When an owner misses three consecutive monthly instalments, the bank can send the property to auction, a process that takes six to eight months. Auctions now run online, and many of the units on offer are newer ones from investors who bought more than they could carry.
How does buying at auction work, and should a first-time buyer try it?
“This auction process requires a lot of capital.”
It can be a genuine bargain, but only for buyers with capital and knowledge. You pay 10% to bid and must settle the rest within 90 to 120 days, on a loan based on your winning price, so first-time buyers without savings are better off with new properties.
Why
The loan follows the price you pay
To bid on a unit with a RM360,000 reserve price you put up 10%, RM36,000. Win at RM380,000 and you can borrow 90% of that, RM342,000, not 90% of a RM500,000 market value. If the bank lends only 70%, you must find the difference.
Some deals can't be financed
A title under a private caveat can only be bought with cash, and some auctioned houses stand on land owned by someone else. Sean has seen bidders lose their 10% because no bank would lend.
You buy it as it is
Units are sold as is, often unseen inside. Unpaid maintenance fees can be large, up to RM160,000 on one unit left empty for years, so check whether the bank's terms say it will settle them. An occupant, especially an owner who has lost the home, can mean trouble.
Prices fall each round without bids
When nobody bids, the bank lowers the reserve, for example from RM500,000 to RM450,000, RM410,000 and then RM360,000. Genuine bidders can still push a unit back towards market value, so knowing which round to go in is a skill.
What to do
- Have 10% of the reserve price ready to bid, plus cash to cover any shortfall in financing.
- Check how much a bank will lend on that particular unit before you bid.
- Read the sale terms for caveats, who owns the land and who pays outstanding maintenance fees.
- Use an agent experienced in auctions to arrange a viewing and find out who occupies the unit.
- Set a maximum bid and stick to it; an agent can bid for you within your limit.
Editorial Note: Summarised from Sean Tan's full episode. The quoted answer is in his own words; the rest is our paraphrase. Figures reflect the recording date, so check current rates and rules before acting on them.
AUCTION PROPERTY
Sources & Verification Data
Summarised from Sean's full English captions for this March 2021 episode. The quoted answer is verbatim; everything else is paraphrased. Sean checked his notes with Jeff, an agent who specialises in auction properties and whom the video recommends. The process is as described in 2021.
