Property Auction: How to Buy a House in Distressed Sales and More
A property auction is an alternative way of buying a property in Singapore. It is the process of placing a property for bidding which is then sold to the highest bidder.
Unlike in other countries where pre-registration is required, anyone can simply walk in to attend a property auction in Singapore. The time, venue and dates of the property auction can be found on the auctioneer’s website.
You may consider buying from a property auction if you wish to clinch properties at lower valuations, which one would not have otherwise obtained from purchasing on the open market.
Any type of property, whether residential (HDB or private), commercial or industrial, may be put on sale by auction.
Why are Properties Put on Auction?
Properties may be put on auction for varying reasons, dependant on the type of property auction.
Types of property auctions
Generally, there are 5 main types of property auctions categorised by the profile of the seller in question:
- Owner auction
- Mortgagee auction (usually a bank)
- Auction by sale of estate
- Public trustee auction
- Auction by sheriff’s sale
There are 2 common possibilities to a property auction initiated by the owner:
- The owner is compelled by a court order to sell his/her property. This is common in divorce proceedings.
- The owner voluntarily chooses to sell his/her property at an auction in order to transact quickly.
For mortgagee-led auctions, such properties are repossessed by the mortgagee bank upon the owner’s default on the mortgage loan.
The property is then put up for sale to repay the debt owing to the mortgagee bank. This is commonly referred to as the distressed sale (i.e a sale necessitated by a seller who is under financial distress).
Auction by sale of estate
An estate sale by auction is one initiated by the representative of the estate of a deceased person.
Such representative may be an administrator (if the deceased did not leave behind a will but a beneficiary is appointed by the court to administer the estate) or executor (if the deceased left a will).
Public trustee auction
The public trustee-led auction is the least common type of property auction. The Public Trustee’s Office (PTO), administers estates of deceased persons in situations where, for example, the deceased’s estate has no representative.
When claims to the estate made by several relatives of the sisters were unsuccessful, the PTO took over the administration of the estate and put the property up for auction in February 2018.
Auction by sheriff’s sale
Enforcement proceedings are commenced by a judgment creditor against a judgment debtor to satisfy the judgment debt, owed to the judgment creditor.
In order to recover the debt, the judgment creditor requests for the seized property to be sold via auction. This is another example of a distressed sale.
What Should I Consider Before Buying a House in an Auction?
The main advantage of buying a house in a property auction, as opposed to buying on the market, is the possibility of obtaining a good deal, especially in distressed sales.
The price of property sold at auctions tends to be slightly lower than prevailing market price. However, this does not mean the property will be sold at an absurdly cheap price. As mentioned above, the property will be aimed to be sold at the highest price possible.
This brings to the point of transparency, where property pricings are announced clearly to the buyer. Meaning, a buyer will be aware of all offers made and may decide to continue or stop bidding (e.g. if the bid surpasses the amount you’re willing to pay or surpasses the property worth).
Another advantage to a property auction is access to rare, unique or niche properties which appeal only to a specialised group of buyers and therefore tend not to be offered for sale in the open market.
One should also consider the potential downsides arising from the competitive, fast-paced nature and high-pressure environment of an auction.
As property listings are released close to the auction date, buyers have only a short, limited period of time to view the property, conduct market research and to obtain legal advice to review the auction documents and financing approval. This is contrasted to buying from the market where there are no time restrictions.
Another point to consider is whether one is confident of withstanding the pressure to react during the auction. Buyers must decide on the spot whether to bid, if so at what price, and whether to out bid or to give up.
The danger is that you may end up paying more than what the property is worth, if you get carried away in a bidding war during the auction.
|Access to rare, unique properties||Limited time to view property, conduct market research and to obtain legal advice in reviewing auction documents and financing approval|
|Possibility of obtaining a good deal||Property will be aimed to be sold at the highest price possible|
|Transparency of pricing allowing you to recognise your bidding limit||Bidding pressure may be difficult to withstand, and you may end paying a price more than the property’s worth|
Preparing for the Auction
Check eligibility to purchase
If you are a Singapore citizen seeking to purchase a private residential property, there are generally no eligibility issues, save for any applicable HDB restrictions (E.g. satisfying the Minimum Occupation period) on owning private property for owners of HDB flats.
If you are a foreigner or Singapore Permanent Resident (PR), you are required under the Residential Property Act to seek prior approval from Singapore Land Authority’s Land Dealings (Approval) Unit to buy restricted residential property in Singapore. This refers to landed property, i.e. detached house, semi-detached house, terrace house, and includes cluster housing.
View, inspect and research on the property
Upon the release of the list of properties up for auction (approximately 2 weeks before the auction date), the buyer should make arrangements with the auction agents to view the property he/she is interested in and conduct his/her market research on the property in question.
Your research may include, for example:
- If the property requires additional costs for maintenance or repairs (especially in cases of abandoned houses); or
- Checking the Urban Redevelopment Authority’s Master Plan and taking note of any developments within the vicinity to speculate on rising values or otherwise.
Review the auction documents
The buyer should always read carefully and seek legal assistance in reviewing the auction documents (such as the auction agent’s Conditions of Sale which will be provided by the auction agent) to ensure that he/she fully understands the legal implications arising from the purchase of a property at the auction.
Buyers may wish to engage a conveyancing lawyer to review the auction documents on their behalf.
Obtain financing arrangements and approvals
Buyers who require financing loans should make the necessary financing arrangements by obtaining in-principle approval (i.e. pre-approval) for a mortgage loan from the bank, as well as to prepare the deposit.
The deposit ranges from 5% to 10% of the successful bid price, depending on the terms of the Conditions of Sale, which is to be paid (usually by cheque) upon a successful bidding.
Check for any amendments to the Conditions of Sale
Before the auction commences, the buyer may be given a copy of the Conditions of Sale and asked to sign an acknowledgment that he/she has read and understood the terms set out in the Conditions of Sale.
Prior to this, the buyer should check for any amendments to the Conditions of Sale and raise any queries before bidding starts.
What Happens During the Auction?
Key terms buyers should be aware of
A person known as the auctioneer will have conduct of the auction. The auctioneer will offer each property at a guide price known as the offer or opening price.
Each property is subject to a reserve price which is an undisclosed, minimum price (known only to the auctioneer and seller) which the bid amount must meet or exceed in order for it to successfully go through.
The bidding process
The bidding process is briefly summarised as follows:
- The auctioneer offers a property for bidding and calls for bids to be made for it.
- Interested buyers raise their hands to indicate their bids. Bids may be higher or lower than the offer or opening price.
- The auctioneer will state the current bid and ask if anyone wishes to make a higher bid. The process repeats until no further bids are made and the bidding process ends.
If the highest bid meets or exceeds the reserve price, the bid is successful and the property is announced “sold” upon the fall of the auctioneer’s gavel.
From that point onwards, a binding contract is entered into between the seller and the buyer and no further negotiation or changes to the auction documents will be entertained.
What Happens After the Auction?
If a successful bid is made
After a successful bid, the successful bidder is required to furnish the following for immediate preparation and signing of the Conditions of Sale:
The bidder will also have to pay the deposit by cheque. If GST will be charged on the sale, a separate cheque for payment of GST is required.
The balance bid price will be payable upon completion of the sale, which is usually within the next 8 to 12 weeks, depending on the terms of the Conditions of Sale. During this period, the buyer’s conveyancing lawyer will coordinate and liaise with the seller’s conveyancing on the necessary documents to be executed.
The buyer will also take possession of the property upon completion of the sale and can move into the property any time after that.
If the buyer fails to make payment in accordance with the Conditions of Sale or attempts to back out of the purchase, it will constitute a breach of contract for which the seller is entitled to take legal action against the buyer.
Where there is no successful bid
If the highest bid does not meet the reserve price, the transaction does not go through and the property will not be sold. However, the option remains open to interested buyers to make offers and negotiate privately after the auction.
The property may be sold through private treaty sale (i.e. the standard sale process where the deal is privately negotiated between the seller and buyer) if a deal is reached then.
A property auction is just one alternative for buyers looking to purchase a house. Ultimately, whether a property auction is an ideal option depends on the needs of the buyer and his/her commitment to the bidding process.
Buyers may wish to consult a conveyancing lawyer for legal assistance in reviewing the auction documents and liaising with the seller.
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