When one looks to purchase a house or a property, the idea is to be able to acquire it at the best price possible. With the prolonged dullness in the real estate market, builders are offering houses at 5 to 10 percent discounts to lure potential buyers.
However, did you know that you can get discounts as steep as 20 to 30 percent over market prices from bank auctions?
On a routinal basis, banks auction properties that they seize after multiple missed repayments on home loans. Banks are allowed to auction off such "repossessed" or "stressed" properties under the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act, 2002.
Here the bank's primary intention is to recover the outstanding principal and interest amount. As a result, these houses or properties are often sold at steep discounts over market rates.
However, buying a home at these auctions is not as easy as showing up and making a bid; there are preparations to be made, rules to be followed and procedures to undertake.
Identifying if the property is worth it
Auctions are time consuming, which means your first step is to decide if the house property offered is worth your time and money.
- Registration: Check the property's original sale deed and non-encumbrance certificate under CERSAI. Unregistered properties that do not have documents can lead to disputes in the future.
- Understand the bid document: You can seek professional help to understand what you are getting into and what your post-purchase liabilities will be.
- Property title and necessary documents: Make sure the title ownership is clear. Check if the house's owner (which is not the bank) has a recovery certificate from DRT (Debt Recovery Tribunal). The bank needs to give you an indemnity certificate so that you are protected from any future claims made by the owner.
- NOC from the housing society: If applicable, get a NOC (No Objection Certificate) from the housing society and get details on any dues pending.
With these inquiries, you will get a good idea on the liabilities that you will have to deal with post possession.
The exact auction price will not be known before hand.
Typically, the bank will set the base price of the property after considering guidance value (from government regulations), the deemed market value of the property, and existing liabilities of the property.
It is ideal to get an estimate on the market value prior to the bidding by getting the property appraised by a professional property evaluator. Further, add a margin of 10 percent over the calculated price by the appraiser to ascertain the appropriate bid amount for the auction.
As mentioned before, most of the properties auctioned by the banks have come with legal disputes and unpaid dues. Any unpaid property taxes, utility bills, etc will have to be borne by the buyer.
You will have to take these added expenses into consideration to get a fair idea of the actual cost of the purchase, which may end up being higher than anticipated.
Plan the finances beforehand
You will have to pay 'earnest money' (deposit) at the time of making a bid to the bank, which will typically be 10 percent of the reserve price of the auctioned property. This amount will be refunded if you do not win the bid.
If you do win, you will have to pay 25 percent of the bid amount on the day of the auction.
Further, the entire bid amount (remainder) will have to be paid in a short period (as less as 15 days) after the bid is made and on failing to do so within the deadline, you will lose the deposited amount.
It is therefore, necessary that you arrange the funds ahead of time either through your savings or a home loan.
The key to success here is research. Before you prepare to bid, makes sure to perform due diligence to the best of your capacity.
If you do not take the process lightly and devote time on the auction rules and the property, you can get an attractive deal with large savings on the house.