What you need to know before buying repossessed property
For home buyers on a tight budget, a Property in Possession (PiP) - or home that has been repossessed by a bank - may seem like a very good proposition because such properties are often available at less than market value.
"Banks often also offer further incentives to buy PiPs, such as preferential home loan interest rates and lower bond registration and legal fees, and a further attraction is that no transfer duty is payable on these properties," says Gerhard Kotzé, MD of the RealNet estate agency group.
“But there are also potential pitfalls when buying PiPs that make it highly advisable for the prospective buyers to engage a reputable estate agent to advise them before they finalise the transaction.”
Kotzé says an experienced agent will be able, for example, to identify the problems which led to the house being repossessed by the bank.
“Generally speaking, a property only ends up in possession these days when the original owner has been unable to sell it on the open market, even for just the amount outstanding on the bond - and there are usually good reasons for this,” he says.
“Firstly, an owner who could not pay his bond instalments is unlikely to have spent money on proper maintenance, and many PiPs are in less-than-great condition. An estate agent will spot the signs and be able to direct you to professionals who can estimate the cost of repairs - before you buy.”
Secondly, Kotzé says the original owner may not have been able to sell the property because it has been overcapitalised, or because the area is in decline and there is very little demand for property there.
“This would make it a very risky buy and, once again, a knowledgeable agent can warn the potential buyer,” he says.
Then finally, he says potential buyers need to question how the bank arrived at the price it is asking for the property if they want to get the best deal.
The longer the property has been in possession, for example, the more the bank will have spent on holding costs, such as rates, maintenance and security. It may also have had to settle large amounts for municipal services left unpaid by the previous owner - but these expenses should not necessarily be passed on to the new buyer.
“Indeed, while a PiP may well be a ‘bargain’, particularly for a keen and able DIY enthusiast, professional advice is still needed on the true market value, as well as the likely cost of repairs and the best way to access a favourable home loan package - and the best way to access that advice and knowledge is to enlist the help of a professional property practitioner,” says Kotzé.