We absolutely understand buying an auction property in Malaysia can be a great opportunity in view of its super attractive market price and/or reserved price— irrespective you are buying whether for investment, own stay, or property flipping. However, many first-time bidders make the mistake of focusing only on the auction price without carefully reading the Proclamation of Sale (POS). We strongly recommend that as a smart buyer or bidder, do not jump deep direct into the pool of bidding without really understanding any hidden terms that you must know!
The POS is one of the most and only important documents in an auctioned property because it contains the legal terms, property details, risks, and obligations that bidders must understand before bidding. It is common practice that you are not allowed to visit physically to the auctioned property to check its conditions before your bidding. As an informed investor or bidder, you should get as much information as you could to ensure your hard-earned monies being well pooled into the right property. Hence, POS is the only document that you can rely on to carry out more checking on the said auctioned property before placing your deposit to your agent!
Here are the key things we believe every auction buyer should take note of before you are participating in an auction. Whenever bidder approaches us for due diligence, we will always ask them to provide us with the POS so we can carry out checking on the following: -
1. Property Details
Being a real estate solicitor, we will always verify:
- Property address, Unit number
- Land area / built-up size
- Type of property (apartment, landed, commercial, etc.)
- Tenure (Freehold or Leasehold)
- Strata Title or Individual Title status
- Developer and management office details
It is pertinently important to know that a minor small mistake in unit number or title details can become a costly issue later especially when you are dealing with stratified property.
2. Reserve Price
In bidding, reserve price is the minimum bid amount that is allowed by auctioneer or court during the auction. You would ask us, after knowing the reserve price, what you should do next? We would normally advise you to really observe the reserve price well by: -
- Comparing the reserve price with current market value by checking with bankers
- Checking whether the property has gone through multiple auction rounds to calculate the margin of reduction on the price before you decide whether it is low enough to bid
- Understanding that lower reserve prices may indicate higher risk or property issues as some investors may have a saying “A “cheap” property is not always a good deal if hidden liabilities exist.”
3. Deposit Requirement
Most auctions in Malaysia require the bidder to :-
- placing the 10% deposit from the reserve price; and
- payment via bank draft or online transfer (depending on terms stated therein the POS)
Being the one that paying the deposit, you should be taking note on the facts that your deposit will be forfeited if you fail to complete the purchase after winning the bid and/or your balance purchase price is not settled within the designated time without further extension approved in your favour by the auctioning bank. How to avoid such circumstance? We are unable to advise you an 100% answer, but it is a prudent step to ensure your credibility and/or eligibility to get financing approval is realistically achievable before bidding. Do not ever have a trying luck mindset to say “Bid first, Think Later”, unless you really have abundance of cash in hand of which is suffice to remit all your purchase price on time.
4. Outstanding Charges
One of the most important sections in the POS is whether the successful bidder should be responsible for:
- Outstanding maintenance fees
- Sinking fund charges
- Quit rent
- Assessment taxes
- Utility bills
Some auction properties are expected come with significant arrears as whenever properties are being auctioned off, it always reflects the truth that owners are unable to remit the outstanding outgoings on time. In POS, generally would have clauses and provisions explaining the issues and hence, it is the most basic steps for bidder to take initiative to do the pre-check on: -
- Which charges are borne by the bank
- Which charges are borne by the bidder
- The cut-off dates stated in the POS to complete the transaction
- Extract the bills of outgoings to verify the total debts payable bidder before deciding the bid as it will affect bidder’s ability to analysis the best price to enter the bidding process. Hence, this can affect your actual acquisition cost substantially.
5. Vacant Possession Status
The POS usually does not guarantee vacant possession as it is at the bidder’s own expense and risks to retrieve possession of the auctioned property. If the auctioned property is tenanted, tenant may refuse to deliver the vacant possession of the auctioned property despite you have completed the transaction of purchase.
In summary, this means:
- The auctioned property may still be occupied
- Existing tenants or owners may still be inside
- You may need legal action of which may burn your wallet or negotiation may fails after purchase
Before bidding, you may try to:
- Visit the auctioned property externally to check whether it is tenanted or occupied (avoid trespassing into the auction property)
- Speak with neighbours or building management to check on the auctioned property outstanding bills and/or conditions
- Understand the occupancy situation well to check whether the auctioned property worth buying
Many auction buyers who underestimate this risk would having higher risks to in buying a wrong real estate!
6. Property Condition
Auctioned properties are generally sold on an “as is where is” basis. This principle also applies on subsale and hence it is good for you to understand this simple basic risk.
“As is where is” basis mean auction bank does not guarantee auctioned property is in best fit condition. Bear in mind, bidders are not allowed to carry out internal inspection as you may be facing court suit of trespassing the properties without owners’ consent. If you were to ask whether you are entitled to claim for any damages, renovation issues, or vandalism occur in the auctioned property, the answer would be “all costs and damages shall be at the bidder’s own costs and expenses”.
This is an important reminder that you should keep telling yourself before you are pressing for the bidding button to always having budget of additional funds to fix the following aspects: -
- Repairs
- Renovation
- Cleaning
- Legal documentation
- Utility reconnection
7. Restriction in Interest
Before bidding auctioned property, you must check whether the said property is having restrictions such as:
- Bumiputera lot status
- Consent requirements from state authorities
- Malay reserve land restrictions
- Master Title or Strata Title status
- Developer or Liquidator in charge of the said project if the said unit is not issued with Strata Title
If consent is required to be approved by state authorities, bidders should be aware on the following expectations: -
- The transfer process to be perfected in favour of bidder may take longer
- Additional costs may arise
- Certain buyers may not qualify if it is a bumi unit
8. Completion Period
The POS states a period of time for the bidder to complete payment after the auction is confirmed and bided.
Common timelines:
- Ninety (90) days
- One Hundred and Twenty (120) days
- Sometimes extensions with interest penalties
We always suggest the best fitted bankers that can be more efficient in handling loan approval and disbursement to avoid delay of completion of your sale as it can really cause you serious financial consequences. To avoid this, our firm would normally having a close up follow up from time to time to ensure our client-bidder would not having such risks of delayed payments thereof.
9. Risk of Caveats or Legal Issues
As you always expect, a property is auctioned off due to the owner is having long unpaid bills or debt. It is a must check whether the auctioned property has:
- Private caveats lodged by any third party
- Existing court matters that involves the auctioned property
- Encumbrances such as, lien, easement, etc
- Bankruptcy-related complications
- Winding Up status of the Developer
Getting legal advice before bidding is always a wise decision to avoid paying hefty costs thereafter your biddings.
10. Read the Conditions of Sale Carefully to check on obligations
The Conditions of Sale section explains:
- Purchaser obligations – to find out what a bidder should do throughout the transaction
- Bank rights – to find out what are the bank’s obligations that is undertaken in the POS
- Default consequences – to find out your worst damages to face in event of failure to complete the purchase
- Late payment penalties – to find out your estimated additional costs to bear
- Liability clauses – to find out your liabilities owed to the auction banks.
It is exactly genuine to get the best offer out of the list of auctioned properties. Auctioned properties can offer bidders a substantially attractive opportunities, but do not ever simply jump into any bidding deals as they come with legal, financial, and practical risks.
A wise auction buyer does not only look at the price but going through the Proclamation of Sale in details before making any bidding decision is of the essence of your buying plan. The more time you spend understanding the POS, the less likely you are to face expensive surprises later. Always engage a lawyer do proper due diligence, seek professional advice when necessary, and never rush into bidding emotionally as in property auctions, preparation for everything is everything!
Malaysia