A company recently put up for auction several of its properties ranging from houses and detached and semi-detached lots worth several million ringgit in Taman Bukit Rasah, near Seremban town centre.
A couple whose marriage is on the rocks is also auctioning off their bungalow in Kuala Lumpur. They have put in much time, efforts and money renovating and refurbishing the house but in the end they are letting it go at a loss.
A businessman who is terminally ill has also put up his house for auction in the hope that it might fetch a better price.
The above examples show that contrary to popular belief, not all property auctions are a result of foreclosures by financial institutions. In fact it could be due to a number of reasons such as bankruptcy, divorce, illness, death in a family, relocation, downsizing, reducing one's holding costs or simply trying to get a fair market price.
While most people use the services of real estate agents to help dispose off their properties, there is now a growing number of people who find the process of auctioning a property, equally if not more effective and faster as they believe that an auction assembles genuine purchasers into a competitive bidding forum and thus sets a true market value as well as obtaining the highest possible price.
A real-estate auction is seen as a win-win deal for both the buyer and seller. On one hand the seller can dispose the properties quickly thus saving long term holding costs such as interest and maintenance while the buyer can hope to derive a fair market value through competitive bidding as the auction is done in an open forum.
According to Property Auction House Sdn Bhd, a real estate auction is a method of buying and selling real estate, which accelerates the purchasing process through the medium of an auctioneer. It is effective, quick and dependable.
Auctioneers also charge a negotiable commission as a percentage of the sale price. It believes that auctions reveal the true market value of a property. Hence it does not deflate nor inflate it.
Most properties including residential and commercial units as well as vacant land can be sold at auctions. Properties that are in good location and in sound developments have done well at an auction.
Of late one may have noticed a spate of auctions and sale by tender particularly strata-titled properties such as apartments and condominiums.
The reason for this surge in auctions is said to be a ruling last year that all foreclosures where the individual/strata-titles have yet to be issued could now be auctioned off without going through the court.
Licensed auctioneer Patrick Wong said there had been a lot of property auctions for the past few months. He estimates the number averaging around 1,000 units per month. His company has been handling auctions worth as low as RM20,000 to RM10mil. However, their numbers are expected to taper off eventually.
He also noticed that people who had bought low and low-medium-cost units had also resorted to auctioning off their properties as some of them were either too far away from the town centres or investors who were unable to sell or rent them out.
Wong also observed that some purchasers had failed to pay their loan instalments on time and the banks have to foreclose their properties. If such properties were sold at a loss and there is a shortfall, the banks could always recover the difference, he said.
“There have been cases where a few years after they (buyers) applied for a loan they are declared bankrupt. I would advise them to pay up, as the banks don't lose anything. A lot of banks are very flexible and there's always room for negotiation,” he added.
Wong who has been an auctioneer since 1986 said on a good month, his company might be able to auction off 50 to 60 units. The success rate would depend largely on the property itself, like whether it is in a good location. A prospective buyer is expected to view the property and check out the legal matters prior to the auction date. Wong said in some cases where there are still occupants in the auctioned property, 99% of the occupants would leave peacefully.
“There is a very rare chance of them not leaving. They know they have defaulted (in their loans). Usually I'll give them two months to leave,” he said.
Another licensed auctioneer Mohamed Nizam Mohd Sharif said business had been picking up with many good bargains. He said most Singaporeans would go for bungalows in Seremban and Malacca. “There is a kampung land in Rembau that was offered for auction at a reserve price of RM102,000 but was finally sold for RM170,000,” he said.
The residential sector is still performing well, said licensed auctioneer R.S. Maniam. He said many of the residential units that were offered for auction were below the original purchase price. However, he reckons that a seller must be patient as it usually took a second or third auction to push off the property.
He said about 95% of the units put up for auction could not be sold during the first auction when tagged at the market value. Only about 5% of the units that are considered good can be disposed off. During the third round about 60% of the units would have been sold when the prices are down by 20%. He said prices of some apartments and condominiums had dropped by about 20% below their purchase price because of a glut in certain areas.
Gone are the days when real estate auctions were merely “cheap sales” of repossessed properties. More and more people are finding auctions an effective means of disposing off their property although during bad times it may still be better to use a real estate agent to do it. The seller will have to bear the costs of each auction be it successful or not unlike a sale by a real estate agent where you only pay a commission upon the sale of the property.