Buying a house at auction is considered a good investment as they are often sold below market value and, therefore, they are cheaper than buying from a developer or a previous owner.
A property can be put up for auction for a few reasons – foreclosure due to the owner not paying the mortgage, failure to pay property tax, income tax or other obligations, it has been seized by the authorities for illegal activity or simply abandoned.
There are two types of auctions – Loan Agreement cum Assignment (LACA) and non-LACA.
A LACA auction is carried out by banks for properties without an individual or strata title and a non-LACA is done through the High Court for properties with individual or strata titles.
Here are the steps you would need to take before, during and after an auction:
Before auction day:
- Identify the property
Based on your budget and preferred location, you can easily find your future property by searching on bank websites or property websites such as AuctionGuru or LelongTips. Notices of property auctions are also published in the newspapers.
- Do your research
Do a title search on the property at the land office. This will also help you determine if you are going to be bidding in a LACA or non-LACA auction. The deposit required will differ according to the auction type.
Another reason to do prior research is to find out whether a private caveat has been filed on the property. A caveat is a temporary measure that protects an individual’s rights under the sales and purchase agreement. It can be lodged by a person claiming title or interest in the land; a person claiming beneficial title to the land or a person claiming on behalf of a minor.
A private caveat can be removed by filing an application to the court, but it could take a few months and become an additional headache, not to mention an unnecessary cost.
- Inspect the neighbourhood
You may not get to view the interior of the property before bidding on it, so, at least scout the surroundings in advance to ensure there are no nasty surprises.
You can also judge the potential appreciation of the property based on the neighbourhood by comparing it with previous transactions in the same area on websites like Property Advisor.
If the property is still occupied, you may be lucky enough to obtain permission to view the interior, or at least find out from the tenants if any repairs need to be done. From there, you can estimate the costs.
- Obtain the necessary documents
Once you have decided to bid on the property, it’s time to obtain the proclamation of sale (POS) and conditions of sale (COS) from the auctioneer.
These documents contain the details of the property, including any outstanding bills such as maintenance charges and utilities.
Some of these outstanding charges may be borne by the bank, subject to terms and conditions, so be sure to read the POS and COS carefully.
You will also need to obtain a bank draft or cashier’s order for the deposit. LACA auctions require 5% of the reserve price and non-LACA auctions require 10%.
On auction day:
- Be alert
This should go without saying, but be sure to be punctual. Be there half an hour early to register with the auctioneer and deposit your bank draft at the counter.
When the auctioneer announces the commencement of the auction, keep your ears open. Listen carefully to the bidding process and the important clauses in the POS and COS to make sure they match the information issued to you earlier. This will ensure you are not caught unawares.
- Make the right bid
This is when the bidding card issued to you during registration comes in. A bidder needs to raise the card to indicate their bidding price.
The bidding process will come to an end once the auctioneer has called out the highest price three times and no more counter offers are made.
Once the hammer has fallen, the property is (almost) all yours!
All you need to do is sign the contract of sale and pay the remaining difference of the deposit (if the bidding price has gone up). Before signing the contract, make sure all the details are correct.
If your bid is not successful, you can reclaim your bank draft from the counter immediately after the auction ends.
After auction day
- Settle the balance purchase price
A successful bidder is required to settle the balance of the purchase price within 90 days for a LACA auction and 120 days for a non-LACA auction. This when you may need a lawyer to help with a smooth property ownership transfer.
Of course, it would be easier to pay the balance purchase price in cash. But if you are planning to finance the property with a loan, you need to act fast as the release of payment from a financier can take a while.
To prevent your deposit from being forfeited due to late payment of the balance purchase price, prepare all the required documentation even before the auction to facilitate the loan application process.
Source : Property Advisor