Buying property at an auction

Ng Chan Mau & Co Sdn Bhd

AUCTION properties are usually auctioned off at a very attractive price. Readers will notice that the phrase used is “auctioned off” and not “sold”.

Is there a difference? Yes, there is.

Auction is a process where you need to bid and at the fall of the gavel, the auction is concluded. The auctioneer through the bidding process determines who wins the bid. The owner has no part to play in an auction.

However, in a normal sale, the owner has absolute control to sell his property to whoever and at the price of his liking. For auctions, buyers decide the fair value of the property that they are bidding for. At times, with a bit of luck, buyers may get to buy the properties of their dream at far below the prevailing market value.

This is only one of the differences that exists in these transactions. Those who assume that bidding for an auction property is the same as purchasing a property from an owner will be mistaken. In auctions, a buyer is exposed to risks that could end up in losses, stress or even anger (consequences caused by misunderstanding, misinformation and lack of knowledge).

Here are five useful tips when buying an auction property:

1. Proclamation of sale

Unlike the usual sale and purchase agreement, the most important document in an auction transaction is the proclamation of sale. The contents of the proclamation of sale are the terms and conditions for the auction.

You can request it from the auctioneer or from the legal firm acting for the auctioning bank whose name is mentioned in the proclamation. But it must be emphasised that the said legal firm does not represent you. You need to appoint your own lawyer if advice is needed.

Reading the proclamation of sale is vital. The usual provisions you may be familiar with in a normal sale agreement may not be the same here. For example, outgoings of the property (such as payment for outstanding maintenance fees, quit rent or assessments) may not necessarily be an obligation of the auctioning bank to pay. In an auction, the winning bidder may have to start paying for any outgoings from the time of winning the bid or he may even have to pay the arrears. It can be substantial. By contrast, in a private sale, the purchaser commonly only commences to pay the outgoings from the completion of the purchase.

2. Cash or loan

Before bidding, the buyer should decide whether he is buying the property with ready cash or with a loan. This is important as the proclamation of sale normally states that after the bidding, the balance of the monies as per the bid needs to be paid within a certain period, which is usually 90 or 120 days.

Those who have attempted to enter into bidding without first taking proper advice regarding the loans have ended up losing their deposits.

It is important to bear in mind that one would need about one month to get the loan approved and approximately three months for the bank to release the balance of the loan. This timing is extremely tight and one would need to monitor it closely.

3. So how do successful bidders manage it?

The team needs to work together. Generally, in a team, you need a leader. It is advisable that the leader would be the lawyer who is representing you in this transaction.

There are a few questions that you need answers from your lawyer before going up against experienced bidders:

> How much money do you need to prepare for the transaction? He may not be able to give you an exact amount but can give you an estimation. It could help you to sort out your financials to meet the goal.

> When do you need to pay the monies? Auction transactions are time-sensitive, so you must always be mindful of the timeline to make the required payments.

> How can you help to make the transaction smoother? Remember you are one of the team members in making this transaction a success.

4. Managing risks

Managing risks is vital in bidding for an auction property. It is best that you understand the whole process. You need to ascertain:

> whether the property is occupied or vacant;

> whether the occupant is a tenant or the owner;

> whether there is an encumbrance including a private caveat affecting the title;

> any outstanding maintenance fees, quit rent, assessments, or charges for electricity, water, waste or sewerage services;

> whether the property title has been issued;

> where the property title has not been issued, whether the developer is still around or has been wound up;

> whether you need to apply for state authority’s consent to have the property transferred to you; and

> the condition of the property, whether you need to cough up more cash for renovation and repair works.

5. Have a Plan B

It is advisable to always have a Plan B. The Plan B is to have your own funds to pay any amount of money due if the loan cannot not be released on time.

In a nutshell, it is pertinent to manage risks and risks should not be a hindrance for one to achieve his goal of possibly purchasing a dream home at a lower price.

You should equip yourself with the necessary knowledge to mitigate such risks in order to enjoy good bargains from the auction market.

Zemilah Mohd Noor, a lawyer practising at Messrs EzriLaw Firm, Penang, is a member of the Conveyancing Practice Committee, Bar Council, Malaysia. This column is brought to you by the Malaysian Bar Council for your information only. It does not constitute legal advice.