Personal Finance

Bank auctions route to buying property

Maulik Madhu | Updated on January 22, 2018 Published on September 20, 2015

The biggest advantage is you can pay less than the market rate for your home

Indian banks’ bad loan problems have opened up an opportunity for property buyers. Many banks are now advertising auctions of property repossessed by them, from loan defaulters. So, if you have been thinking of buying a flat or an independent house, you could consider bidding for it at one of these auctions.

At a bargain

The biggest advantage of buying property at such auctions is that you get it for a price below the market rate. Such properties are usually put up for auction at a 10-20 per cent discount to the prevailing market rate.

Banks conduct online auctions in collaboration with service providers such as NPAsource.com, auctiontiger and C1 India, which provide the necessary infrastructure. While banks hold physical auctions too, online auctions are the most prevalent.

“With the Government guideline to switch over to online auctions, we assume there will soon come a time when only e-auctions will be considered valid,” says DK Jain from NPAsource.com.

Also, unlike in the case of physical auctions where you have to be present at the chosen venue on the scheduled day and time, you can participate in an online auction from the comfort of your home.

To start with, a bank publishes advertisements in newspapers notifying the public about the upcoming auction. You can check out the details of the properties being put up for auction on the website of the service provider (with which the bank has a tie up) and zero in on the one that interests you. You can then inspect the property on a pre-fixed date. If satisfied, you can make an upfront payment called the earnest money deposit (EMD) to the bank. The EMD is usually fixed at 10 per cent of the reserve price (minimum price) at which the property is being auctioned.

Once you do that, you get a login ID and password from the service provider to participate in the auction.

If you are unfamiliar with how an auction works, you can log into your account before the scheduled day and see a demo to familiarise yourself with the process. On the day of the auction, you can login during the hours when the bidding window is open and place your bid.

Bids will be placed by other participants too. They must obviously not be less than the reserve price to be accepted by the system.

During the auction, you will be able to see the highest bid and can accordingly revise your quote. Every successive bid can be made only in multiples of a certain sum, such as a few thousands.

Finally, at the close of the bidding window, no further quotes are allowed. There is but one exception.

If a higher bid is made towards the very close of the bidding window, then the other participants are allowed a few extra minutes to revise their bids.

Once the auction is over, the service provider hands over the list of participants and their bids to the bank, which then declares the highest bidder as the winner.

After this, the winning bidder has to deposit 15 per cent of the reserve price with the bank within the specified time (usually a day).

The remaining 75 per cent (after factoring in the initial 10 per cent EMD) of the reserve price has to be paid to the bank within the specified period (mostly within 15 days from the auction).

You must adhere to all the payment deadlines, as failure to do so at any stage can lead to forfeiture of earlier payments.

Taking a loan

The entire processusually takes about a month. Given the short duration, you must be ready with the money.

If you intend taking a loan, you must apply for it well in advance. You can go for a pre-approved bank loan, before the auction starts.

While a pre-approval does not guarantee loan sanction, it can help quicken the process.

Since the bank is the seller, it is likely to have checked the title to the property. Nonetheless, given the huge sums involved, it makes sense to seek legal advice on the purchase, just to be doubly sure.

Also, apart from the stamp duty and registration charges, you may have to cough up money for some unexpected expenses too.

Since the property is sold on “as is where is” basis, pending dues such as unpaid property tax or electricity charges, if any, will have to be borne by you.

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