Auction Property in Malaysia: Legal Risks a Beginners Buyer Should Know
Buying an auction property in Malaysia can be a hassle if you do not know its basis knowledges and risks to consider. Selling price for auction properties are frequently way lower than the ones you are buying from the Developer and/or secondary market as these auctioned properties are often being auctioned off by the auctioneer or high court below the recognised market value, and as an investor, definitely you would never miss the chances of grabbing them all!
However, it is a undeniably fact that auction properties always attached with serious legal risks that many first-time buyers may not even put into their consideration lists. Comparatively, property transactions other than auction sales would at least guarantees you an opportunity to negotiate, verify and further parties involved in the transaction would have to adopt strict legal rules that fit to the standard of conveyancing practice. Many investors say, that investing great oppurtunity must learn to give and take, especially when you bidding an auctioned property.
Hence, in the article, we would be sharing you with basic legal principles if you have decided to grab the cheap and worth buying auctioned property as "Know well" before you bidding it is of an essence to ensure you have no regret after the bid!
“As Is, Where Is” Rule
For auctioned property, auctioneer and/or auctioning bank will always lay down their terms of sales in proclamation of sales which subject you to a non-negotiable circumstance. It is indeed very common for them to disclaim their liabilities by stating: -
a) Property is sold on as is where is basis in which bank provides no guarantee as to its conditions and/or size;
b) You are clearly advised to conduct prior checking with your lawyers before you register your bidding as there is no excuses and/or reasons that allow you to justify your claim for a refund on the duly paid deposit if the bidding process has completed and won by you.
This principle is non contentious, as it means that you are required to:-
a) Accept whatever conditions occurred to the auctioned property and no repair will be done by auction bank;
b) No compensation or damages shall be payable to you should you are not satisfied with the property bided;
c) All risks shall be borne by the bidder after the falls of hammer.
In the event that the auctioned property is abandoned, vandalized, water damages or leakage, missing fixtures, pest infestations and/or comes with any hidden structural issues of which affecting your occupancy of the property, you have to accept them all at your own costs and risks. Bear in mind, you are not even allowed to inspect the inferior of the property before you bidding or else you are facing another risks of being sued for trespassing.
Illegal Occupiers in auctioned Property
It is super common for us to advise our client to consider the costs of evicting illegal occupiers before we advise them to bid the auctioned property that is presently occupied by someone, may it be tenant with tenancy agreement or no tenancy agreement, stubborn owners and/or illegal squatters. This is a must precautive step to take as the eviction costs could be easily up to ten thousand ringgits. Auctioning Bank has never in their contract to guarantee you a vacant auctioned property and in such, bidder may need to initiate legal eviction proceeding that may prolong the handover of property up to 6 months at their own costs and expenses.
Outstanding charges and liabilities
In buying an auction property, especially stratified and/or gated and guarded properties, bidders may have to inherit a large debt sum covering maintenance and sinking fund arrears, utilities charges, sewerage charges, quit rent and assessment on top of all the repairs and/or renovation costs. This may exposure the bidder to unexpected financial burden if these costs are not within their knowledge prior to their bidding. Undoubtedly, some of the auction banks may allow certain outgoings as mentioned herein to be claimable. However, you must not be too overwhelmed with such statement as auction banks would normally requires you to clear it in advance before they are apportioning the refund using the proceed of sales, which you will only be able to refund (according to the terms of the contract) few months after you started paying your loan instalments. So, plan your financial well, before you decide to bid the one you prefer to invest.
Non negotiable terms stated in binding auction documentations
As mentioned earlier in this article, you are required to sign and accept all the terms and conditions imposed by the auction banks. Negotiations with auction banks to amend and/or vary the terms and conditions are not allowed! The bidding contract is normally named as “Proclamation of Sale” or “Condition of Sales”. These documents will clearly emphasize on your payment obligations within their timeline (normally 90 days or 120 days), in which any extension of time (if granted) will warrant you to remit further payment of penalty to the auction banks. The contracts will also further impose defaulting clause whereby bidder who has failed in their payments terms will cause their placed deposit being fully forfeited by the auction banks and further leaving bidder no place to negotiate for a refund!
What if bidder say, “I have done nothing wrong, but my bank loan officer delays my application?”. Unfortunately, this excuse does not help you to claim for your refund, as you are required to check your loan eligibility even before your bidding. No doubt to say, buying an auctioned property always goes for those bidders that really having abundance of cash in hand to ensure their bided property can be successfully paid and transferred in their favour in time.
Conclusion
After considering the above risks and costs, are you still going for the oppurtunity of investing an auctioned property? Auctioned properties presents sweet and promising investment opportunities if you have learnt the way to conduct due diligence, minimise the risks of losing your deposit and bidding the best amongst the best. Well-informed decisions warrants you a positive investment plan or alternatively you are losing at your costly poor knowledge mistakes. So, wait no more and feel free to contact us for more to conduct a detailed due diligence before placing your deposit!
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