Property auctions are one of the best ways to get a discount on a house or apartment; however, you should be wary of any purchase, since most auctions have an “as-is-where-is” policy when it comes to all sales. Yes, banks do try to take the best photos possible when it comes to showing what is for sale at their auction, but you are not allowed to physically go and inspect the property until you have finalized the deal. For most people, this can be a problem, since there could be issues that are not apparent in the photos that you will need to deal with, and the repairs and renovations needed may not be worth the cost of the property. It is due to possible issues like these that this guide will help you in determining whether a particular property is worth purchasing at an auction.
What is an Auction Property?
An auction property is the result of property being seized as collateral or a buyer no longer having the financial capacity to pay for an apartment or home that they purchased via a loan. The bank takes the property and puts it up for sale so that they can recoup their losses. An auction property is advertised either through sites like Property Guru, the bank’s newsletter or even through a newspaper. The price is typically indicated along with the status of the property, its general description, and other pertinent details that the bank would wish to disclose.
Common Problems Encountered During Auctions
The following are the most common issues that a buyer would face when it comes to auctions:
a.) Insufficient Details
Banks are, unfortunately, not as forthcoming when it comes to the finer details of property. They do send a representative to examine it and determine its current worth; however, details such as the state of the roof, the interiors, the pipes, and other details that buyers would want to know are often not included in the report. In a way, this is the bank’s attempt at ensuring that the property sells, regardless of its current state. Most auctions do indicate that buyers should always assume that some extensive renovations may be needed.
b.) Being Outbid
The main difference between purchasing a property via the bank sale and buying through a developer is the bidding process involved. If you try to obtain a home or apartment from a developer, the price is set and won’t change at all. If you pay the reservation fee, even if someone were to offer the developer three times the price of the unit, they would have to refuse, as per their reservation policy. When it comes to an auction property, if a potential buyer submitted a higher bid, the bank will, of course, prefer that over a lower amount submitted by you.
If you’ve ever read through an auction advertisement, you will see that they are color coded utilizing a color scheme of red, green and yellow. Before you decide on bidding for a particular property, you need to know what each classification stands for:
Green properties are those with no legal issues at all. These are the highest priced auction properties since buyers don’t have to be wary of having to hire a lawyer to sort out any ownership issues of the property.
Yellow properties often have some legal issues attached to them. Previous owners sometimes contest the seizure of the building, or there are issues regarding ownership. In cases like these, you sometimes need to hire the assistance of a lawyer to sort out all the legal problems attached to the transfer of the property.
Red properties are the most difficult to deal with since in this case the previous owner refuses to leave the premises and is actively contesting the transfer of ownership through whatever means possible. There are often the cheapest auction properties since the banks want to get rid of these properties.
What to Do if You Won Your Bid?
If you were able to win your bid for the property, you need to go immediately to the bank and file the necessary paperwork. Once you complete all the necessary details for the payment and transfer of ownership, you need to inspect the property and determine if substantial renovations are needed. Don’t let the thought of having to renovate a home scare you from purchasing an auction property, the fact remains that the significant drop in price more than makes up for any renovation costs that may come about.
All in all, purchasing a property at a bank auction is one of the most affordable methods of obtaining a home or apartment. Just be sure that you use common sense when it comes to particular properties, especially if they are labeled “red” under the auction color scheme.