While there are various benefits of buying property at auction, with the most obvious being the cheaper prices, purchasing an auctioned property can come with some risks too.
If you are considering purchasing an auction property, here is a list things you need to be aware of. Buying a house in itself is most often a once-in-a-lifetime financial decision.
The major factor that encourages buyers to purchase auctioned properties is that their values are somewhat lower than the market value. Buyers stand to make up to 20% of saving from the market price. There are cases where no reserve price were attached to the properties, and that the highest bid wins the bid. If the bidding has little or no competition, you will have a higher chance to win the bid.
The second advantage is owning a property quickly since most of the necessary procedures such as valuations are usually done beforehand. Besides that, once signed, the participants are legally bound to transaction so this prevents the seller from accepting a higher offer from another party in the future.
The bidders are usually not allowed to view the interior of the buildings. The new owner takes the risk of having to bear a large amount of money to repair damages left behind by the previous owner.
Outstanding utilities bill, tax and maintenance fees will usually be borne by the new owners. This is why we don’t encourage buyers to bid more than their initial tolerance limit; to spare some reserves for damages.
Since auction properties are not guaranteed with vacant possession, there is a chance that the property is occupied (by previous owner or tenant). Once the purchase is done, these problems belongs to you and yourself.
There are some basic tips which you can do to avoid or solve the problems if you are interested in buying auction property.
- Inspect the subject property beforehand to check on the external condition of the property and whether someone is occupying the property. If possible, ask the occupant (if any) to have a view of the interior of the property, or ask the neighbours to do you a favour to view their house with a similar layout (be prepared to receive hostile treatment). Try to dig up information from the neighbours about the nature of the previous owner.
- Visit the management office to find out the outstanding maintenance fees. It’s not difficult to get information disclosure as the management would likely welcome a potential owner to cover the balance amount.
On top of the hidden uncertainties faced, auction property buyers also share the same challenges as any home buyers like securing a housing loan, lower valuations and higher upfront cost. We highly encourage buyers to conduct a thorough research first and judge wisely whether the advantages outweighs the problems. Additionally, gaining and flipping from auctioned properties is usually the game for seasoned property investors and not for first time home buyers so think twice before taking the plunge.
Article By: Loanstreet