Pros & Cons of Buying a Bank Auction Property

Pros & Cons of Buying a Bank Auction Property

Are you planning to buy a bank auction property? If yes, here’s all you need to know about the Bank auction properties and their value in the market.

Auction is a word that usually draws the attention of many willing buyers from every corner of the world. If you are looking for a statue, property, or anything that has a good value in the market being auctioned, you will try to buy it.

However, the auction has some specific meaning in real estate too. Usually, banks do auctions to recover the defaulted loans due to borrowers, and banks can recover their losses by reselling the properties to willing buyers. The property here refers to the property pledged by the borrower as collateral or guarantee against the loan amount.

The State Bank of India recently organised a mega e-auction where more than 3,000 commercial and residential properties were auctioned. It was open to all those who wanted to purchase as per their will. Such auctions are open to all, in any part of the country, to place bids on their selected ones.

How is Bank Auctioned Property different from Open Market Property?

Every buyer must consider the properties being sold at auctions and the properties that are not. There is a significant difference in both the properties that will have some relaxations to the buyer’s pocket. Bank-auctioned properties usually have loads of benefits that an open-market property can not.

The most significant benefit you will have in purchasing an auctioned property is that it comes up with a price rate much lower than that of the market rate of the same property. Usually, the difference is around 10-20% lower than the market rate.

A buyer must understand that the auctioned properties are the consequences of the bas loans and debts of the original owner, who could not repay the loans to the bank since many such properties are taken away from the owners to fulfil the bank debts by auctioning them. Banks usually find a way to get rid of such properties by selling them at a much lower rate than the original market price.

If you have no issues in buying auctioned properties or want to participate in a property auction, you must be aware of the advantages and disadvantages of it. Let’s look at the pros and cons of buying an auctioned property.

3 Pros of Buying An Auction Property

Auctioned properties come up with many pros and cons. You need to be very well aware of the properties. There are many benefits you can have by purchasing an auctioned property, such as:

1: Great Prices

The properties being put up for auction are usually sold at lower prices than the open market price. They are typically at least 15-20% cheaper than the open market prices, making such properties an excellent investment deal. You will get exceptional properties at much cheaper and more affordable rates, and you can have a decent property worth every penny at such a reasonable price.

2: Great Locations

Not only prices but the location also play an essential role in making the right decision. There exists a possibility of such auctioned properties being located in posh areas of a city. This possibility drastically reflects the property prices you can never imagine getting at a low amount.

3: Great Convenience

Since auctioned properties are the ones that are already a house or any already built projects, mainly, such properties offered in auctions are ready-to-move-in units that make it easy to shift as soon as possible.

It is also free of cost-escalation and fraud risks, and buyers can pay for the property to put it to good use before the deal is closed. Henceforth, it offers a lot of conveniences that help the buyer in saving both time and energy.

These are the benefits that you must consider before buying an auctioned property. It has a bulk load of benefits that makes your investing better.

4 Cons of Purchasing Auctioned Properties

Not every property comes up with positivity, and it has some negative points too that you need to consider before purchasing auctioned properties. The following are the disadvantages of buying an auctioned property:

1: Difficult to Physically Assess the Property

As auctioned properties are sold on an “as-is-where-is” basis, the buyer must physically visit the location to purchase the property. This has a positive outcome as the willing buyer can check the property microscopically and all the damages in the property. It is not worth it if the property has multiple damages that add extra bucks for repairs.

2: Possession Claim of the Property

Banks are only responsible for handling the property documents while auctioning the property. The responsibility of evicting the pre-arranged tenants lies on the buyer. If the current occupant refuses to leave the property, the recent buyer can not take help from the bank. This puts the buyer in a fixed spot. Therefore, the buyer should make it clear before purchasing the property.

3: Mandatory Pre-Bidding Deposits

Before even participating in the auctions, banks require the bidders to deposit 10 per cent of the property price as deposits. If the participant fails to win the bid, the money is reimbursed. However, if you win the bid, a considerable percentage of the total amount must be deposited in the bank before the deadline. For a common man, arranging a huge sum of money is difficult. Hence, such auctions require a ready amount in a fixed time.

4: Title Due Negligence

The auctioned property notice released by the bank typically highlights where the bank mentions explicitly “of any surprise it may not be aware of”. This sentence puts the buyers at risk as the entire responsibility of buying a property lies on them. It is better to seek help from lawyers to analyse the property in-depth to avoid any trouble.

So, every willing buyer must know the disadvantages before buying an auctioned property. The owners who could not repay the loan amount had to give their property to the banks as compensation.

These properties are then put on auction to recover the losses. The defaulter’s failure to repay of loan or EMI results in auctioning their properties under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

What are the Legal Checks One Should Do Before Buying An Auctioned Property?

There are many tips and tricks a buyer should make sure of before purchasing an auctioned property. It is pretty accurate to say that auctioned properties are relatively safe and trustworthy, but there are specific points to make sure of:

  • Encumbrances
  • Statutory Dues
  • Title and mortgage documents

The main point of considering these checks is to understand that the current property has no outstanding payments like municipal taxes, society dues, litigations, electricity bills, municipal dues, and many other taxes that will hamper your purchase of such properties. It is highly possible that the defaulter has not paid these taxes, and since the property is being auctioned under “as it is where basis”, you might need to pay them. So, the buyer must be aware of the money they are putting into spending in possession of the property.

Regarding mortgage documents, you must seek help from legal authorities before making such moves. You must ensure that the property is a no scam to them and that all the original documents are transferred to your name. The key to a successful purchase is knowing and making wise decisions.

Financing a Bank Auction Property

You may be unaware of financing an auctioned property, as buying such properties is uncommon. Following are the steps you can follow on how to finance a bank-auctioned property:

Step 1: It is compulsory to deposit 10-15% of the total property amount as pre-bid deposits.

Step 2: Pay the following 15% amount in the given number of days to avoid rejection.

Step 3: The remaining amount must be paid in a fixed number of days, depending on the bank financing.

Things to do When Buying an Auctioned Property

You must take some precautions to buy an auctioned property for the first time.

  • Inspect every corner of the property and get it vacated by the previous owner before making the full payment.
  • Avoid buying auctioned properties in the presence of squatters, as they can cheat you.
  • Make sure there are no dues entitles on the property. Dues such as electricity bills, municipal taxes, etc. It will cause you to pay some extra bucks.
  • Create a fixed budget and its timeline for spending it before going for bidding.
  • Organise your crucial documents and check them before making the purchase.

Income Tax Deductions on Buying an Auctioned Property

According to Income Tax Law in India, auctioned property buyers need to pay TDS of 1 per cent of the total value of the property at the time of final payment. This deduction only applies when the property’s worth is above 50 Lakhs.

If the possession of the property stays, the buyer must contact the original owner to gather the necessary details of TDS deductions. The owner’s PAN card number is crucial in providing the details of the applicable TDS amount. If the original owner does not pay the amount, the same amount falls under the current buyer of that property.

Conclusion

It is good to buy a bank auction property. However, one must check some key points before making any final payment. All interested bidders must be engaged in legal title that helps them verify the documents’ validity. Some documents are original sale deeds with a non-encumbrance certificate. The willing buyers must be aware of the property and the checkpoints that must be checked before.

An auctioned property comes up with many possibilities and problems. So, you must be smart and quick before buying the auctioned property. Seek legal help if you are not sure about the property. Make sure to check all the legal documents of the property stating everything is clear!

FAQs

Are there any risks in buying an auctioned property?

There are many risks in buying an auctioned property that you must consider before buying it. The buyers will be responsible for the title due to negligence, the physical condition of the property, and on the outstanding dues. It would help if you trusted the bank transparently while making such deals.

How can one find auctioned properties in a locality?

To find the auction properties, visit the preferred bank’s online portal to check for the same. Also, refers to the bank advertisement for the updates.

Is it safe to buy auction properties for sale?

Bank officials have limited authority on bank auction properties. You must be careful in buying any of them; any negligence can cause you to pay a hefty amount.

How much money one needs to pay when bidding?

Before bidding, one must pay 10-15% of the total value of the property. If your bid is approved, the following amount will be added. If your bid is disapproved, then you will get the reimbursed amount.