One man’s bitter experience
Valayutham Subramaniam, 33, had not expected the complications he found himself facing when he bought his apartment at a private auction house. He was told, prior to the auction, by the auctioneer, that the balance on services charges, assessment rates, utility bills and other maintenance charges would be settled by the bank.
When he won the bid, (more than RM80,000) for the property, located in Penang’s Solok Free School
Little did he know that the page was an attachment to the last of the proclamation of sale (PoS) that was delivered to him three weeks later. He hadn’t seen that document before the auction, so when he received it, he found out that it did not say that the bank would absorb the unpaid balance. The charges came up to RM17,000 and the auctioneer then told him that the bank would settle up to RM10,000, leaving him to pay the balance.
There were delays in obtaining the title, leading to an additional 5% interest charge after the stipulated 90-day period to complete the sale ended. He also found that there were people (who called themselces tenants) living in the apartment, and they were refusing to leave.
He had spent about RM20,000 in legal fees, in addition to paying rental for his existing home and monthly loan instalments of about RM500 per month [on the apartment].
Auctions are one way to obtain properties at a bargain price. As the majority of the properties put up for auction are usually distressed (properties that are foreclosed by the bank), there are many terms and conditions attached to them. Here are the potential traps of buying property at auctions and tips on how you can navigate your way to a wise purchase.
1. ‘AS IS WHERE IS’ BASIS
The terms and conditions state that all auctioned properties would be sold on an “as is where is” basis. Thus, you could either find yourself bidding for a renovated and furnished home or a rundown, termite-infested shack. To avoid unpleasant surprises, always check out the property beforehand.
Interested buyers should always check the surrounding areas of the property. However, it may not be as easy to check the interior since you will need to get permission from the current owner and that is virtually impossible. However, it would be good if you could go in the day, and night, four or five times to check the surrounding areas. In order to try and gauge the damage, ask the neighbours about the character of the previous owner. If you are fortunate, a neighbour would offer to let you view his apartment which could have similar layout to the actual property. (One lucky bidder discovered that the property that he wanted to bid was a good choice as the previous owner had never moved into the apartment [the owner had never reistered the title], thus it was easy for him to get it transferred to him.
2. NO GUARANTEE OF VACANT POSSESSION
It is usually stated in the PoS that there is no guarantee that the property would be empty at the point of auction. If the property turns out to be occupied, the bank would not be obligated to give vacant possession of the property and it will be up to you to evict the occupants.
There are four scenarios that could occur with an auctioned property. The first is that it’s empty but accessible, so prospective bidders are free to go in to take a look. The second is that it’s empty and inaccessible, so bidders will only able to view it from the outside. Third, the property is occupied but accessible, that is, it could be tenanted. Bidders should ask the tenants whether they are aware that the property is being put up for auction, and whether it would be all right for them to take a look inside. The fourth scenario is that it’s occupied and inaccessible – the people living there could be downright hostile, You should forget about buying the property as it would be very difficult, it not impossible, to get them to move out.
3. CHARGES AND FEES
A property that is being auctioned off would have been the subject of a legal process by the bank due to the owner’s repeated defaults in payment. During that period, costs such as monthly maintenance, quit rent and assessment fees and utility bills would have piled up. If bank choose to absorb the charges, they would only do so for maintenance, quit rent and assessment up to the auction date. Utilitily bills such as water, electricity and Indah Water have to be paid by the buyer.
Bank could also choose to pass it on to the winning bidder. Charges can be very hefty, especially when it comes to monthly service cares for condominiums or apartments. Therefore, read the PoS to find out who will pay the arrears.
Bidders should allocate sufficient funds to accomommodate the extra costs by bidding for rthe property below its market value. It would be better if you bid only if it was a minimum 20% to 30% below the market price. The property’s value generally drops 10% each time it’s put up for auction. Ask the auctioneer how many times it has been on auction. For example, if you know the property was worth RM200,000 in the market, stop your bid at RM150,000 so that with the extra costs thrown in, you would still have paid on par with the market value.
If you are interested in an apartment, visit the management office to gauge the costs better. Usually, they would be willing to provide information such as the maintenance charges outstanding as they would be happy that someone is interested in absorbing the costs.
4. SYNDICATES
Syndicates usually surface during auction, either to make a quick profit from serious bidders or distract buyers from bidding. Usually working in groups, these individuals approach bidders, offering to back down on their bids in return for monetary gains. Other syndicates are interested in purchasing the property but resort to tactics such as distracting other bidders.
These syndicates usually work at public auction held in the High Courts or at the land office. The syndicates would generally ‘work’ during bids for properties in hot locations and their jon there is to make overenthusiastic bidders suffer by outbidding them, especially if the latter have not given them monetary gifts. These syndicates are not illegal. Just ignore them. If you don’t talk to them, they can’t distract you. Don’t get too emotional when placing your bids. Set your budget before the auction and don’t budge from it.
5. DO YOUR HOMEWORK
As with buying properties through other means, you should do a lot of background checks before making a bid for any property. Although one could get good deals at property auctions, good things don’t come easy. Do your homework first. Because there are so many traps a,lng the way, first time homebuyers should not purchase a property at auction. Auctions are for seasoned homebuyers. First timers still have many gaps in their knowledge and with so many things that can go wrong, it could turn out to be a disaster.
OTHER PRECAUTIONARY MEASURES
1. To find out whether any caveats or restrictions on the property (for example, reserved for bumiputera), do a title search at the land office. If there is a caveat (legal claim by third parties) on the property, it may not be sold without the consent of these parties.
2. Examine the conditions of sale in the PoS as well as the valuation report, which will reveal the market value of the property. The PoS will also reveal restriction in interest, if any. For example, it it were a low-cost house, you would have to get consent from the relevant Lembaga Perumahan before you can complete the sale transaction,. Also stated would be the deposit required at the point of the bid.
3. It is impotant to note the bidding prices increases every time there is an outbid. Usually, it goes up by an RM1,000 each time. However, it can be RM10,000 or RM100,000 per bid. Listen carefully to the auctioneer before the start (of the auction). Otherwise you might find yourself paying through your nose.
4. Most buyers are given 90 to 120 days to settle their sale and purchase prosess. Engage a lawyer and apply for a loan to complete the transaction process as soon as possible.
(Source: Personal Money)
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