I hope you enjoy it and have some Idea of what is auction after watching the video above but please do not be mistaken of the luxury environment, dress code, champagne, and necklace being auction.
The thing which is similar is there will be a person (auctioneer) behind a stand with a hammer, who will be conducting the auction in front of all the bidders. Auctioneer will announce item being auction, start of an auction then bidder will bid by raising their card. Still confuse? Don’t worry. I have attached another video at the end of my blog here of an actual property auction by bank in Malaysia.
What is Auction?
An auction is a system of buying and selling by offering them for competitive bidding on a specified time, date, and venue. The bidders compete against each other, with each subsequent bid being higher than the previous bid. The price increases each time someone makes a new, higher bid, until finally no other bidders are willing to offer more than the most recent bid.
In short, an auction is simply a marketplace where properties are sold via competitive bidding with the highest bid winning the rights to own.
How does it work?
The process is straight forward. Bank will sell property by way of auction which has been mortgage to them after the borrower failed to pay loan instalment consecutively for a period of time.
Before the property being auction for the 1st time, Bank will appoint a valuer to prepare a valuation report to determine the market value. Then, the selling price or we call it the “Reserve Price” for the 1st auction will usually be the Market Value.
When there is no bidders on 1st auction then the reserve price will be further reduce by 10% and a 2nd auction will then be arrange. If there is no bidder again on 2nd Auction then reserve price will be further reduce by 10% again and this process will usually continue until it is sold.
According to 2018 statistic, a total of 32,611 properties with a total reserve price value of RM15.56 billion went under the hammer in Malaysia.
Bank usually sell by auction because it is transparent, fast, and offer competitive bidding to determine the best price.
Yes. Auctions are use to dispose distressed properties, but people fail to recognize or admit that these properties are sold via auction because other option have not met the needs of the banks or provide the speed and efficiency needed to complete the transaction.
Most importantly auction force buyers to be decisive because there is no “I buy it tomorrow factor”, the “For Sale” sign hanging in front of the house or being advertise on website does not force or motivate buyers to purchase, especially in today market place. The sign or the advertisement will be there tomorrow and most likely the day after that. With an auction, there won’t be a sign after Auction Day in most cases.
That said, it also come with risk. Therefore if you are interested to invest in auction property, you must do your research. For example, before you invest in stocks, you do your research in stocks, such as what is stocks, know how it works, and etc. Same goes to any investment in the market. If you understand what you are investing and take a calculated risk then auction property can help you make lots of money. For example, it is common to see 30% – 50% below market value and 5% – 9% rental yield in auction properties.
You can rest assured that with a live auction event, and online bidding capabilities, anyone who is interested to bid will have a chance to participate in a competitive bidding environment.
Read and understand Proclamation of Sale (POS) and Condition of Sale
Inspect the property
Check for any hidden cost, outstanding fees & risk
Conduct title search at relevant land office
Prepare 10% deposit of the reserve price