Going, going, gone...
Nov 06, 2009
You might have seen newspaper adverts calling for buyers to submit bids for a property that is up for sale by auction. Such advertisements are put up by auctioning firms. They are meant to recover money quickly by selling off the land or houses of a perso
By Titus Serunjogi
You might have seen newspaper adverts calling for buyers to submit bids for a property that is up for sale by auction. Such advertisements are put up by auctioning firms. They are meant to recover money quickly by selling off the land or houses of a person who has failed to pay a debt.
A home owner may fail to pay a loan he got from the bank or he bought the house on mortgage and failed to complete the payments or has a debt with a loan shark.
While repossession is a terrible experience for those who lose their property, it is a blessing for real estate investors who want to acquire property at giveaway prices.
“Houses sold by auction are first meant to recover the debt. As long as the highest bidder is able to raise the money demanded, he or she is given the property, regardless of how much it actually costs on the market. If the highest bidder far exceeds the debt, then the balance might be given to the owner, after all the legal fees are cleared,†says Moses Mubiru, an auctioneer with Grand Auctioneers.
Traditionally, home owners used to sell their properties through real estate agents. But buying and selling properties by public auction has become especially popular after the effects of the global financial crisis. Money shortage has ensured that more people fail to pay their debts and mortgages in time and banks and loan sharks have to repossess the properties.
Bankers and asset managers are also realising that there is little point putting repossessed properties in an estate agent’s window, because the zeal to buy on the open market has reduced greatly due to the global financial crisis, so they are increasingly looking to off-load through auction houses.
Mubiru explains that when a person fails to pay up his debts, court orders that he is either arrested or offers one of his properties for immediate sale. Many choose the latter.
The lawyer from the winning side chooses an auctioning firm, which in turn chooses a valuer to primarily estimate whether the property in question can raise the money to pay the debt. The auctioneers set a deadline for the sale and afterwards advertise the property in the newspapers.
The prospective buyers can submit bids by the set date. Often, however, interested buyers are invited to the auction house so that they can each lay stakes on the house. The highest bidder takes the property. During such a sale, the auctioneers themselves might start off the process with a ‘dummy’ bid. This is supposed to be the rock-bottom price that the house should go for (often also the money demanded by the bank or the loan shark). Interested buyers then begin to stake above that price, until the highest bidder silences all the others. The highest bidder is immediately required to pay a deposit on the property and then is legally bound to pay the rest of the money within a few days.
Besides the fact that you might buy the house at a giveaway price, another advantage of buying at the auction is the certainty. If your bid is successful, you exchange contracts on the day of the sale, effectively committing you to the purchase and completion within a set number of days.
The price cannot be changed and neither can the buyer delay to complete payment. The downside of buying at auction is that you have to be well-prepared financially. You must also meet a number of upfront costs that will not be reimbursed if you do not win the property bid.
Mubiru advises that to get the best out of an auction, a prospective buyer must research the market value of your property and the neighbourhood with the help of a surveyor.
Get a lawyer to verify the land title and a valuer to give you a price limit beyond which you should not go when bidding for the building. Before bidding, you must be sure of the source of the money.
You might also contact your bank to see whether you can qualify for a mortgage on the property if your bid is successful.
Go with your chequebook on the day of the auction, as you will be required to pay a deposit if your bid is successful.
You need to have paid a lawyer to guide you through all the legal paper work.
It also pays to have attended a previous auction, even without bidding, so that you can get familiar with the process.
As soon as you are declared the highest bidder, there is no turning back. You must pay about 10% deposit on the agreed price of the property there and then and set a time frame in which to pay the rest of the money. If you fail to do so, you can lose your deposit and the house as well.
You might have seen newspaper adverts calling for buyers to submit bids for a property that is up for sale by auction. Such advertisements are put up by auctioning firms. They are meant to recover money quickly by selling off the land or houses of a person who has failed to pay a debt.
A home owner may fail to pay a loan he got from the bank or he bought the house on mortgage and failed to complete the payments or has a debt with a loan shark.
While repossession is a terrible experience for those who lose their property, it is a blessing for real estate investors who want to acquire property at giveaway prices.
“Houses sold by auction are first meant to recover the debt. As long as the highest bidder is able to raise the money demanded, he or she is given the property, regardless of how much it actually costs on the market. If the highest bidder far exceeds the debt, then the balance might be given to the owner, after all the legal fees are cleared,†says Moses Mubiru, an auctioneer with Grand Auctioneers.
Traditionally, home owners used to sell their properties through real estate agents. But buying and selling properties by public auction has become especially popular after the effects of the global financial crisis. Money shortage has ensured that more people fail to pay their debts and mortgages in time and banks and loan sharks have to repossess the properties.
Bankers and asset managers are also realising that there is little point putting repossessed properties in an estate agent’s window, because the zeal to buy on the open market has reduced greatly due to the global financial crisis, so they are increasingly looking to off-load through auction houses.
Mubiru explains that when a person fails to pay up his debts, court orders that he is either arrested or offers one of his properties for immediate sale. Many choose the latter.
The lawyer from the winning side chooses an auctioning firm, which in turn chooses a valuer to primarily estimate whether the property in question can raise the money to pay the debt. The auctioneers set a deadline for the sale and afterwards advertise the property in the newspapers.
The prospective buyers can submit bids by the set date. Often, however, interested buyers are invited to the auction house so that they can each lay stakes on the house. The highest bidder takes the property. During such a sale, the auctioneers themselves might start off the process with a ‘dummy’ bid. This is supposed to be the rock-bottom price that the house should go for (often also the money demanded by the bank or the loan shark). Interested buyers then begin to stake above that price, until the highest bidder silences all the others. The highest bidder is immediately required to pay a deposit on the property and then is legally bound to pay the rest of the money within a few days.
Besides the fact that you might buy the house at a giveaway price, another advantage of buying at the auction is the certainty. If your bid is successful, you exchange contracts on the day of the sale, effectively committing you to the purchase and completion within a set number of days.
The price cannot be changed and neither can the buyer delay to complete payment. The downside of buying at auction is that you have to be well-prepared financially. You must also meet a number of upfront costs that will not be reimbursed if you do not win the property bid.
Mubiru advises that to get the best out of an auction, a prospective buyer must research the market value of your property and the neighbourhood with the help of a surveyor.
Get a lawyer to verify the land title and a valuer to give you a price limit beyond which you should not go when bidding for the building. Before bidding, you must be sure of the source of the money.
You might also contact your bank to see whether you can qualify for a mortgage on the property if your bid is successful.
Go with your chequebook on the day of the auction, as you will be required to pay a deposit if your bid is successful.
You need to have paid a lawyer to guide you through all the legal paper work.
It also pays to have attended a previous auction, even without bidding, so that you can get familiar with the process.
As soon as you are declared the highest bidder, there is no turning back. You must pay about 10% deposit on the agreed price of the property there and then and set a time frame in which to pay the rest of the money. If you fail to do so, you can lose your deposit and the house as well.