One of the many options you can consider when buying a home is through an auction. It is basically buying a property by bidding and the highest bidder wins the deal. In most cases, buying your property from auctions can mean cheaper options too.
Why houses are auctioned?
You must first understand why are homes being auctioned. Like cars and vehicles, houses would end up at an auction because the owner could not fulfill their financial obligations. This could be due to several reasons and not just from the mortgage loan. A person who failed to pay for certain types of tax or other loans could have their homes repossessed and auctioned too. Auctioning the property would only help them to pay off whatever debts that they still owed and any outstanding amount would still need to be honored.
This means that the price of the property could be cheaper as compared to buying a totally new one from the developer or another homeowner. That said, it is crucial to know what you are getting into if you buy any property from an auction. So, before you get into a property auction, consider the following:
Have enough money
You should make sure that you have enough funds to buy the property. Properties are auctioned through LACA (Loan Agreement Cum Assignment) and non-LACA formats. The former is done by banks on properties that do not have a strata title while the latter is by the court for those with one. For LACA properties a 5% deposit is required and 10% for non-LACA properties based on the reserved price. If you are successful in your bid, you need to settle it within 90 days and 120 days among the 2. If you fail to do so, your deposit could be forfeited.
Choice of investment
You should seriously consider all the factors before making this investment, meaning you should do your homework and research. Make sure that you are making a sound investment by looking at the location, developments and other factors. Just because it is cheaper does not mean you should just buy any property. Even if it is a lower price as compared to other properties, you wouldn’t want to get into a commitment that can be damaging to your financial health.
Dealing with people
There are situations where the property might not be vacant at the time of the auction. One of the main reasons why the property is being auctioned is that the tenants are unable to make the loan payments. But since the property is still under their ownership, they do not need to vacate. Malaysian law states that only the legal owner of the property could evict occupants of a property. Such a situation can be tricky and it might take some time before you actually ‘take over’ the place.
Utility bills and other outstanding payments
You might not know what you are getting into when you buy an auctioned property. There could be outstanding electricity or maintenance bills that the former tenant failed to pay as well. In many cases, the new owner bought over the property only to discover that they cannot have a new TNB account because the previous one had a huge outstanding amount that has yet to be settled. You can check this before deciding to buy a property a the auction.