The property prices in an auction are generally lower than the market prices. This makes buying such a property a good investment option. But once a bank auctions a property to you, you become liable for all expenses, unpaid taxes and legal processes on the property. Therefore you should inspect the property from all aspects to get the true value of the property and only then make the buy decision.
When people do not pay their EMIs for a property bought with home loans, banks take possession of these properties and auction them off to recover the loan amount/ losses. People like you and me can participate in these auctions to bid for the property. The property is sold to the highest bidder. The minimum price set for the property in the auction is lower than the market rate The other way to own a house is to buy from real estate players who have bought auctioned properties at a lower price from the banks. They will resell the properties at a price lower than the market rate. You have a good chance to invest in a house at a price lower than the going rate.
It looks like a sweet deal but you have to be very careful and take certain precautions to ensure that the deal is a fair one for you and you don't land up in trouble a couple of years down the line –
1. Verify the title and property documents – It is important to check the ownership document and other important legal documents. With the help of legal counsellors, check the track record of the property to assess if there are/were any legal wrangles and how to sort them out.
2. Check all legal aspects – Do make a check on the tax records, municipal records and whether the current owner has the right to sell and transfer the property to you. If this is not clear, you might land in trouble later on.
4. Check for additional costs and expenses – The house would be sold at a particular price but that may not be the final price that you pay. You have to check for other hidden costs. There could be repair costs, dues to be paid to the bank, unpaid society bills, maintenance bills or utility bills involved. The society could be collecting money for renovation; maintenance etc. and you might have to pay that being the new owner. Add these costs to the price of the property and then decide if it is a good investment. It is best to get a letter from the society that there are no outstanding dues left.
Buying a house that is auctioned seems to be a lucrative deal but you should take the above mentioned steps to ensure that the deal is legally right and fair to you.
Have you bought a house via an auction? We would love to know about your experience.
This article was originally published on Stockmusings.com