It is general wisdom that being forced to sell one’s property at short notice might cause us to make a loss – or at least lose out on potential gains than if we had more time to find a buyer.
That being the case, one might imagine that distressed property auctions would be a source of great deals for prospective property hunters. Here’s what you need to know before participating in one.
Reasons Why Properties Get Put Under Auctioneers’ Hammers
There are many reasons why properties get sold in auctions, some voluntary, others not so. Banks or creditors may liquidate a property in order to recover what is owed to them. Properties that form the estate of the deceased may also be auctioned off either by their estate’s executor/administrator or by the Public Trustee’s Office.
Finally, an auction could also be owner-initiated, such as needing to sell quickly because they are migrating, or they need to free up cash for other purposes.
Sometimes, if properties have niche appeal, auctions could give owners access to a ready pool of potential buyers.
How To Find And Participate In Property Auctions
Property auctions are usually conducted by realtors, such as ERA and Propnex, as well as real estate firms like Knight Frank or portals like PropertyGuru. You can also find auction opportunities in the classifieds sections of newspapers.
You can peruse the list of properties on offer at a particular auction session beforehand, and register your interest to attend the auction. The reason for sale, location, size, property type, and lease information would be listed. Sometimes, prospective buyers can make arrangements to view the property before the auction.
Properties on auction would also have a reserve price – which is the minimum price the seller is willing to accept. If there are no bids at or above the reserve price, the sale does not go through. This reserve price may or may not be disclosed to buyers.
Do Property Auctions Always Give You The Best Deals?
Normally, property-buying can feel like a game theory experiment. Sellers often try to induce fear of missing out (FOMO) by hinting at other interested buyers, but also want to tread the line carefully, lest an interested buyer becomes disinterested. Buyers don’t have complete information about each other and need to decide whether paying a price premium is worth it to secure the property.
However, in an open auction, there is transparency about who else is bidding on a property, and how much exactly are they willing to pay for it. Because of the time-limited nature of auctions, buyers know that sellers would want to transact as quickly as possible within the timeframe, rather than hold out indefinitely for a better price.
But even though the source of properties mechanics of the auction seems to favour buyers getting a good deal, one should still do their research on recent transacted prices for similar properties, as well as possible downsides to that property that might not be apparent. We should also not allow the heat of the moment and competitive nature of auctions cause us to pay more than what we’re initially prepared to offer.
As with regular property purchases, you should always understand your affordability and budget before commencing any property shopping. This includes loan limits that you are able to secure, as well as all the relevant duties, taxes, and levies you are liable for after a property purchase.
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