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Public need not fear this alternative mode of buying and selling
FOR the longest time, properties on auction have been associated with unfair terms like inauspicious, cheap bargains or foreclosures. These stigmas are what deter most people from buying from the auction market.
“People sometimes think that auction is a bad word,” said Savills (Malaysia) managing director Datuk Sr Paul Khong.
In Malaysia, an auction property is synonymously associated with the owner being in financial distress.But in many other countries, that is not the case and the auction process is merely a common mode of sale.
“In fact, they prefer the auction because the bidding process can be exciting and result in the successful bidder securing a better price especially if the property for sale is a good piece,” said Khong.
“Case in point, I attended a public auction for an endlot shop-office in Damansara Heights. The reserve price started at RM2.4mil but because the property was in a great location, it was finally sold for just below RM5mil. It seemed like almost everyone in KL turned up to make a bid.
“The owner got a good price, but it is not always the case with every auction. As in any sale, it depends on the product, location and the actual demand for it,” he explained.
During an auction, a property will be priced based on its market value, which is called the reserve price (Section 257 (1)(d) of the National Land Code 1965 (NLC). If no bid is offered, the property will not be sold and the next round of auction will be held.
Most of the other pertinent procedures of the auction are spelt out in Part 16 of Chapter 3 in the NLC (Sections 253 to 277).
“Sometimes these auctions may even be held up to five or six rounds due to the lack of bidders and its reserve price will probably be revised downwards accordingly till the actual buyer comes along,” said Khong.
Let’s say you want to sell a RM1.3mil terrace house in Bandar Utama and if you are bothered by the stigma surrounding auctions, you can opt to sell your house through a real estate agent.
Buying through an auction
Another stigma associated with an auction is that after winning the bid, you have to pay in full within a short period.
“Before you buy any auction property, there are three things buyers should consider,” said Tom Low Chee Hian, business director of Ng Chan Mau & Co Sdn Bhd.
“First, they have to decide on the property itself. Do I accept the condition of the property? Do I want to buy it? Second, financing. Do you have the 10% deposit? Will you be able to pay the balance afterwards? Third, prepare yourself to bid during the auction.”
Depending on the bank behind the auction, the given period to settle the 90% balance price is usually between 90 and 120 days. However, buyers can request to extend the period by writing to the bank. Approval will be at the bank’s discretion.
Said Low: “So far, not many of our buyers have problems paying the balance. Before you buy an auction property, you need to prepare for it by looking into your eligibility for a loan, whether your CCRIS is looking good, among others.
“It will ease the process of getting your auction property,” he added.
Applying for a loan for the auction property is no different from other home loans.
“After winining the bid, you will sign a contract that is considered the sale and purchase agreement (SPA). Then you can go to the bank to apply for a home loan without having to consult a lawyer for the usual SPA,” explained Low.
Enter the fairer online auction
Ng Chan Mau became the first company to offer online bidding when it launched its first hybrid auction last December.
“We were inspired by the High Court e-lelong, and adjusted it to suit our customers’ needs,” said Low.
“We still have bidders who prefer the conventional way where they go to the auction hall to register and pay the 10% deposit for the paddle to bid.
“We came up with a hybrid auction because of the young or tech-savvy bidders who prefer to do things online. They can join the same auction event through online bidding.
Low reckons the process is more transparent with online bidding.
“By digitising the process, the auction becomes fairer to all participants. During a hybrid auction, we set a specific time for the three calls for auction.
Both the on-site and online bidder will have an equal chance to make a bid at the same time.
“If you have been to a conventional auction, you will know that some manipulation might occur between bidders and auctioneers. Let’s say you are my friend and I, as the auctioneer, wanted to help you. I might elongate the call to help you win the bid,” he added.
Online auction is slowly being accepted by the masses. Low said that nowadays, bidders comprise roughly 50% online and 50% on-site.
“We introduced online bidding not because we wanted to follow the trend but because we wanted to improve people’s lives by making it more convenient,” he added.
Of the company’s existing registered online bidders, Low said they range in age from people in their 20s to a 68-year-old guy from Sabah. “Another good thing with online auction is that you can bid for properties nationwide from the comfort of your home.”
Changing the public view
While it is true that the auction is another mode of selling, the stigma surrounding auction properties is all too real.
“A foreclosure property is not necessarily a bad thing. It just means that the owner can no longer service the loan. It can happen to anyone; the property was bought as an investment but did not bring profit, and ended up being auctioned,” said Low.
“The good thing is buyers have a variety of options to shop for their property besides the usual new development or sub-sale property. And these properties may be sold below market value,” he pointed out.
An auction has its pros and cons. “Society needs to change its view about auction properties. Before shopping for property, do thorough research to better prepare yourself. The same goes for auction property,” Low added.