South African bargain hunters are spoilt for choice when it comes to real estate. Not only are interest rates low and ordinary stock availability high, but there are also record numbers of distressed sales taking place.
“These properties are favourably priced and often come with preferential interest rates as well as discounted attorneys’ fees” comments Tony Clarke, MD of the Rawson Property Group.
For savvy buyers, this can present an amazing investment opportunity. Here is what you need to know to get in on the action and to avoid the most common pitfalls:
You need to know where to look
Bank mandated or distresses sales are not always advertised on property portals. This can make it challenging for prospective buyers to see what is available. According to Clarke, the easiest way to view distressed listings is to get in touch with a professional real estate agent who is affiliated with the major banks. “Chatting to an agent also gives you the opportunity to ask about property prices and trends to make an informed decision on whether a particular distressed property is a good buy or not”.
Do your due diligence
Bank mandated sales can be bargains but Clarke cautions that it would be a mistake to assume this is true without doing further investigation. He recommends researching recent sales of similar properties in the area to understand where the distressed home fits into the market and to chat to a local real estate agent for the inside scoop.
“It is also important to find out as much information as possible about the property itself. Is it empty or tenanted? Are there any outstanding sectional title levies or municipal rates? Are there any restrictions on usage or building? All these things can affect the viability of a purchase”.
Expect the unexpected
It is always advisable to do a proper inspection on a property before purchasing it. You need to ensure that you obtain a copy of the seller’s disclosure document – a document where the seller has listed all the defects that she or he is aware of so that there are no unexpected discoveries when taking occupation of a property bought on a bank mandated distress sales process. You have the right to ask for the seller’s disclosure if one is not provided to you.
“The reality of distressed sales is that they take place because property owners are in financial difficulty,” says Clarke. “Very often that means proper maintenance has taken a back seat. While every effort is made to disclose as much about distressed properties as possible, it’s not unusual for buyers to find a few defects that they weren’t expecting. It’s a good idea to budget for this possibility in advance.”
There is plenty of competition amongst buyers to get the best-distressed property bargains. Clarke recommends buyers get prequalified so they know exactly how much they can afford to offer. “Be ready to act quickly or risk losing out. Know what you can afford, know the property’s value, and set firm limits. A bargain is only a bargain if you get your price right.”