How to Conduct Yourself in Property Auctions
Have you been wondering what goes on before, during and after a property auction?
How to behave and what to look out for?
Let’s have a look and run it through.
In recent years, there are an increase of mortgagee sale on the back of a global economic slowdown and the tight leasing market challenges. There were 243 units (68% residential) of them in 2016, putting them at a five-year record high and it could be the year of mortgagee sale in 2017 as more listings were being projected.
So what is a mortgagee sale? It occurs when the owner(s) of the said property is no longer able to service their mortgage. Therefore, the “creditor” which is the bank that provides the loan to the home owner(s) will step in to repossess the said property. They will then put it up for auction, hoping to “recoup” as much as possible after a valuation.
Types of property going under the hammer
There are a few auction houses in Singapore such as Knight Frank, Jones Lang LaSalle and Colliers International. They do auction off all types of assets, including residence, commercial/industrial as well as development sites. However, there will always be certain assets which is highly favoured by potential investors and they are (non-exhaustive):
- Rare properties/buildings under conservation
- Properties/in area with future development potential
- Prime real estate/land in excellent locale
And now you’ve made up your mind and ready to sit in for an auction, loan approved and cheque on hand. Nice! but before you raised your hand in bidding, please exercise due-diligence to avoid any potential pitfalls. Some may appear to be too good to be true and it probably is.
What are the signs to look out for?
Viewing of your Targeted Properties
Make time for viewing of your preferred properties, usually 1 to 2 weeks before the big day. Sellers would want to make a big and nice impression of it to attract potential bidders. If viewing is not available or on a short notice, it sets off the alarm. Would you want to take the risk blindly?
What is the Master Plan?
If you’re not familiar with the area, check it out and see the future for yourself! It is always a good practice to look into it.
General Discounts from Valuation
As a rule of thumb, there will most likely be a 5% to 10% price difference from the valuation in general for assets priced up to $3 million and a bigger % for higher priced assets. Keep calculating during bidding before you’re paying more than you should.
If You’re In The Know
Only for the seasoned old birds! or else please refrain from bidding for abandoned landed assets. Most often than not, purchasers are not keen on the property but the land itself. They have the knowledge, know-hows and higher accuracy of the cost estimation for reconstruction. Never underestimate the cost if you’re not experienced in this.
Your Preferred Property Pulled Off From Auction
And you’re feeling upset. Well, if you leave when the auction ends, it most probably ends there leaving you high and dry. But the bidding goes on aggressively behind when other bidders engages the seller privately as the reserve price were not met earlier on. You may keep trying to negotiate for a win-win transaction and this is what most of them are doing.
Who Else Are Selling Indirectly?
When you’re there, look around and network with the attendees. They are people like yourself or maybe real estate salesperson and they might just have the perfect property for you instead.
Keep your options open and do not be afraid to walk away.
Any buyer’s remorse may last many years down the road and I’m sure you wouldn’t like it…