Ten tips for buying a bank-repossessed property

This week’s article was contributed by John L. Bradfield, and originally appeared on his blog “This ‘n That”. John is a Real Estate professional with 20 years’ experience in this industry. He is based in Hermanus, the whale-watching capital of the world.

ForeclosureOne 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 PIPs 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.

Another advantage is 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 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 speed up the process, and increase your chances of having your offer accepted.

3. Compare the price of similar sold homes to the price of the bank repo you intend to buy
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. 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, they 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 if 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 as time passes.

Visit the BetterBond website for more information about pre-approval and other real estate matters.

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Since 2003 BetterLife Home Loans has been SA’s No.1 Bond Originator, handling the entire home loan application process on your behalf – free of charge! Our aim is still to source the best interest rate for you by submitting your home loan application to all the major banks. There is no easier way to apply for a Bond or Home Loan in South Africa!

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