Going Once…Going… SOLD! Understand Auction Process
“Going Once…Going Twice…Sold to Mr.Wong!”
Sound familiar? We used to hear this lines in the public auctions hall or while watching television program for art, collectible and etc. However many unaware of other type of auction – PROPERTY!
While most of the collectible are auction for charity purposes. Properties are generally auctioned off when borrowers fail to pay their loan on time, many people see the properties deemed to have “bad feng shui”. It this true?
In Malaysia properties auction are getting popular many do not believe in the superstitious of yesterday anymore. While many of the property investor are looking as a opportunity for under valued properties.
Type of auctions
1) Private Auction
Usually held by individuals, in which the participation is limited to a selected group of people or organisation. Some property owner see more advantage in this alternative instead of the traditional way of finding a buyer and signing the sales purchase agreement.
2) Public Auction
Usually organised by licensed auctioneers or big corporation like banks. This auctions are being held more frequently now especially in Klang Valley and mostly involve residential properties classified as : bank foreclosures”. It is basically auctions to recover loan amounts upon borrower failure to repay the bank promptly.
Pro & Cons of Auction process
1) Whether is public or private auctions, it usually attended by those with good financial standing. For all auctions are the same, the highest bidder will secure the deal. The auction properties are usually assessed by a licensed property valuer to determine the current market value. Bid price starting from current market value, if the property is good willing bidder will offer higher price which is good for the seller. On the other hand if the properties are in bad shape then vice-versa will happen.
2) The process are usually faster when a property go through auction. In auction, bidder who are interested usually come with the required deposit (10% of the market value). When the highest bidder secure the deal, the bidder is usually given between 90 and 120 days to come up with the balance or source for end financing to complete the purchase.
1) Foreclosed properties usually come with very little detail it is up to the bidder to do their own homework. Bidders are usually not allowed to view the properties. The bidders have to conduct their own title search to ensure that it is caveat free.
2) Auctions do not involve the standard sales purchase agreement it is replaced by what is known as a condition of sale issued by the financial institution (to which the property has been charged at the point of transaction).
3) The condition of sale differs from bank to bank and property to property, thus it is important for the bidder to read the fine prints.
Do Your HOMEWORK
It’s important to do research before bidding at a property auction. Here’s what you need to do:
1) Conduct a land title or caveat search
The process of removing caveats can be time-consuming. (Caveats are placed by parties claiming to have ownership of the property). It can easily done through land office or consult a lawyer.
2) Visit the property
While you can’t physically assess to the premises, you may check on the neighborhood at different time, at night, after a heavy rain, in the morning and a quick check on the exterior condition will help.
3) Bidding margin
4) Read the conditions of sale
Most public auctions organised by banks have details conditions of sales that are available for distribution to all prospective bidders, way ahead of the auction date. It specify the terms of auction such as required deposit and time given to bidders to secure end financing.It also indicate to settle all unpaid arrears ( maintenance charges, assessment, quit rent and etc.)
5) Prepare your deposit
Go prepared with the required deposit (usually 10% of the market value) either in the form of a bank draft or cashier’s order in favour of the assignee of the auction.
Remember to always make an informed decision on both the properties as well as the process of the auction. Consult professionals like valuers about future prospects of the property and be realistic about the investment returns.