By Viktor Chong
It is common for auction properties to be sold at below the market value, making it an incentive for house owners looking for affordable options. And with the current economic crisis brought about by the Covid-19 pandemic, more properties are predicted to populate the auction house. With the increased supply, better discount margins are expected.
However, this obvious benefit is also underlined by less conspicuous dangers. There is a reason why the auction market is dominated by seasoned players, as they are aware of the red flags to avoid. If you are new to the auction market, here are a few danger signs to watch out for:
1/ They don’t want to leave
You may be surprised to find out that the property you have successfully bidded for is still inhabited, either by tenants or the previous owner. Even worse, they do not want to vacate the premises, not without the execution of a lengthy legal procedure from your end.
Then there are those troublesome people who try to make a final statement by destroying household items or making your property inhabitable before packing their bags. Seasoned players in the auction market know to stay away from properties that are still occupied unless the discounts are good enough to warrant the hassles required to remove them.
2/ Hidden encumbrances
With auctions, it is possible to find properties floating about the market at a too-good-to-be-true discounted price. People who don’t perform their due diligence may buy into it, only to be rudely awakened by a hefty bill incurred by the previous owner.
This invisible cost becomes apparent when the maintenance fees and other accumulated charges over many years turn up on your grand total. Before going for the auction, it is prudent to visit the management office with a copy of the Proclamation of Sales to check up on the outstanding bills.
This could include utility bills like water and electricity if they are channelled through the management office. The foreknowledge allows you a better estimate of the true price of the property, and hence, the total amount of money you are willing to commit for the bid.
3/ Auction properties don’t age like wine
Unlike properties in the primary and secondary market, you are not allowed the privilege to view the interior of an auction property, although you can still access it from the outside. This can be a problem as defects are only apparent from the inside, making it hard for bidders to appraise its worth fully.
One way is to inquire if the property has been vacant, and for how long. Properties left empty for many years might require a major overhaul. The piping and electrical circuitry might be defective, not considering leakages and other related matters. All these possible defects will increase the amount of money you need to invest to bring the property back into shape. With auction properties, a certain degree of luck is required.
4) Bloody history
The idyllic facade of a home may hide tragedies, such as a murder case involving the previous occupants. Depending on your beliefs, you might not be inclined to live in a home that harbours such reputation. In fact, superstitious buyers and would-be tenants are more likely to steer clear away from haunted properties.
This attitude is bound to affect the economic value of your property, either for resale purposes or for rental generation. You can glean information regarding the history of the auction property by striking up a conversation with neighbours. Also, the auctioneer should know a thing or two about it, although they might be unwilling to divulge any unfavourable facts.