Thinking about buying property in an auction?

Buying property in an auction can save you a lot because These are basically mortgaged properties of defaulters and the bank is auctioning them to recover the dues.

When a bank auctions properties, it generally garners huge interest as these properties are believed to be auctioned at a lower price. Another advantage could be getting the property at a place where no new supply is likely to come in. “The primary potential advantage to buying a distressed property being auctioned by a bank is obviously the possibility of getting an asset at a potentially lower price than the prevailing market rates for such a property in that particular location. Another plus could be the potential for securing a property in a prime location where little or no new supply is likely to come in,” said Shobhit Agarwal, MD and CEO, Anarock Capital.

However, don’t get carried away by such offers as you may find a property priced lower than the market price but at the same time you should be aware of the risks involved in buying a property in an auction.

“There are obviously potential challenges to investing in properties being auctioned by banks. In the first place, there is no single database of such properties to consult. Secondly, it is impossible to anticipate what the highest bid for any given property will be, so there is no assurance of acquiring a particular property one is interested in at a comfortable price,” said Agarwal.

When buying a property in auction, in most cases, there is a reduced burden of doing the due diligence since the auctioning bank would have already established that the property is legally sound in all aspects or not. However, there are certain other challenges that the buyer may face. The banks are generally not responsible for any physical issues arising from or encumbrances attached to the property. Once the property is auctioned, the responsibility of dealing with any problem arising later lies with the buyer. “The bank only has symbolic possession of the auctioned property and has required paperwork for it; once sold, the buyer might have to deal with possession issues if the house is put out for rent and tenants haven’t vacated the property,” said Kanika Gupta Shori, COO and co-founder, Square Yards.

Also, as the property is auctioned it will be difficult for the buyer to anticipate the price. This may create problems in arranging funds. “It is impossible to anticipate what the highest bid for any given property will be, so there is no assurance of acquiring a particular property one is interested in at a comfortable price.”

“In any case, buyers need to be very familiar with the exact process involved before, during and after buying a distressed property. The process of buying distressed property on auction is only complete when it has met with the expectations of both the auctioning bank as well as the property’s previous owner,” said Agarwal.

Buyer of the property is generally considered as an investor and therefore the chances of relief in consumer court also reduces in case there is any issue related to the construction of the property.

“In an auctioned property purchase, buyers don’t qualify as consumers since there is no sale conducted. Hence, they lose out on filing a legal case against the builder for poor construction quality and get court compensation. So, auctioned properties look attractive, as they are available at a discount, but they aren’t risk-free,” said Shori.

Therefore, if you are planning to buy a property through bank auction, do understand the process clearly, make sure you have the necessary funds and do due diligence on your part.

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