Everyone knows about the 2 main ways to purchase a home – buying directly from a developer or the resale market. But did you know there’s another way? Unbeknownst to many, auction bidding is another great way to purchase your house!
Auction bidding is a great way to snag deals, especially if present owners are urgently selling their homes. You might be able to receive a significant discount compared to if you directly purchased from the developer or resale market!
What are property auctions?
Property auctions occur most commonly when a property has been foreclosed, usually as the owner is unable to pay its mortgage payments. Due to his/her inability to repay the mortgages, the lender would take the property away from the owner and put it up for auction. This way, the lender would be able to recover some money back.
Property auctions involve the seller putting up his/her property for auction, and the highest bidder gets the property. These are usually conducted by licensed property companies such as Knight Frank, Edmund Tie and ERA.
What kind of property can be put up for auction?
Residential, commercial, and industrial property can be put up for auction.
Why are properties put up for auction?
There are various reasons behind why properties may be put up for auction, of which the most common reasons are owner’s sale and mortgage sale.
- Owner’s Sale
An owner’s sale refers to a property auction initiated by the owner, either due to an obligation by the court as part of a divorce proceeding, or a voluntary choice made by the owner for a quick transaction.
- Mortgage Sale
Mortgage sales are often done by the mortgagee’s bank upon default. This distressed sale is done such that the bank will be able to recover some of the debt.
- Sale of Estate
A Sale of Estate is initiated by a representative of a deceased. The representative can be an administrator or an executor. The administrator is used when the deceased did not leave a will, and the beneficiary is appointed by the court to administer the estate. The executor, on the other hand, refers to the situation in which the deceased left behind a will.
- Public Trustee Auction
If the deceased does not have a representative, the estates will be administered by the Public Trustee’s Office (PTO). This is the least common type of auction.
- Sheriff’s sale
A sheriff’s sale is done when the initial owner is unable to repay his mortgage repayments, and the property is seized by the court. The court is responsible for selling this foreclosed property to recover any debt.
What do I need to note when attending an auction?
You should bring all required documents to the auction, including your identity card/passport, proof of address, and the solicitors’ details. In addition, prepare your deposit (in cheque form) beforehand. If your bid is successful, you are required to place a deposit immediately. This will range from 5% to 10% of the bid price, depending on the Conditions of Sale.
Here are some things to note before attending an auction:
- Do your due diligence
Before committing to the bid, do your own pre-viewings and checks. The marketing agent of the auction property can arrange a viewing for you. Due diligence should also be done beforehand. This would include checking out all legal documents, land use and zoning documents, and any other notices.
- Attend an auction beforehand
Even if you are not interested in a property put up for auction, attending it will be beneficial for you. Not only would this familiarise you with the process, but you also will be able to witness first-hand the competitiveness of auction bidding, and prepare yourself for the bid.
- There is a reserve price
Many of us attend an auction thinking that we would be able to snatch a great deal. Though this may be the case, especially during distressed sales, remember that there is a reserve price that has been set before the commencement of the auction. This refers to the minimum price that the seller is willing to accept for the property. This price will be kept confidential at all times, and only known to the auction administrator as well as the seller. If there are no bids higher than the reserve price, the sale of the property will be void.
What are some pros of auction bidding?
- Quick Sales
Compared to the normal property sale process, auction bidding is much faster due to the timelines that are pre-set and have to be followed. After the highest bid that is above the reserve price is accepted, no negotiations can be made, and the bidder has to place his/her 5%-10% deposit immediately.
- Transparency
All auction bids are openly announced on-site, making the whole process an extremely transparent one. The bidder will be able to know the offers and bids that other bidders have made.
However, there are also cons to auction bidding, one of which is that you may pay more than market price. There have been many cases of bidders over-bidding, as they succumb to the pressure from the fast-paced, competitive auction bidding process. Thorough planning is recommended. Setting a maximum amount that you are willing to bid for, and committing to it is important. In the heat of the moment, if you do not have any preparations, you may exceed your budget.
To get a feel of how much you should bid, the URA website, which regularly updates price transaction histories, may be a good starting point for you. Using this, you will be able to compare the transacted prices of units similar to the one you are interested in. Auction bidding can score you good deals, especially if you are the sole bidder of the property. However, the fast-paced process might not be for everyone. Most importantly, if you are planning to get a property through auction bidding, remember to bid with confidence, and also do your due diligence beforehand.
