What are Property Auctions?

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39053224 - auctioneer knocking down a property sale holding a model house as he raises his gavel, or a lawyer or judge mediating in a property dispute in court

There are two known options to buying property; from the open market or from the developer. But there is actually, a third, lesser known option.

The property auction.

At any given time, an auction is host to about a hundred people or so. Not all are there to score a new property at a record price. Some prospectors attend the auction as a way to get a feel of the market while others are agents and bankers who use it to introduce the auctioned properties to their clients.

Why are properties put on auction?

Properties auctioned typically are of a mortgagee’s sale which means, it is put up by the bank that has come in possession of a home for a number of reasons. If the home loan was defaulted or if the once owner had taken up a second mortgage to support a business that ultimately failed, then the bank has the legal right to take the asset for their own.

Other reasons include divorce, either by design of the separating couple or by decree of the court.

Property auctions can be discovered by joining banks and agency's mailing lists

Property auctions can be discovered by joining banks and agency's mailing lists

Not all properties on auction are a result of these two however. Some sellers may choose to place their property up on auction in an effort to diversify their sales channels. As successful bidders must pay a deposit of five to 10% (usually by cheque) on the day, some sellers may appreciate the extra cash and the certainty a higher deposit demand brings.

If the bidder is unable to commit to the completion of the sale, which usually takes 10 to 12 weeks, then the deposit is forfeited. Therefore, buyers are advised to acquire an in-principle approval from a bank or mortgage broker before they attend the auction to avoid such a situation.

Are prices lower at auctions?

Statistically, only one or two properties are sold during the auction with the rest of the deals made in private after the auction, with further negotiations. It is certainly possible to score a property at a lower rate at an auction, however this is subjective.

For example, the bank in charge of an asset cannot price it however they see fit. The final price will take in consideration the excess amount owed prior to repossession, not simply the bank’s interest.

Yet, there have been buyers who managed to secure properties at significantly less than the advertised price. There won’t be any purchases where the valuation is cut by half, but SGD100K or so is possible.

Property auctions are a good way to get a feel of the marketProperty auctions are a good way to get a feel of the market

Property auctions are a good way to get a feel of the market

A good rule of thumb is to expect around five to 10% discount for units priced over SGD3M and slightly higher for units priced over SGD5M.

Are auctions suitable for you?

Unless there is reason to quickly offload your property as in the case of a divorce, a property auction should be used in conjunction with the other common methods. Depending on the market, the auction may favor the seller or buyer and rarely does a bidding war occur. Most buyers prefer to wait in the wings until after the bidding is done, to approach the seller directly for fear of tipping their hand to other on the fence buyers.

So the auction is a great way to gain more interested parties, especially parties with the financial ability to commit to a sale but it bears more fruit when used together with conventional buying or selling via agents and PropertyGuru.

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