As a preamble, let us take a look at auctions in general and what they are.
An auction is an event where something, either a product or asset, is bought or sold at an agreed price.
It could be a car auction, art auction or even a book auction. This is where the product for sale is sold to the highest bidder, after a series of bids from the audience. Auctions are generally popular as it is likely that the buyer will get a good deal in purchasing the product or asset.
Why take part in an auction, anyway?
Well, the convenient thing about auctions is that the buying and selling is done immediately. There is no need for extended periods of discussion and debate. Moreover, the buyer knows exactly what he or she is paying for and gets to determine the price. As for the seller, the transaction is quick, efficient and rewarding.
Types of Auctions
These types of auctions are what we usually think of – ones where the audience gathers at a physical venue or online to bid for the item in question. The bids are announced until the highest price is agreed on and the highest bidder for that item wins.
This is typically performed among businesses and is different in that they are “closed”. The audience submits sealed bids to the seller, who then decides whether to have one round of bidding or to have an additional round.
This may include property that has been foreclosed where investors can buy the said asset at a competitive price. Here, the buyers may have the advantage of purchasing the goods (such as equipment and tools) at a lower price since the goods are not new.
Interestingly enough, this is the opposite of conventional auctions where the bid is set at a high price and then is lowered till a buyer is selected. This means the final amount may not necessarily be the highest nor lowest price. Also, with the Dutch auction, the price with the highest number of bidders is chosen and the item is sold at that price.
How did it all start?
Like all processes, auctioning has its origins. In fact, auctions date back to 500 B.C. in Greece. Imagine this, women were auctioned off for marriage back then. The most beautiful woman was auctioned off first and what followed was a Dutch auction beginning with the highest price till the lowest price was determined; as long as the price was more than or equal to the original price set by the seller.
In the US, during the Civil War, soldiers sold what they gained from the war through auctions. Auctioning increased during the Great Depression where bankruptcy was prevalent and people used auctions to sell their assets fast. With the advent of technology, auctions reached a new level such as with eBay. Online auctioning grew popular as sellers had a lather audience and buyers had a wide variety to choose from.
Property auctions – bringing it back home
In Malaysia, there are Loan Agreement Cum Assignment (LACA) auctions and Non-Loan Agreement Cum Assignment (non-LACA) auctions. The first is carried out by banks without a strata or individual title. A strata title essentially gives more control to property owners over their spaces and is proof of their ownership. This is especially important when one decides to sell one’s property.
Non-LACA auctions are ones usually auctioned by the High Court which have strata or individual titles. In order to buy a non-LACA auctioned property, 10% needs to be paid while the balance has to be paid up within 120 days. It might be a good idea to talk with your bank about financing options.
Would you purchase a property that is being auctioned?
Of course, purchasing a new home can be exciting. So consider purchasing an auctioned home for the many reasons stated below. Although rather unconventional, property auctions may just be the solution for you. It is easy, quick and convenient.
A better price
You may be able to get a price better than what’s on the market. This will allow you to continue with other commitments as well as invest in decorating or furnishing the house. You may be able to get a property that is in the area you prefer or one that was over your budget before.
To each his own
So, essentially, you will be able to make your own decisions on buying a property and go with what you feel is right. You will get first-hand information and will be able to use that information to make a wise and informed decision.
Purchasing a property through an Property auction can be a rewarding experience. Chances are you will be successful in getting your ‘dream home’ at a reasonable price.
A lot of research
You will need to do research based on the house you are interested in and what you can afford. Furthermore, you need to be familiar with the legal aspects and the type of lease the house is under.
The bidding process
You must register for an Property auction and attend it bearing in mind the price you are prepared to pay for and sticking to it to avoid paying more than you can afford.
There might be competition in buying the property and you might be outbid for the property that you desire. Also you must have a budget in mind so that you do not pay more than you were prepared to. Be aware of certain costs that may be included in the package.
Why or why wouldn’t you sell at a property auction?
Before youdecide to sell your property at an auction, you might want to be aware of the limitations and benefits of doing so. As the process might be new to you, do your research before deciding to put your property up for auction.
The process of selling can be accomplished quickly and it is easy to get the best offers from buyers. It is effective and immediate. At times, the properties are sold before the auction itself in a pre-auction.
By having an Property auction, the property is not sold at a price too high or too low. There is a set price which means the property will not be sold for less than what you desire. The period of settlement is also determined and fixed.
Property Auctions are perfect for those who want to sell within a fixed period of time. Hence, there is no need for long negotiations and decisions can be made quickly and without hassle.
Costs and value
Because the price is negotiable, you may not be sure of how much you will get. It is also limited in that the time period is fixed and there may be potential buyers who have missed out.
The bidding process
Buyers will have to register or may not be familiar with the process which may put them off. The competition at the Property auction in terms of bidding may also prevent them from attending.
The Property auction may not turn out as you expected. In this way it is rather unpredictable and you may have to decide whether it is worth it to have an Property auction or sell in a conventional way.
What you need to know about property auctions?
It is best to do your research and be well-informed about property auctions before you attend one. Also note that sometimes, you may not be able to inspect the premises before you purchase so ensure that you are prepared for this. In a way, Property auctions are riskier than conventional methods because the process is immediate and there may not be further negotiations after the property has been bid for the highest price.
It is worth getting advice from a real estate lawyer to be more informed about the processes and requirements for acquiring a property at an auction.
Having said that, auctions may not be the ideal choice for everyone due to the pace of the bidding process which may occur quickly. Furthermore, you need to have the money for the initial set price and be willing to take on the risk of spending more than what you wanted to pay in the first place.
A key point to note is that there might be a caveat placed on the property by a third party. This is a form of a temporary protection of an individual’s rights which might prevent the registering or change of ownership. So even if you are the highest bidder for the property, you will have to go to court to remove the caveat which may be a long process.
Simple steps to buying a property at an auction
The first step is to find the property – this can be done by looking up the classifieds in the newspaper or other online platforms. Get the details including location of the property. Remember to get the Proclamation of Sale (POS) and go through it thoroughly. Next, go to the property itself and gauge its suitability to your needs; you may also contact the auctioneer and get other information not included in your initial search.
Probably the most crucial step is to prepare a bank draft of 10% of the reserve price. Register for the auction and read the terms and conditions of sale. Wait for the auctioneer to announce the start of the auction and bid accordingly. The bidder with the highest offer wins. The property is sold when the hammer falls. Sign the sales contract and call your bank for finance options.
Some final tips
If you have any questions on the property, contact the auctioneer. If possible, visit the property to gauge its condition and how much you have to spend to renovate it. Check exactly how much you have to pay and align this with your own budget.
The terms and conditions need to be checked carefully so that you do not miss anything important. Know the difference between guide price and reserve price. The guide price is the price at which the bidding will start and the reserve price is the minimum price that will be accepted.
Finally, what do you need to know to win a bid?
Yes, if you are keen on a property at an auction, you need to do your part in making sure your bid wins. So, dress appropriately, come with a notebook and sit at the front if possible. Also, you need to know when to bid. After considering the audience, you can make the best decision using your judgment.
Importantly, don’t reveal how much you are willing to bid but make sound decisions while bidding. Hence, with all this information up your sleeve, you are ready to buy or sell at the next property auction. Remember it’s all about what you want and what works best for your situation.
You may find that auctions are your thing; or you may shy away from them for any reason of your own. Whatever the case may be, prepare yourself and make your choice. You may just be on your way to owning your “dream home” in a short matter of time!