Auction Property: Things You Should Know
We often hear about auction houses, but only a few dare to buy it as the process is deemed complicated. But it cannot be denied that many have managed to own an auction house and make it a comfortable residence. Some even consider auction houses to be profitable real estate investments.
What is an auction house, how are houses auctioned, and what are the things to consider if you want to buy an auction house?
Let's read to know more.
What is an auction property?
An auction property is a real estate asset sold through public bidding rather than a traditional private sale. Auctions are often used to sell properties quickly, efficiently, and transparently. Properties sold at auction can include residential homes, commercial buildings, land, and investment properties.
Types of Auction Properties
- Foreclosures: Properties repossessed by lenders due to the owner's failure to pay the mortgage. They are often sold at auction to recover the outstanding loan balance.
- Distressed Properties: Properties in poor condition or requiring significant repairs, often sold at auction to quickly offload the asset.
Types of Property Auctions
- Public Auctions: Open to the general public, where anyone can participate in bidding.
- Private Auctions: Restricted to a specific group of bidders, often by invitation only.
- Online Auctions: Conducted over the internet, allowing bidders to participate remotely.
- Live Auctions: Held at a physical location with an auctioneer conducting the bidding process
Cost Involved
Various fees and costs may be associated with buying or selling a property at auction. These fees can vary depending on the auction house, the type of property, and the specific terms of the auction.
1. Registration Fee: Some auction houses charge a fee to register as a bidder. This fee may be refundable or non-refundable.
2. Deposit: Buyers typically need to pay a deposit upon winning the bid, usually a percentage of the reserve purchase price (5- 10%). This deposit is often non-refundable if the buyer fails to complete the purchase.
3. Buyer's Premium: A fee paid by the buyer to the auction house, typically the difference between the reserve and the final bid price (e.g., 5-10%).
4. Legal Fees: Costs associated with hiring a solicitor or conveyancer to handle the legal aspects, including deposits, legal fees, and stamp duty.
5. Financing Costs: Buyers may incur application fees, appraisal fees, and other costs related to securing financing when obtaining a mortgage.
How Property Auctions Work
- Property Listing: The property is listed for auction, with details provided about its condition, location, and any legal or financial issues.
- Inspection Period: Potential buyers can inspect the property before the auction. This may include open houses or scheduled viewings.
- Auction Announcement: The auction date, time, and location (or online platform) are announced, along with the terms and conditions of the sale.
- Registration: Interested bidders must register for the auction, which may involve providing identification and a deposit or proof of funds.
- Bidding Process: Bidders compete by placing higher bids, with the property going to the highest bidder once the auctioneer closes the bidding.
- Winning Bid: The highest bidder is declared the winner and must sign a purchase agreement and pay a deposit immediately after the auction.
- Settlement: The remaining balance is typically due within a specified period, usually 30-60 days, during which the buyer completes any necessary legal and financial arrangements.
Checklist if you are interested with auctioned property
Things that you need to do before making any decision on the auctioned house you are interested in :
1. Research: Thoroughly research the property, including its market value, condition, and any legal issues.
2. Inspect the Property: Conduct a detailed inspection or hire a professional to assess the property's condition.
3. Understand the Terms: Read and understand the auction terms and conditions, including any fees and the deposit required.
4. Set a Budget: Determine your maximum bid and stick to it to avoid overpaying.
5. Attend Auctions: Attend a few as an observer to understand the process and dynamics.
6. Hire Professionals: Consider hiring a real estate agent or legal advisor experienced in auctions to guide you.
Important things to pay attention to:
1. Caveat
A caveat is a legal notice indicating someone is interested in the property, which can complicate the auction process.
Banks will not approve a loan on a property with a private caveat. Therefore, unless you can afford to pay for the auction property in cash, it is not advisable to bid for an auction property with a caveat.
2. Type of Property
A potential bidder should conduct background checks to determine whether it is a leasehold or freehold property.
The leasehold property must have at least 20 years remaining to ensure you can easily obtain financing.
3. Unwanted tenants
Ensure that the current tenant will have no problem emptying the house once they are required to do so. In many cases where the tenant refuses to move out, the owner needs to incur additional costs, including legal fees, to evict them.
Summary
Property auctions offer a unique and advantageous way to buy or sell real estate. Understanding the auction process, conducting thorough research, and preparing adequately can ensure a successful and rewarding experience. Whether you are a buyer looking for a bargain or a seller seeking a quick sale, auctions can be an effective tool in the real estate market.
Highlight
1. Auction property opens up the opportunity to own a property at a lower price, but factors such as the condition of the house, existing tenants, and the current value of the property should be taken into account before making a decision
2. Prepare a sufficient amount of money. Make sure you qualify for a loan before participating in the bidding process because you may lose the deposit if you fail to get financing.
3. Auction house may involve a high cost to repair if the house is in terrible condition.
