While there are various benefits of buying property at auction, with the most obvious being much lower prices, purchasing an auctioned property can come with risks.

If you are considering purchasing an auction property, here is a list of things you need to be aware of. Buying a house is most often a once-in-a-lifetime financial decision. Here are 4 items you need to cross off your checklist when buying an auctioned property:

Check the property

When it comes to auctioned properties, one of the disadvantages is that as a bidder, you won’t get a chance to view the interior of the property. Therefore, bidders won’t really know what the condition of the house is when they are making their bid making this a pretty risky investment.

Did you know, a man bought an auctioned condominium at Mont Kiara only to find a body that had been chopped into 11 pieces stuffed inside the unit’s fridge?

It is always important to do as much research as possible on the property. Even if you don’t have access to the interior of the property there are other factors to look at. For example, the picture of the auctioned property may look acceptable, however, you can’t tell if it is located at a busy T-junction or next to a sewerage plant.

Caveat

A caveat is a temporary measure to protect the rights of the land. A private caveat serves as a purpose of protecting an individual’s rights under the sale and purchase agreement temporarily, in anticipation of legal proceedings that he lodges the private caveat. So a private caveat will cause a hindrance as it will prevent any dealings from registering to even change of ownership while the private caveat is in force.

Auction properties have a risk of having a private caveat. If an auctioned property does have a private caveat, even if you win the bid and pay the full amount, you will still have to challenge the third party (who submitted the caveat) for the property. This is because a private caveat may only be removed:

• by the caveator (a person who files or enters a caveat)
• by the Registrar
• by an order of the court

Application for the removal by court order could be done by any person aggrieved by the existence of the private caveat. In this case, the person who won the bid on the auctioned house which had a private caveat.

An auctioned property with a private caveat will also mean you will not be able to get a home loan. This is because no bank will approve a loan if there is a private caveat on the property. Therefore, unless you can afford to pay in cash, it is advisable to not proceed to bid for a caveated auction property.

But do take note that, even if you win the bid and have the money to pay for it in cash, you will also have to go to court to challenge the third-party to remove the caveat, which can be a long procedure and incur additional costs as a result of the legal fees charged.

Before proceeding to bid for an auctioned property, it is advisable to get the proclamation of sale (POS), and also to do a title search of the property. You can request this from the auction agent. Doing so will give a bidder useful information such as the address, and if there are any restrictions such as a caveat on the property. Having the address means you can check out the surrounding location of the house, even if you can’t see the interior at least you will know what the location is like.

Developer

It is important for those who plan to purchase an auctioned house to do a background check on the developer of the property. If the property’s title is still under the developer’s name, a bidder should first check if the developer is still an existing company. Remember, the terms and conditions in an auction contract always protect the bank. If the developer is bankrupt and the company has been liquidated, then transferring the title to you after you have won the bid will be a hassle.

Type of tenure: is it leasehold or freehold?

Finally, do some homework to find out the type of tenure for the auctioned property, whether it is leasehold or freehold. If it is leasehold, you will need to check with a bank to make sure you can get a loan. If the number of years remaining on the lease for the leasehold property is less than 50 years, some banks might not give you a loan. Or if a bank does approve a loan, instead of a 30-year loan, you might get a 25-year loan.

Did you know, that when a property is auctioned off, the bank only takes the amount owed to it, and the rest goes to the defaulter? For those who have been unfortunate and will have their home auctioned off, do know that any extra money will be given back.

For example, a bank auctions Ahmad’s house for RM1.4mil. However, his default loan amount to the bank was only RM300,000. As such, after his house has been auctioned, Ahmad will get RM1.1mil, as the bank will only take the outstanding amount owed, which was RM300,000.

Buying a property, whether it is brand new, sub-sale or even an auctioned property will involve risks Read our other articles on purchasing the property so you can make a better-informed decision before taking that big financial leap.

Please note, the material available is general information only, and is subject to change without notice. The information held within this website should not be relied on as a substitute for legal, financial, real estate or other expert advice. Elelong Services disclaims all liability, responsibility and negligence for direct and indirect loss or damage suffered by any person arising from the use of information presented on this website or material that arises from it.