Apr 28, 2016

5 Things to Know Before Purchasing Real Estate at Auction

Purchasing property the traditional way often means a long process with many fees, a lot of legalese, and qualifications to meet.


This is why auction properties can be very attractive to buyers, whether as investments or for new homeowners. Although there's usually an expedited process and potential savings to be had, though, there are also downsides.

Trying to decide whether or not purchasing auction real estate is right for you should be based on your own needs as a buyer, as well as your expectations.

For example, the property you bid on may be currently occupied if it's been foreclosed on. You also have no opportunity to do an interior inspection. At the same time, you could end up with a beautiful property for a fraction of the market price.

The best way to figure out whether you want to go the route of an auction property to consult with a legal expert as well as plan out your finances and what will be required to secure a bid as well as a final purchase.

Here are five essential pieces of information to know as you enter the world of auction properties in Malaysia.

1. How to Find Property up for Auction

There are lots of reasons that real estate goes up for auction. Whether it's a home that's been foreclosed upon, or some other reason, you can often find the best prices for properties well below market price at auctions.

The best way to find these auctions is to use a real estate portal, specifically PropertyGuru Malaysia auction property to browse many listings at once.

It's not advisable to go into an auction without a plan, since it's easy to be overwhelmed by the options. You should start by considering what kind of property you want, when you'd like to buy it, and also handpick some real estate that will be coming up on the auction market in the future.

Browsing listings, just like any other auction, whether it's for artwork or seized property, is all a matter of narrowing down what it is you want. If you want to make a smart purchase, winging it isn't an option.

2. How Much You Can Expect to Save

There's a huge difference between the market value of a property and what you can expect to pay at auction.

This partially because the process itself is so different and there are additional risks, but also due to the factors that contribute to your potential success of finding a good investment.

According to LoanStreet.com, buyers who purchase auction property can expect to save up to 20 percent from the market price.

Going for real estate at market prices may run the risk of paying too much for property at any given time, and even potentially missing out on periods when things like mortgage rates are prime for buyers or special incentives are offered if you meet the right qualifications.

On the other hand, you can also inspect a property that you're buying at market rate much more easily than one at auction. Nonetheless, the potential savings on a property is enough that it can be worth the risk.

3. Potential Drawbacks and Risks

The biggest risk you face when bidding on a property is the current condition, since there's no way to verify or see it in person.

You may not be able to do an inspection of the property’s interior, and there’s no guarantee that it will be vacant even once you’re holding the title.

Finance experts at iMoney suggest that you make inspecting the exterior of the property a priority, since it’s better than nothing and may actually provide some big clues about whether or not bidding is worth your time.

In other words, take time out of your schedule to gather as much information as possible, even if you don't have the same insight into a property as you would if you were buying it at market rate.

Although you may not be able to examine bathroom fixtures or pipes in depth, you can find out whether the property has current occupants.

Gaining an order to evict can be a long, arduous process and puts you in an inconvenient, stressful position from the moment you gain ownership of a property. Therefore, if it can be avoided, then do so.

By browsing listings of auction properties, choosing a few in which you're interested before the auction goes live, and then going to investigate them in person, even if only from a distance, can be extremely helpful when it comes to making the most informed decision possible.

4. The Perks of Fast Tracking Purchases

One of the biggest perks to purchasing a property at auction is that it expedites the process of real estate investment or home ownership, and guarantees a locked in legal agreement once the transaction is finalized.

There’s also much quicker progression from the winning bid to achieving final ownership once the auction has ended, versus going through the process of all the legal forms and negotiations associated with a traditional property purchase.

Once again, it's a balancing act of what types of risks you face for speed and lower prices versus a longer, sometimes more secure process, necessary fees, and a higher purchase price.

However, if you're looking to buy quickly and right now, then auction properties are definitely the way to go.

5. Preparing Financial Essentials Before Bidding

Although bidding on a property at auction is much different from purchasing real estate on the market, you still need to make sure you have a few things on hand in order to guarantee your ability to bid in the first place. These are the requirements that keep auctioneers from wasting their time.

StreetDirectory.com advises that some of the following may be required in order to bid, and should be ready beforehand:
  • Bank letter, banker’s or cashier’s cheque
  • Deposit via cash, cashier’s cheque, or business cheque with bank’s letter of guarantee to be paid upon a successful sale

In other words, unlike signing for a mortgage with a deposit, purchasing a property at auction often requires a chunk of cash.

Although you may be scoring a lower price, this still is a little steep for some people, and you'll need to make sure it's in your budget.

The best thing to do whether you're looking at auction properties or regular market properties is to consult a real estate expert.

They are the ones who can advise you on the specific points of a particular property or auction in which you're interested, and guide you in the right direction.

Vying for an auction property obviously has its perks and drawbacks, but if you make the right moves at the right time, you could stand to save a lot of money.

The most important approach to purchasing property at auction is not to go in headfirst without a plan.

Bidders often get carried away because they see a photo of a property, and because it looks amazing, bid on it without doing their homework.

This is even worse when the bidder hasn't even looked at the listings beforehand, and just acts on the spur of a moment.

Although bidding in and winning an auction is much faster than buying real estate at market value, your actual though process and planning stages shouldn't go any faster than if you were planning to buy any other type of real estate.

With a little foresight, extra legwork, and preparation, though, you can end up saving a bundle when you strike the right bargain at a property auction.

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