Buying at auction is one way to buy a property at below market price. However, it also presents with both pros and cons.
There is a common preconception that properties put up for auction are either repossessed or problematic properties. While, another misconception is that buying property at auctions must be for cash rich buyers. The people who think that way, they must be don’t understand what are the procedures of auctions and in fact, they can still taking bank loan to finance their purchases. Besides, most of the first-time homebuyers nowadays are prefer to buying their first home at auctions.
Furthermore, in most cases, the pros of buying at auctions are far outweigh the cons. Here is a list of pros and cons of buying property at auction, so you can self decide whether it is the best option for you.
The Pros of Buying Property at Auctions |
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| Below market value | This is definitely the first reasons that people choose to buying property at auctions. The reserve prices of properties are usually below the recent transacted price. This is to attract the potential bidders to bid for the properties and desire a quick sale. |
| Easy and speedy | Buying property at auction is speedy at which the whole buying process can be completed in just a few weeks. Compared to normal channels which can take months. Not to mention that, the winning bidder have to immediate pay a 10% deposit of final property price, and the balance payment payable within 90 or 120 days. (depending on the Contract of Sale) |
| Straightforward process | It’s a straightforward way to buying property at auction. You will just need to bring a few things on the big day — such as your identity card, bank draft for 10% of the reserve price and contact details. |
| Greater choice of properties | There is a wider range of properties on offer at auction. Many sellers don’t even consider using more conventional methods of sale. You can get the information of all properties on certain newspapers, auction site, auction boards at property agent’s office. |
| Open and transparency | Auction is a place that much more open and transparent buying process. You can see the other bidders in the auction room, and you will only pay one increment higher than the under bidder. |
The Cons of Buying Property at Auctions |
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| Limited time for inspection | There is a limited time to conduct proper inspections and for your lawyers to check the property details, such as title types, restriction of the property, if there are outstanding bills and charges and etc. It’s literally placing pressure on due diligence. |
| Have no proper inspection | Since the property is sealed, you’re unable to get inside the property to conduct a proper inspection. You can only inspect the property by its looking and peeing through the windows. Hence, you will never know the hidden problems of the property until you won the bid, but it’s too late. |
| Easy to go over your budget | Due to there are other bidders at the auction hall, it may result in the buyer over bidding in excitement, especially when you’re want to get the property very badly. So, always stick on your budget that you’ve had set earlier. |
| Bear all the responsibilities of the property | If you failed to pay the balance payment within due date, the bank has the right to forfeit the 10% deposit that you pay earlier, and re-auction the property.
There is a clause state in the Proclamation of Sale which is the buyer need to take all responsibility upon payment of the deposit. Which mean, if there are any outstanding bills, charges, fire disaster, flood, or other damages on the property, the winning bidder have to bear all those costs. |
Last but definitely not least, do your own research of the property is absolutely needed and find a efficiency lawyer to settle all the legal paper works, especially when you taking up bank loan to finance the purchase. If you find out there are too many costs you have to spend on the property after you won the bid, it’s better to walk away and look for another similar property.
Once the hammer goes down, there is no turning back and no any negotiation is allowed. However, the pros outweigh the cons and buying property at auction sale is still the way to go for most people.
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