Most people are familiar with buying properties from a property developer or a property owner whether directly or through a third party like an estate agent. Most people however, are not aware that they can actually buy properties via other avenues like through a sale by tender or a property auction. Sale by Tender A sale by tender is a method of sale whereby the property is sold through a competitive tender process. Potential buyers for the property or also known as the tenderers, are required to fill in the specified tender documents stating the price that he is prepared to offer for the property. Unlike auctions, the tenderers here are not required to gather at a central location for the tender. Tender sales are usually carried out for properties of higher value and are more commonly used for selling land, commercial buildings or whole residential blocks although there have been occasions where bungalow land in popular locations have been sold under such method. Sales by tender are usually used when the owner has a good property and he wants to secure the best possible price for the property via a competitive tender process. When the property owner or his agent opens the tender bids, the highest tender will be accepted as the successful buyer for the property, provided that it meets the expectations and other requirements of the owner. However, the property owner reserves the right to decline the highest tender or any of the tenders for that matter.   Sale by tender is usually used when the owner has a good property and he wants to secure the best possible price for the property via a competitive tender process.   Property Auctions Property auctions on the other hand relate to a sales process conducted by a licensed auctioneer where all interested buyers for the property will gather at a specified auction venue. The venue can be anywhere like the court house, land office, the auctioneer’s office or even a hotel or community hall. Notice of public auctions is usually found in the Proclamation of Sale published by the licensed auctioneer in one of the major newspapers. However, there are occasions where the auctioneer conducts road shows to promote the auction as well. Auctions can either be a public auction or a private owner’s auction. Financial institutions usually initiate public auctions as a means to recover loans, which have turned bad. In most cases, these borrowers have failed to service the loans for an unreasonably lengthy period of time despite being served the necessary reminders and letters of demand. There are a few ways to initiate an auction process: 1. In cases where there is a title to the property and the security is in the form of a charge, the financial institutions will be required to apply to the high court for an order to auction off the property. 2. Alternatively if the loan is secured by a deed of assignment, the financial institution can institute auction proceedings without having to apply for a court order. 3. Finally, auctions can be held based on the instructions of the property owners themselves. Such auctions are known as Private or Owner’s auctions and are very popular in developed countries. In Australia and Singapore it is not unusual to see a few private auctions being conducted each week. So, what are the procedures involved in bidding for a property at an auction? The following lists the procedures involved in auctions conducted by a licensed auctioneer on the instructions of an assignee i. e. the financial institution to which the property has been assigned. Obtain Information Pack The first thing a potential bidder should do if he is interested in bidding in an auction is to obtain the information pack from the licensed auctioneer. This information pack contains all necessary details pertaining to the property. As such, the potential bidder can go about making his own investigations and evaluation to confirm the suitability of the property for his needs and the fair value for the property that he should bid for. If there is anything that is unclear, check with the licensed auctioneer or seek advice from an expert. Ascertain Financing Before the auction day, the potential bidder should check with the bank of his choice (preferably the bank which will be involved in the auction), on his eligibility to obtain a loan and the quantum of it. The potential bidder can comfortably go ahead to put in his bid on auction day knowing that he will be able to secure the required financing should he be successful in his bid. Registration The potential bidder should register as a bidder with the licensed auctioneer either during the registration period specified on auction day or within the period of one week before the auction. The following are required before the potential bidder can be registered as a bidder for the auction: a. The registration form duly completed by the potential bidder. b. A bank draft, bankers’ cheque or money order for a sum amounting to 10% of the reserve price of the property which he intends to bid for. Sometimes the auctioneer may reduce the deposit to just 5% of the reserve price. Payment of the deposit can sometimes be made by way of credit card but personal cheques are not accepted by the auctioneer. The deposit sum will be refunded in full to all unsuccessful bidders after the auction. Obtain Bidder’s ID Prior to Auction On auction day, the potential bidder should present himself at the auction hall before the start of the auction proceedings. All registered bidders will be given a card bearing an allotted number which will identify him as the bidder. Auction Begins At the start of the auction proceedings, the auctioneer will announce the specific property being auctioned. He will then commence the auction by inviting bids from the floor. The starting bid shall be the reserve price specified for the property. Once he has received a bid for the price that he has asked for, the auctioneer will raise the price and invite bids for the property at the higher price. Bidding When the price reaches a level that he is comfortable with, the bidder will indicate his offer to bid at the price by raising his number paddle to attract the auctioneer’s attention. A bidder may increase his bid any number of times he wishes so as to ensure his success at the bidding process. Auction Ends When no further bids are forthcoming, the auctioneer will declare the person who has submitted the highest bid at the fall of the hammer as the successful bidder and purchaser for the property. Initial Payment and Memorandum of Sale The successful bidder shall be required to pay immediately to the auctioneer, upon being declared the purchaser, the balance of the first 5% or 10% of the purchase price as bid by him. He will also be attended to by the solicitor in attendance and to execute the memorandum of sale to formalize the purchase of the property. The balance 95% or 90% of the purchase price shall be paid in accordance with the terms and conditions of the memorandum of sale which is normally full settlement within 3 to 4 months from the date of execution of the memorandum of sale or within one (1) month of obtaining consent from the relevant state authorities, and if such consent is required, whichever is later. Finalise Financing The successful bidder should approach a bank at the earliest opportunity and formally apply for and secure his loan to help him finance his purchase. In cases of an auction carried out under the court’s order, the procedures would be different, as the auction will have to be conducted in the high court in the presence of the bailiff, the assistant court registrar and the licensed auctioneer. In this case, the court will have the power to decide on the bidding amount and if a bid is acceptable for the property. Generally, buying at an auction is an exciting experience especially when it involves a good property and there are a lot of registered bidders. The important thing to remember for a bidder is to set a target price and be disciplined enough not to bid for more than what you are prepared to pay. In the heat of bidding, sometimes bidders get carried away as they try to outbid each other. In such situations, the bidders may end up offering a price, which he could regret later. In contrast, wise bidders will usually be able to purchase his desired property at a good price and even make some decent profit at the end of it!   Things You Should Know:        The licensed auctioneer has the right to withdraw any property from the auction at any time before the commencement of the auction proceedings (before step 5 above). However, withdrawal is not allowed after the auction proceedings have commenced.      Properties are sold on “as is where is basis”. Vacant possession of the property is not guaranteed. However, the assignee (financial institution) of the property may sometimes offer its assistance to the purchaser in the eviction of any existing occupant.      The purchaser will be responsible for all outgoings in respect of the property effective from the date of signing the memorandum of sale.     In the last issue, we covered the fundamentals of the auction process. Prior to looking at why a sale by auction would be a great option of acquiring properties, let’s briefly jog through the main points of how the process takes effect. Property auctions come into play when either the financiers or the owners of property seek to sell either to recover loans which have turned bad or when the owner wants to get the best possible price for their properties. Auctions by and large are for buyers to evaluate and clinch properties at great bargains and serve as a good alternative to other more conventional means of obtaining it. Before one attempts to visit the auction, there are some steps that should be taken to make sure the experience is a worthwhile and pleasant one. Firstly, potential bidders should get hold of the information pack which carries all the necessary details pertaining to the property. This can be obtained at no cost from the licensed auctioneer. The information contained would allow for bidders to evaluate the suitability of the auctioned items and to gauge the relative value of it before a decision to bid is made. The bidder should also survey the offered financial services and deduce if it is to their advantage before they proceed with the bidding. All potential bidders must register either in advance or on the day of the event prior to the commencement of the auction. There is a deposit that is paid (ranging between 5 to 10% of the reserve price of the property) upon registering but is fully refundable if the bid is unsuccessful. Bidders are given ID number cards on auction day. Upon obtaining the ID number cards, bidders will partake in the auction process where the auctioneer announces the specific properties beginning at the reserve price. Once the auctioneer quotes a comfortable price range, the bidder then engages by signaling with the ID number cards. If there are no further bids coming from the other participants then the auction ends with a fall of the hammer. The successful bidder now would have to top up the balance of the initial 5 to 10% of the auctioned price before further arrangements are made for the remaining amount. In chasing the ‘hammer’, one must also understand why purchasing in an auction presents a wide array of advantages compared to conventional ones. Aren’t the steps involved a little troublesome? Isn’t buying in your own time and space better than facing stiff competition from others? Much can be debated but let’s take a closer look at the finer points presented to the successful bidder in an auction. Transparent and Fair Public auctions are conducted in an open and transparent manner. Potential bidders can comfortably put in their bids without worrying about any manipulation or underhand tactics. The person who submits the highest bid above the reserve price for the property will be declared the successful bidder and purchaser of the property. It is the aim of the auctioneer and the hope of the bidders that the exercise remains free from the influences of middlemen and opportunists. There are instances where syndicates try to influence the outcome of an auction by making arrangements on the side to prevent the process of competitive bidding to take place. An arrangement of this nature would undermine the integrity of the auction process. This of course, is not condoned by law and is frowned upon by the honest majority.   There is a very high chance of succeeding in buying the property that you want at a bargain price as the reserve price of the property can often be below the current market price once it has gone through a few rounds of auctions and especially when you are the sole bidder for the property   Best Deals in Town Bidders at an auction have a genuine chance to buy a property of their choice at the price that they are able to afford. You bid for what you are prepared to pay for. Often this creates a fair playing field where interested and qualified bidders can participate in obtaining a prime piece of land or building that would suit their business or personal needs best. There is a very high chance of succeeding in buying the property that you want at a bargain price as the reserve price of the property can often be below the current market price once it has gone through a few rounds of auctions and especially when you are the sole bidder for the property. You do not lose anything if your bid is not successful. Your deposit will be refunded in full if your bid is unsuccessful. This makes for a win-win situation, because if the bidder is keen on the piece and is persistent enough to keep bidding for it, then his wish of obtaining that property with a price tag of choice is realized. From the viewpoint of the property owner, especially in the case of a hot property, he will be able to secure the best price possible for his property through a competitive bidding process. Information on the Property An often-repeated question by the uninitiated would be about the history of the property that has made its way to the auctioneers’ table. In an auction, bidders have all relevant information on the properties being put up for auction. The details will be contained in an information pack which can be obtained from the licensed auctioneer at no cost before the auction. The information pack will contain details on the property such as the title details, size, reserve price and photos of the properties. Representatives of the licensed auctioneer will also be on hand before and during the auction to answer queries and provide any assistance which may be required by the bidders. This information pack would be carrying the relevant details in an un-inflated, ‘as it were’ format. If you find yourself a participant in an auction make certain that the information pack is obtained and you’ve gone through details of the properties well before the start of the bid. Surely, this time investment would prove invaluable in going for the exact piece that you came for. Ease of Financial Arrangements Quite often the licensed auctioneer, especially in an auction fair, will make arrangements for bank representatives to be present at the venue on auction day. They are always ready to offer financial advice and assistance to the successful bidder. This makes it very easy for the successful bidder as all the necessary documents are made available and sound financial advice is administered at no additional cost or inconvenience. The follow up that entails is also pristine as the regular red tape attached to property buying is often loosened to make sure that the bidder gets his finances sorted and begins payment. Examining the Property Potential bidders can make arrangements to view the property (external only) before the date of auction so that they will have a fair idea of the condition of the property before putting in any bid. Sometimes properties being put up for auction may still be occupied and potential bidders will not be able to view the interior of the property. This is usually seen as a setback due to the reason that upon the successful tendering of the property the new owner is expected to shoulder the responsibility of evicting the present tenants. As auction properties are usually sold on a “as is where is basis”, the successful bidder will have to engage a lawyer to evict the current occupant. This may take a few months for the due legal process to be completed. While some have been rewarded with more advantages, the above is a list of general satisfaction one can derive from auctions. Considering the points above, is the lengthy period and competitive nature of this ‘sport’ for everyone? Perhaps not but it does present a whole new realm of possibilities of owning at bargain basement cost. It would be a good idea if you attend a public auction nearest to you the next time you hear about it to get a feel of the dynamics involved before setting out to participate in one. Good luck!