Saturday, January 23, 2010

Property Auction

I've always wondered about property auctions. We always see these signboards everywhere annoucing auction properties, the reserve prices and agents' contacts. Sometimes the prices seem very attractive but I never really took them seriously. Once I saw a signboard announcing a 2 bedroom unit in Mutiara Villa going to be auctioned for RM240k. I called the agent and he was really rude. He said if I am not going to bid RM300k, I should not even bother. So, that incident has given me a very bad impression of auction agents. So, I never took any auction announcements seriously enough to do anything until today.
So today there was an auction involving a MyPlace Apartment ground floor unit in Subang Jaya SS15/8 with a reserve price of RM220k. This apartment is located directly opposite the Inti College Subang Jaya campus and beside Asia Cafe. That really got me off my arse...
I learnt about this auction from the classifieds. 1st of all, it is unusual to find a seller in either MyPlace Apartment. This apartment is wildly popular with students. 2ndly, the reserve price is so low, the last transacted price was RM295k. And of course, being wildly popular with tenants and so easy to sell, one might wonder how it ended up in auction in the 1st place. So, we are going to learn something today...
The whole process started from calling the auction agent, Michelle. She faxed me a form to register my name and details and did a very good job to remind me about the event. 2 days before today, she sent me an sms to remind me to prepare a bank draft in the name of "EON Bank Bhd" for 10% of the reserve price. Good thing she did because the auction is on a Saturday, registration at 10am. So, the thought of getting a gold mine in a cheap sale really got me off to queue in a bank for a bankers cheque. In this age of internet banking, I wonder why is it necessary to even go to banks anymore.
Michelle is really quite professional and she even sms me last night to remind me to turn up and this morning, another sms to make sure I arrive before the registration closes at 10am. So, I arrived at 9.45am to see this huge crowd at the auction center. There were about 100 people and there was free breakfast. Michelle found me and she took my I.C. and bank draft for the registration. Then, she came back with a paddle with my number and piece of paper that confirms my registration and the details of the property I wish to bid for.
At 10.30a.m., we were ushered into the auction room. It was packed and many people had to stand. The auctioner came forward and started to brief us the procedures and also the terms and conditions of purchasing an auction property. The gist is, the property will come as it is with any encumberances and liabilities with the exception of the maintenance fees and council rates which the Auction Bank will undertake up to the date of the auction.
If there are unsettled sewage, water or electricity bills, the buyer have to settle them.
If you are successful in the auction, the bank draft would be accepted as the deposit and then you have 4 months to go off and get the balance.
If you fail to come back with the balance within that time OR if for some wonderful reason the transaction fails due to the property being not able to transfer to your name, you lose that deposit.
Lots of Ifs, but what if?
One has to be reminded for example that in the case of low cost flats or bumi-lots, one has to be qualified to purchase either. So, if one bids for these properties and later found that for some reason, one is not a bumiputera... one loses the deposit... so beware and make sure any searches or checks are done before bidding.
Then, the auction took off.... there were about a hundred properties put up for auction today but less than half actually attracted bidders. Most properties only had 2 to 3 bidders. In cases only 1 bidder registered, the property was sold at the reserve price. Then at almost the end of the auction came 2 hot properties, a Sunway Court 3 bedroom unit in Sunway PJS7 (which is very close to the new Taylors College Lakeside campus) and the MyPlace Apartment which I came for.
The Sunway Court auction attracted 32 bidders with a reserve price of RM130k. The bidding started with someone at the back shouting "RM170k"! And then subsequently, the bid raised by RM2k at every raise of hand. Then, the same guy shouted "RM190k" and it went on again until it passed RM200k, he gave up. The bid closed at RM202k.
Then came the MyPlace Apartment unit. There were 42 registered bidders. The Auctioner announced that each raise of hand will be a jump of RM5k starting from RM220k, the reserve price. The bid went off very fast..and in less than 2 minutes, we already passed RM280k. I gave up at this point because I thought firstly the bank valuation will be around this value and secondly, it would not have made a good investment for anything higher... considering the unit is old and the costs of renovations, not yet include all the liabilities. Finally, the bid closed at RM335k and I am very sorry for the person who won it.
But if everyone is sensible, where would it have stopped? I am sure more than 1 person would agree to pay RM280k. In a property transaction, this would mean the 1st person to lay down the deposit. But in an auction, the price keeps going up until everyone else gives up. I seem to observe that the size of the crowd did influence some emotions. Initially I told myself I would stop at RM270k but in the frenzy, I raised my paddle at RM280k. I was pretty sure the last bid was RM305k but since everything went so fast, I didn't realize the paddles went up 6 more times and closed at RM335k... I am sure the guy who won it probably woke up after that with cold sweat!
It is a game of psychology. The auctioners deliberately put the 2 most popular properties at the end so that the big crowd stayed in the room till the end. This helped to pump up the auction for the earlier properties. As a result too, with the huge crowd, the 2 hot properties went up beyond expectations and closed at a record price, much better than if they had performed in an open market.
Well, lessons learnt... next time, stay in bed on a Saturday morning!


Anonymous said...

It's really great... felt like I was there! Keeping up the good work of sharing!

MPL said...

very informative sharing the whole auction process. This give us more understanding about how to bid for auction property in Malaysia.

Helmy said...

Great article Sin Leong. I've always wondered how property auctions work. Such large participations too. Sorry you didn't win it. Better luck next time :)

KVINLIM said...

thanks for sharing. I do also really wonder how it works. It seems people are aware of the good deal also most of the time, and possible making it worse with the greed and fear emotion ... but good experience. would like to attend once to observe.

Mary said...

Hi Sin Leong,
Very well written. Keep up the good work and thank you for sharing. Waiting for your continuation article on Sri Tanjung Pinang.

Haruki said...

Thanks Sin Leong for sharing your experience. I don't understand why some guy would just top up 50k at the start of a bid?! Do you think it is rigged to raise the price from the beginning?

sinleong said...

i wont like to accuse professional auction companies of rigging. however, the crowd did play a difference psychologically. and the low reserve price helps to pull in the crowd. imagine if the reserve price for sunway unit was placed closer to the market value of the property, it would not have attracted many people. so, everyone thinks they have a chance of grabbing a cheap sale.
that guy who topped up RM50k at the start of the bid could well be impatient.

MalaysiaProperty Tumblr said...

This has got to be one of the most informative articles on property auctions. Thanks for sharing sinleong!

And keep up the good work!

home rent kuala lumpur said...

that's very nice article sing leong

Mr. Pian Ercole Russo said...

Dear Sin Leong,

The info that your just share was so good but your forgot to mention after you lose the auction did you get your deposit money back?


sinleong said...

yes i did. they just returned the envelope with my bank draft inside without opening it

K3n! said...

hi sin leong,

Love your detailed explanations and that kinda got me excited to start my journey on the route to auctioned property.

I would like to ask for some advice though... so recently i just bought a piece of property via auction at a good price :) everything was all good and well except until we went to the property (still owner occupied) and now hes threatening to destroy the property unless we pay him off a little something something. Any ideas on how to deal with this? perhaps you've come across such a thing before?