How do property auctions work?
A property auction is an open market process built on the principle of competitive bidding. That means rival bidders offer increasing sale prices in order to purchase a piece of property.
Simply put, it’s one of the mechanisms used to legally release the right of ownership from one party to another, carried out by a registered property auction house.
Of course it’s not always like in the movies, where auctions take place in some grand place, while mysterious bidders frantically wave their hands. It’s a big business in Malaysia today!
There can be several reasons why a property may be auctioned off, but in many cases it’s down to a previous owner being unable to meet home loan payments.
In that situation, the owner defaults, and the bank takes possession of the property for auctioning off to a new buyer.
What are the types of property auctions in Malaysia?
In Malaysia, there are two kinds of property auctions for foreclosed properties:
- Loan Agreement Cum Assignment (LACA) auctions
- Non-Loan Agreement Cum Assignment (non-LACA) auctions
Let’s take a closer look at each of them:
1) What is a Loan Agreement Cum Assignment (LACA) auction?
These property auctions are performed by banks for properties without an individual or strata title.
For LACA auctions, the deposit you’re required to submit to the auctioneer is usually 5% of the property price, with the balance purchase price due for payment within 90 days.
Fun trivia: In Johor Bahru, a subsequent auction could be held as soon as a month later, if there are no successful bidders for the LACA property in the initial auction.
For this subsequent auction, the reserve price will be 10% lower than the previous price.
Reserve price refers to the minimum price accepted by the seller at the auction.
2) What is a Non-Loan Agreement Cum Assignment (non-LACA) auction?
Non-LACA properties are sold through High Court property auctions for homes that come with an individual or strata title.
In instances where there are no successful bidders for a non-LACA property, a follow-up auction could be held about six months later.
Similar to LACA auctions, the reserve price for the subsequent property auction will be 10% lower than the previous price.
Unlike LACA auctions, non-LACA auctions allow the balance purchase price to be settled within the next 120 days.Discover properties for sale
5 Steps To Take Before Joining A Property Auction
Without a good grasp of how property auctions work and what you should do, you could end up bidding your way towards disaster!
Here are 5 useful things you can do before participating in a property auction.
1) Explore the property
Do your homework on the location of the auction property to find out how feasible it would be if you were to own it.
Properties in locations such as Mont Kiara, Kota Damansara, Cheras, and Seri Kembangan have the benefit of mature and established neighbourhoods to live in.
Once you’ve identified the location of your property, you can then compare it to similar properties in the area to understand how competitive the auction price is, and at what point you should stop bidding.
Checking whether the property is freehold or leasehold is also key. It’s always worth remembering that leasehold vs freehold is an important question when it comes to property.
2) Enquire with the developer and land office
Next, check with the developer and land office on the auctioned property. Take note of important details such as:
- Property lot number
- Title status
- Auction reservation price
You’ll also need to obtain the Proclamation of Sale (POS). Experienced auction types will also take the chance to look into the developer here.
You don’t want to be stung by late discovery that the developer is bankrupt, or just generally has a reputation for being difficult to deal with.
3) Inspect the property and the general locality
You can’t beat a good look around! If you’re tempted to bid on a particular property, it would be good to go and explore the building and general surroundings before you bid away your life savings.
The picture of a front door might look nice, but it doesn’t mean they’re going to tell you it’s right under KLIA’s busiest flight path.
Perform a thorough inspection so you know what you might be getting. Also, don’t forget to get a copy of the Sales Declaration, which will contain important information on the auction property.Discover properties for sale
4) Seek the assistance of a lawyer
A lawyer will come in useful, especially for informing matters such as assessment tax and quit rent.
He or she could also help with reviewing outstanding maintenance payments with the property’s developer, as well as terms and conditions contained in the POS.
Lawyers should also look out for the complications of a ‘caveat’. This is a temporary clause that sometimes applies to a SPA.
It sets out a form of protection for a third-party in the sale of a property. That means no simple transfer of ownership, and no chance of getting a home loan.
This is something an experienced auction professional should know to look out for, and definitely something a lawyer should be wise to check on.
5) Prepare for the property auction
It’s all about the money, money, money. Well not all, but it’s certainly important that you prepare the required deposit for your chosen auction property, as well as proof you’ve got it.
When you enter the auction, you’re required to present the bank draft as well as your identity card.
These are the two most important things to bring to the property auction! Experienced auction-lovers will know this off by heart, but it’s a common mistake made by beginners.
What happens at a property auction?
In general, there are two types of property auctions; those held in a physical venue and the ones conducted online.
1a) Property auctions at a physical venue
You’ll need to register for the auction by providing your personal details and submitting the deposit to the auctioneer. You could provide the deposit through a bank transfer, or through a bank draft.
If payment is made in the form of a bank draft, you’ll need to use Pos Laju, or submit it by hand within a certain number of working days. If you’re unable to make it for the auction, your real estate agent can represent you.
1b) Online property auctions
For online property auctions, you’ll need to first sign up on the e-auction portal. Once this has been approved, you’ll be able to browse property listings.
You can also take a look at other elements relevant to the property auction, such as:
- Reserve price
- Property type
- Property tenure
- Built-up or land size
If you find a property that you are keen to bid on, you’ll have to register as a bidder, then pay the relevant deposit.
2) Auction commencement
Remember: The early bird gets the worm! Make sure you arrive at the auction hall early, and that you bring along what is required.
If you’re taking part in an online auction, be present in the bidding portal at least 10 to 15 minutes before the bidding starts.
When bidding for your desired property, it is always wise to stick within the budget you set for yourself. While it may be easy to get carried away, you should avoid putting up a price bid which you may regret later on.
It might seem exciting right now, but you do need to hand over the money afterwards!
In the case of physical auctions, if your bid was successful, you’ll be called up to make the deposit payment and to sign the POS document. Once the document is stamped, you’ll then be provided with the original copy.
In the case of online auctions, you’ll need to sign the Contract of Sale and pay the remaining deposit (if any) through an online bank transfer, Pos Laju, or by hand by a certain working day.
5) Pay the balance purchase price
Finally, the remaining balance for your successful bid price will need to paid within 90 to 120 days from the date of the auction.
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