The potential financial rewards of buying an auction house don’t come without their share of hard work and headaches. The most important thing to understand before jumping into the auction properties market is that these properties were given up by owners who couldn’t afford the payments anymore.
That auction house you’re thinking about buying just might not be the deal you thought.
We hate to break the deal, but if you are a new buyer or first time buyer without any experience in this line, we would encourage you to stay away from auction property. Because, even with seasoned investor, they might overlook certain important steps.
Read on this article “3 Crucial Reasons To Avoid Auction House” to learn more about the problems these auction properties commonly possess and the difficulties you may encounter in owning one.
1. Unfair Contract Between Bank and New Buyer ( I hate to emphasize this)
When a new buyer enters a Proclamation of Sale Agreement (POS) with the bank, the contract itself was genuinely unfair.
One of the unfair clause:
“All intending bidders are required to deposit 10% of the fixed reserve price by bank draft / cashier’s order only in favour of XXX Bank Berhad prior to the auction sale with the undermentioned Auctioneer and the balance of the purchase price is to be settled within one hundred and twenty (120) days from the date of auction to XXX Bank Berhad.”
The balance purchase price to be settled within 120 days (3 months, including Saturday, Sunday and Public holiday) effective from the date of auction. In some cases, may be from the date of POS date stamp. This is regardless of Freehold, Freehold with consent or Leasehold property.
Do you know, for Freehold with consent and Leasehold property, the application for consent alone will take about 2-4 months depending on the location of property. To complete the whole process might take 4-6 months.
And the auction bank “generously” giving 3 months to fully settle the balance purchase price. Where is the logical sense in that?
In comparison with second hand house (buying from owner or agent), the 120 days will be calculated once consent granted. Not as per Sale and Purchase Agreement (SPA) date. So, normally you will be able to meet the dateline.
120 days for auction property, is this really sufficient? Just think about it…
We, in Malaysia have lots of public holidays, Hari Raya, Chinese New Year, Christmas, Deepavali and etc… And to buy a house in these essential holiday season, it just a bad timing. Lots of people on leaves and the workflow will definitely be slowing down. Lastly, the due date might be affected.
I hate to say this but… buy the auction property if you have full confidence to beat the 120 days period. If not, just walk away. Less headache and trouble.
2. Multiple Problems with the Property
The most important thing to understand before jumping into the auction property is that these properties were given up by owners who couldn’t afford the bank’s payments anymore. In these cases, if the owner can’t make those payments, he or she is likely falling behind on paying for other bills like electricity bill, maintenance bill, water bill and other taxes bill. So, when pilling up its can be a huge overwhelmed amount to pay.
However, the good news. There are cases where auction bank willing to absorb these bills up to certain amount. Read your Proclamation of Sale. It’s should state in the agreement.
3. Poor House Conditions
In these auction cases, the house normally poorly maintained. After all, if the owner can’t make the payments and the regular upkeep might have affected too. In some cases, the owner can be very frustrated with the bank and try to destroy the house by removing appliances and fixtures, and sometimes even outright vandalism.
Most of the auction houses are vacant for a very long time. House that sit vacant can deteriorate much more quickly and the problems may not be noticeable at first.
A small leak under the kitchen sink can lead to a mold problem, and a roof leak or burst pipe can lead to major water damage. With no one around to take care of small problems as they occur, small problems can turn into big ones, and big problems can turn into disasters.
Also vacant homes are huge targets for thieves and vandals. The thieves will drive around neighborhoods looking for vacant homes. They will take a good look at all of your water lines and anything that is made of copper.
If you are keen in trying to acquire a bargain property at auction, paying attention to the aforementioned details will provide an accurate picture of the true costs. To avoid running into trouble after you have successfully bid for a property, make sure you have cover all the important bases.
When buying an auction house just know that the contract will heavily favour the bank. Make sure you do all the necessary homework even if it’s just informational. Definitely, there is money to be made from auction properties but you should know what you are getting into ahead of time and choose your property wisely.
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