An alternative, but much less popular, way of buying a property in Singapore is through a property auction. As its name suggest, it involves the process of placing a property for bidding which is then sold to the highest bidder.
While this seems like an ideal source of properties at a price lower than valuation, the competitive environment may lead to one paying a higher price than the true value of the property. Hence, we have come up with a comprehensive guide to property auctions in Singapore and some tips and tricks for first-time auction-goers.
Background on Property Auctions
Auctions are organised by estate agencies such as Edmund Tie, ERA and JLL on a monthly basis. The attendance is open to anyone, but those looking to place bids must register with the estate agency beforehand.
Basic information regarding the listed property, such as location and physical state will be released to the public two weeks before the date of the auction. Upon the release of the list of properties up for auction, the buyer can make arrangements with the auction agents to view the property he/she is interested in.
There are 5 types of property auctions categorised by the profile of the seller in question. The 5 types include:
- Owner auction
- Mortgagee auction
- Auction by sale of estate
- Public Trustee Auction
- Auction by sheriff’s sale
1. Owner Auction
The common possibilities to a property auction initiated by the property’s owner could be that the owner is compelled by a court order to sell his/her property (commonly occurred in divorce proceedings) or the owner voluntarily chooses to sell his/her property at an auction to transact quickly.
Apart from the need for expediency, some owners with unique properties on hand, such as a good class bungalow in a prime location or an extraordinary renovated HDB flat, may choose to present the property to an expert crowd of buyers. These properties may not have a straightforward valuation that allows it to compete on traditional platforms such as a property portal.
2. Mortgagee Auction
For mortgagee-led auctions, the properties listed are usually ones that were repossessed by a mortgage bank upon owner’s default on the mortgage loan. The property is then put up for sale at an auction, as initiated by the bank, in order to recover the debt owed. This is otherwise known as a ‘distressed sale’ in which the sale is necessitated by a seller who is under financial distress.
3. Auction of Sale by Estate
An estate sale by auction is one that is initiated by the representative of the estate previously owned by a deceased person. The representative could be either an administrator (in a circumstance where the deceased did not leave a will but a beneficiary is legally appointed to administer the estate) or an executor (in which the deceased left behind a will).
4. Public Trustee Auction
Similar to that of the estate sale by auction, a public trustee-led auction is one where the Public Trustee’ Office (PTO) administers the sale of estate of the deceased persons in a situation whereby no representatives are available.
This is the least common type of property auction with the most recent happening in 2018 for the sale of 17 Jalan Bantai owned by 2 sisters. Without a will nor beneficiaries to administer the estate, the PTO acted on behalf and took over the administration. The property was then put up for auction in February 2018.
5. Auction by Sheriff’s Sale
Lastly, a sheriff’s sale is for properties seized by the court in enforcement of judgement proceedings. These are commenced by a judgement creditor against a judgement debtor to satisfy the judgement debt owed. Like the mortgagee auction, this is also a type of distressed sale.
What to Expect at an Auction
The main drawing point of an auction as opposed to one on the market is the possibility of obtaining a good deal, especially in distressed sales. While the price at auctions tends to be slightly lower than prevailing market price, discounts are far from guaranteed.
Why is this so? Usually there is a reserve price that must be met for the auctioned properties. This is only known to the auction administrator and the seller and is the minimum price the seller is willing to accept. Once the bidding ends, if there are no bids at or above the reserve price, the sale does not go through.
Where the sale does go through, the bidding process will ultimately cause the transaction to be close to their market value (sometimes even above the market value).
Most of the time, however, properties are left unsold during the bidding process where either there are no bids or that the reserve price was not met. In fact, the success rate of auction listings in 2019 was a mere 1.4 per cent.
The actual transactions happen after the auction and behind the scenes as buyers approach the sellers in private to work out a deal.
Tips and Tricks for Your Next Auction
- Attend a few auctions before registering to bid. This allows you to get a better feel of the competitive and fast-paced environment of an auction that could lead to better withstanding of the pressure to react during the auction.
- Be aware of the market price of the property you are bidding for, where possible. Once the bidding has concluded, there is no backing out or negotiation and a deposit of 5-10% is expected to be paid. Even if one realises that his successful bid is more than market value, the transaction must go through according to the conditions of sale. Failure to pay constitutes as a breach of contract.
Property auctions may not be everyone’s cup of tea. The competitive and high-pressure nature adds another layer of complexity. Most attendees consist of investors, property-buff and real estate pros looking for a bargain. However, those interested can still gain from the experience and witness a truly exciting event.