‘Hidden’ costs at auction sales

‘Hidden’ costs at auction sales

MAIN IMAGE: Joff van Reenen, High Street Auctions director and lead auctioneer

More distressed homes are being sold on auction today but read the fine print because standard costs, as well as terms and conditions of these sales, are often different from those of private properties that go under the hammer. Joff van Reenen, High Street Auctions director and lead auctioneer, explains more.

What you need to know

Every financial institution has a pre-approved Conditions of Sale (COS) document that private auction companies acting on banks’ behalf, must use if they are auctioning properties for banks.

Each bank has its own approved Offer to Purchase (OTP). If a bank offers a property for auction, it is a preferential creditor.

Banks are preferred creditors in the fact that they have the signed bond document, which also contains a lot of legal small print saying what they can and can’t do. South African banks are extremely compliant with the law – their OTPs would be looked at and approved by either in-house legal or at the very least outside legal opinion.

Distressed properties

If there is a bank instruction that interest will be payable from the date of acceptance till the date of transfer, then it is most definitely not a private sale but forced i.e. Power of Attorney, Bank Instruction or Property In Possession. Clauses such as the bank instruction on payment of interest can be included in a distressed property but not on a private transaction auction.

This clause originates from the conditions of sale in execution of immovable property by a Sheriff which are usually prepared by the execution creditor and which are required to correspond substantially with Form 21 of the Rules of Court.

The wording of the applicable clause from the rules is:

(b) If transfer of the property is not registered within one month after the sale, the purchaser shall be liable for payment of interest to the plaintiff at the rate of …………..per cent p.a. and to the ………………..bondholder at the rate of …………. per cent p.a. on the respective amounts of the award to the plaintiff and the ………………bondholder in the plan of distribution as from the expiration of one month after the sale to date of transfer.

Auction of late estate

When the owner of an estate on auction is deceased, both buyer and seller are bound by the Estates Act. Because this is technically a legal sale, under the Estates Act the buyer has to show means. Whether it’s cash or pre-approval, either way buyers have to put down the necessary monies i.e., deposit and buyer’s commission on the day. Yes, you have what is usually 30 days to obtain finance, but the sale is not subject to such finance being approved.

All auctions are non-suspensive, which means ostensibly cash

All bidders must pay the same day regardless of the sale being confirmed or not. This is the way it has been for decades. All bidders regardless of whether the property is confirmed or not HAVE to put down the necessary deposits and commissions on the day in order to comply with the COS. This shows the seller that you are a person of means who can comply should the sale be confirmed.

This has never changed, nor has the interest clause for that period in question. This is standard across the property industry – for estate agents as well as auctioneer sales. Whether you’re wealthy or poor you have to pay a deposit and the necessary fees on the day. COS for estate late auctions are all governed by the Estates Act which hasn’t changed in decades.

Standard auction buyer’s costs

Auctioneers commission:

Most if not all auctioneers charge a buyer’s commission of anything between 5% and 10% for real estate auctions. For most properties, unless specifically stated during an auction, the buyer must pay 15% VAT on top of the commission as well. One needs to factor in these costs when you bid on a house. If you bid R100 000.00 on a house, then you will need to pay R10 000.00 buyer’s commission (at a 10% rate) and then 15% VAT on the total. So, it’ll be R1 500.00 on top of the buyer’s commission. These fees go to the auctioneers as commission for selling the property.


These range from 5% to 10% as well, and are costs that are charged with the buyer’s commission to conclude the auction when the auction conditions of sale are signed on the fall of the hammer. In practice on a R100 000.00 house that would be R10 000 at a 10% deposit rate. Generally speaking, most auctioneers work on a 5% deposit and a 10% buyers commission rate so it would equate to R16 500.00 in total (that being 10% buyer’s commission of R10 000, 15% VAT on the buyer’s commission of R1 500 and then 5% deposit of R5 000).

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