The auction option

Published: Nov 07, 2012, 08:40 IST | Hemal Ashar |

Some Frequently Asked Questions (FAQ) about buying a flat, up for auction

Do you think prospective home buyers in Mumbai would benefit looking at flat auctions as a possible option?
Auction is one of the best methods to buy a property. Buying property in a pre-foreclosure stage may offer the best bargains, but it is equally difficult. Renovations to the foreclosed property appreciate its value and your profit margins can be huge when selling them. If you are a risk taker, a foreclosure or even a short sale could be right for you.

How does a person know about flat auctions? Are they advertised?
Yes. Most of the auction deals are known through advertisements. However, banks also contact High Networth Individuals (HNI) through their data base who are potential buyers.

Watch out for the red lights: Expert Ameet Mehta explains the pros and cons and how one could buy property going under the hammer

Do banks usually have auctions of flats?
Bank-owned properties offer the safest deal for inexperienced foreclosure buyers. In most situations, a bank will be looking for a quick sale, and as such will offer many incentives and benefits to prospective buyers. Banks are one of the major sources as far as property sale through auctions are concerned.

If that is the case, does the bank employee have an advantage over others?
Not necessarily. This is so because auction flats are normally based on outright payments and rarely on loan-based formula.

Ameet Mehta

How does one bid for a flat? Will the auctioneer have a set price and people bid verbally or in writing or how do they bid?
There are generally four kinds of auction process;

The first type of auction is called a regular live auction.
In this type of auction, everyone gets a fair chance to look at the contents of what is on auction before bidding. Also, everyone gets a fair shot at getting a potentially profitable unit, because the bidding is done verbally, and you can try to outsmart and outbid the other bidders in the auction.

The second type of auction is called the blind auction.
In a blind auction, the details are sealed from view during the entire bidding process. The auctioneer will then ask for the bids, and whomsoever provides the highest bid gets the deal in their favour.
However there are three things that can happen when you win in a blind auction;
* You can genuinely profit.
* You can win marginally with some profits and then forward sell with some of your inputs for larger profit.
* You may end up with a completely junk or worthless product that cannot be sold to anyone any time soon.
* The risk of losing your money during blind auctions is real, so be extra careful if you find yourself in a blind auction. Ideally, don’t bid.

Now, the third type of auction is called a sealed auction.
This type of auction has lower risk compared to blind auctions, because you will be able to see the property before the bidding commences.
There will be no auctioneer present during a sealed auction - the manager takes over that role. After the property is presented to the bidders, the manager will ask for the sealed bids. The bids are placed in envelopes, and are given to the manager. When everyone has submitted their bids, the manager will then open each sealed bid and note the amount written on the bid. Since there was no live, verbal bidding involved, the person who risked the most for the property shall win the auction. Obviously the downside to this type of bidding is you would have to bid very high if you really want to win the bid, because that would be what others would be doing, too. In this situation, you have to trust your keen observational skills. If you think it contains potential future value that you can sell for a profit, bid high.

The fourth type of auction is called Reserve Auction.
Reserve auction is an auction where the item for sale may not be sold if the final bid is not high enough to satisfy the seller; that is, the seller reserves the right to accept or reject the highest bid. In these cases a set ‘reserve’ price known to the auctioneer, but not necessarily to the bidders, may have been set, below which the item may not be sold. The reserve price may be fixed or discretionary.

Can one expect fierce bidding?
Yes. There is normally fierce bidding at these auctions. In the first round, bids are only an indicator and bidders are required to match 80 per cent of the eligibility criterion; these will rise 90 per cent and 100 per cent in the coming days/weeks when the bidding will peak.

How many properties/flats are up for auction usually, is it one or more?
Ideally, more than one property would be up for auction since the auction process involves a lot of formalities. However if the value of property is very high, then only one flat/property would be on auction.

Can buyers expect prices to be cheaper at an auction? Or, would they be the same?
Yes. Most auctions are a combination of distress sale as well as unresolved problems on a property. Hence it is in the interest of banks/financial institutions/ Govt. Departments to dispose off the property at an optimum price.

What does one have to carry to an auction? Does one have to carry a cheque book and pay on the spot, if you win the bid? Do you have to pay a certain amount?
A refundable cautioned money of Rs. _____/- is taken from all the bidders who participate in the auction and earnest money of Rs. ______/- in respect of the property mentioned at ____ address, by the successful bidders has to be paid by way of Pay Order / Demand Draft in favour of the bank / institution / Govt Department at the time of auction.
Normally one has to provide all his/her details at the time when he or she wins the bid. Subsequently the bidder has to pay a particular amount. There is also an undertaking / Indemnity Bond that is normally taken

On your acceptance of my/our bid,

I/we agree/undertake to immediately collect the letter of acceptance from your office and to deposit the requisite amount at _____ on the day/time as indicated therein.

* I/We authorize you to debit my/our current account maintained with _________ the requisite amount.
* I/We have read the terms and conditions of bid for the auction to be held on the captioned date and undertake to abide by them.
* I/We have also submitted another bid(s)/not submitted any other bid (strike out which is not necessary) for the auction to be held on the captioned date.

What does one have to look out for when buying a flat on auction? Any particular traps or loopholes?
* Check prior ownership details.
* Understand the time frame in which payments have to be done to sellers/auctioneers in case you win the bid.
* Confirm that the property is free from litigation.
* Confirm if all relevant details are available.

In case of repairs to the flat, who bears the cost?
In auctions, the property is sold ‘As is where is’ basis. Hence, it is unlikely that the property will be handed over with repairs. In case the property is of a very high value, the repairs would be completed much before the auction process starts.

Are buyers allowed to see the flat that is going to go on auction?
Yes. Flat is a high value item and no one would invest without seeing the actual property. Most likely, a proper survey of property would be done prior to bidders bidding for the same.

Is there any criteria considered for shortlisting a buyer?
There is always a Qualification Criteria mentioned before an auction starts. Tenders of only those bidders who meet the criteria of the auctioneer would normally be considered.
a) A tender with complete particulars, in the recommended format.
b) Earnest Money Deposit as specified elsewhere in the document paid only through Demand Draft/Pay Order.
c) Eligibility regarding financial standing of the bidder. 

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