Home Truths. Make an online bid for a house

As the metro train slowed to a stop, Rosie, who is ever optimistic about the property market, abruptly said: “I am planning to bid for a house in a bank property auction.” Lousie, who has many negative experiences to narrate in real estate, asked: “Vijay Mallya’s or Subrata Roy’s?” Unfazed, Rosie sat up and explained about property auctions.

Auction basics

“Auctions happen for properties of all prices and types. For example, SBI had conducted a mega e-auction in May with nearly 1,000 properties. This included houses and commercial properties such as offices, shops and factory buildings in 26 cities and towns.

The property price depends on size and location. For instance, a two BHK flat in Mumbai’s Santacruz East may be up for nearly ₹2 crore; a palatial residential property in Vashi, Navi Mumbai, may be priced at ₹8.5 crore; older or smaller flats or shops, especially in smaller towns, may be priced below ₹50 lakh,” she said.

“Auctioning happens when a borrower who has taken a loan against the property is unable to repay. Many banks — public sector and private — and asset-reconstruction companies conduct auctions of repossessed properties. These sales are called distressed property sales,” Lousie added.

Rosie said chirpily: “You can get some good deals in such sales, as the bank is only interested in recovering its dues, not making a profit. Also, it is a direct deal and there are no brokers. The bank fixes the price based on the price recommended by empanelled valuers, and typically, it is 5-15 per cent lower than the market price.”

Lousie added: “The price helps to set the reserve price, which is the lowest price at which the bank is willing to sell. The property is typically sold on an ‘as is where is’ basis. It means the bank does not take any responsibility for any issues such as those on property title. So if there are any legal disputes or other claims, the bank is not liable, and the buyer is completely responsible.”

Bidding process

Housie, a young tech-savvy person, joined the conversation. “It is so easy now to bid; it is an e-auction process. You can find ads in local newspapers or check auction sites. For example, portals such as Bank eAuctions, ForeclosureIndia and eauction.npasource list auction properties. You can look for properties from specific banks as well. For instance, Canara Bank’s properties are listed on canarabank.auctiontiger.net.

“You can find information on the property as well as a bid document on these websites. The document gives information such as any liabilities, including unpaid society dues and other issues the bank is aware of,” he said. Rosie explained that to bid, you must register by providing KYC documents.

You must also pay a refundable earnest money deposit, which is usually 10 per cent of the reserve price.

Banks also indicate the date and time when you can physically inspect the property. On the auction day, you can put in your bid and increase the price during the window.

“If you win, be prepared to pay 25 per cent of the agreed sale value on the same day and the remaining amount within 15 days.

Banks will verify your credentials and transfer the property along with a go-ahead from the owner, and a society No Objection Certificate (NOC). This is called the Sale Certificate and you must register this at the sub-registrar’s office,” Housie said, browsing and reading from his mobile.

What to check

Lousie started about the many risks, and what buyers can do to avoid them. “Rosie, if you are bidding, work with a lawyer, as it is important to get a good title due diligence to ensure there are no pending litigations or government acquisition issues. And budget for certain charges that may not be apparent. For example, statutory dues such as water tax and property tax, registration of old properties, and utility dues such as electricity bills.

“Be sure that you can arrange the payments within the period given by the bank. Else, you will forfeit your payment. And be sure that the bank has physical possession, not just notional possession. There may be delays in getting physical possession, or even court orders may be required,” he cautioned.

Housie added that though a property may be placed on auction, it may be called-off.

“Auction is typically scheduled after 30 days from the date of notice. If the defaulter pays, the auction process is cancelled. Some housing societies have the right of first refusal over sale of their property, and may buy it,” he noted.

“I must also gather local market knowledge to know the price. That way, I will not get carried away and bid aggressively,” Rosie said.

The writer is co-founder, RaNa Investment Advisors.

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