Buying auction properties – Part 1

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Today, a Penangite friend asked me, what are my thoughts on auction properties. To be honest, I have never bought any auction properties before. However, I remember some points from a talk I attended before some time back. It was by Mr. Stephen Soon, the Chairman of Penang Auctioneers Association and MD of MNP Auction Team, also a good friend of mine. He said the fears of auction properties are based on a lot of hearsay and rumours. He gave a few pointers to all buyers, whether they are buying for own stay or even investment and said that everyone should understand about auction because it is not that different from buying a secondary property.

First reason is good opportunity to bid for properties at a bargain. For example, in a foreclosure (bank) auction, the bank will first fix the 1st auction reserve price based on the market value. There are times when the property was not sold and for the next auction, the price will be reduced by 10%. What if you happen to be the only one who bid for the said property in its second auction? You would have saved 10% which is very substantial indeed. Another investor friend of mine who is many times more active has bought properties at auctions before and he said as long as you go in with a clear mind, you should be fine. The truth is, even when you buy secondary properties, you also need a clear mind. Or else, you may end up with an overvalued property easily.

Second reason is pre-fixed terms and conditions. In fact, the two things you must always stress for property investments are ‘time’ and ‘money’. For bank auctions, the following are fixed and cannot be changed: date, time, conditions of sales and minimum reserve price. This meant there is NO NEED for any negotiation or uncertainty in price. When you buy from buyers, especially during good times, the prices may still change even after your 1st viewing! When it is a business entity like the bank, changing terms or price halfway is not going to happen. Of course, the bank may still choose to withdraw the property from the auction due to some unforeseen circumstances and you lose the opportunity for the withdrawn property. However, if you win the bid, it is also legally binding and you cannot do like what you when you buy secondary property, agreeing to the price and chose not to pay the deposit.

More reasons in the next article.

written on 7th Jan 2014

Next suggested article: Buying Auction Properties – Part 2


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