11/01/2019
What must you know before buying an auctioned property?
Buying auction or foreclosed real estate property is exciting because you know you may get a property at a price much lower than the market price. But buying an auction property is by no mean easy, there are many things you should look for when buying an auction property.
Type of auction
In Malaysia, there are two types of auction for foreclosed properties:
1) LACA (Loan Agreement Cum Assignment) auction – auction done by banks for properties without individual/strata title.
2) Non-LACA auction– auction done through High Court for properties with individual/strata title.
It is very important to know if a property that you want to bid is a LACA or non-LACA property because there are some differences that you must know.
– For LACA property, deposit with auctioneer is normally 5%, while for non-LACA property the deposit is 10%.
– In Johor Bahru, if there is no successful bidder for a LACA property, the next auction for the property can be as soon as after another month. But for non-LACA case it will take around half a year time because of the troublesome procedures of High Court.
– In both cases, however, reserved price of the property in the subsequent auction will be 10% cheaper than the previous reserved price.
– Balance purchase price of LACA property is normally settled within 90 days after a successful bid, while non-LACA case allows you to settle the balance within 120 days.
Title and condition of property
Before going to the actual auction, buyers are advised to do the necessary inspection on the property and perform necessary search at local land office to confirm the rightful owner of the property. This is very important to make sure if the property is worth bidding.
Performing land search can make sure if the property has been issued with individual/strata title. If you found the previous owner’s name has already being registered on an individual title of the property but the property is under LACA auction, you should voice your doubt to the auctioneer.
As there may be difficulties involved in inspection of the auction properties, you may have to allow for repair cost as sometime the exact condition of the property cannot be ascertained.
Vacant possession
Since auction property is not guaranteed with vacant possession, if you found someone occupying the property during your inspection, be prepared to spare some of your time and effort to evict the occupant out of the property after you successfully bid the property.
According to conveyancing lawyer, to legally evict occupants out of a property, first you must be the owner of the property. Once you are officially the owner of the property, you can apply to distress the occupants through a lawyer before you really need a court order. This may take about 3-4weeks to process a distress order and cost around RM1500-RM2000. However, the best way is to speak to the occupant and let them move out by themselves.
Outstanding payment
Sometime there may be many outstanding bills like assessment, quit rent, maintenance charges or utilities bills that have yet to be settled for an auction property. Apportioning outstanding payment between yourself and the bank that called for the property to be auctioned may take some time. Normally you will need to pay all the outstanding bills after you successfully bid the property and then submit the receipts to claim the bank’s portion from the bank through your lawyer.
The ways of settlement are stated in the proclamation document of each auction property. You can get a copy of the proclamation document from auctioneer or property agent appointed by bank at least 2 weeks before the auction date.
Balance purchase price
If you intend to take up a loan for your auction property, be careful that the release of payment from your financing bank may rather slow and make 90 or 120 days seem like a very short time. Though certain banks allow pre-approval of loan for auction property before the auction date, it would be easier if you have already spared some cash to pay the balance purchase price. This is to prevent your deposit being forfeited due to late payment caused by any possible reason.
It is because of the uncertainty and hassle involved in buying an auction property that make the general public reluctant to even try. Sometime even when the property is priced very cheap, there may be not many or no bidder. However for those who are daring, with strong heart and financially sound, auction may just present an irresistible opportunity for fantastic return on investment.
