take part in the auction. They also ask me this amount – if I want to put in an offer. However, I can only pay these amounts once the bond comes through which is after the auction date.

    What can I do to secure the property? Please help. Thanks.

    1. Hi Francois

      As a long term tenant of the property, you will not be afforded any special consideration from the auctioneer. It’s important that you get a copy of the Conditions of Sale for the property and read it very carefully before auction day.

      If yours is the winning bid, you must pay the auctioneer’s commission, which is usually 10% of the purchase price plus VAT, and a deposit of at least 5% of the purchase price, less your initial registration fee. This fee is fully refundable if you decide not to bid or if your bid is unsuccessful.

      The balance of the purchase price will be payable on transfer of the property, usually two to three months later. Shortly after the auction you must provide the seller’s attorney with a “guarantee” that these funds will be available.

      Your ‘Approval In Principal’ for bond finance is a good start. You could perhaps consider making use of a company that provides bridging finance to help you come up with the initial funds that you need to attend the auction and to finalise your bid. The Bridging Finance Association of South Africa has a list of members on their website.

      Hope that helps. Good luck.

Leave a Reply

Your email address will not be published. Required fields are marked *