KUALA LUMPUR: Imagine buying a house without ever seeing its interior. You have no opportunity to inspect the condition of its floors, walls, bathrooms or kitchen up close.
Yet, you proceed with a bid and successfully acquire the property.
While this may sound daunting to some, buyers who understand the intricacies of property auctions may see it as an attractive opportunity.
The question is whether buying an auction property without viewing its interior is a high-risk move or an opportunity for higher returns.
The answer depends on how well a buyer prepares before placing a bid.
Before bidding, buyers should read the Proclamation of Sale (POS), which is more than just a formality.
The document outlines key details, including the reserve price, deposit, settlement period, buyer's responsibilities and terms of sale.
For first-time auction participants, understanding these details can make the difference between a well-planned purchase and a rushed decision.
One of the main attractions of auction properties is that their reserve prices can sometimes be lower than market prices or those of comparable subsale properties.
For example, a property with an estimated market value of RM400,000 may be offered at a lower reserve price.
This price difference could give buyers an advantage by allowing them to acquire a property below its market value. However, the gap between the reserve price and market value should not automatically be regarded as a profit.
More importantly, buyers must calculate the total cost of acquiring the property. This includes the purchase price, legal fees, stamp duty, financing costs, registration fees and any repair or renovation expenses.
If the property remains attractively priced relative to its market value after accounting for these costs, that is where its real potential lies.
Many people still assume that auction properties are necessarily damaged, burdened by substantial arrears or occupied by people who are difficult to evict.
In reality, not all auction properties fall into these categories. They can range from apartments, condominiums and serviced apartments to terraced houses and commercial properties.
The condition and risks vary from one property to another. Therefore, auction properties should not automatically be regarded as high-risk investments.
Instead, each property should be assessed based on its condition and the information available.
One of the main reasons buyers are hesitant to purchase auction properties is that they may not be allowed to enter and inspect the interior before bidding.
While it is true that auction buyers may not have the same opportunity to conduct internal inspections as subsale buyers, this does not mean they have to bid blindly.
Available property information, photographs, location, external condition, building management details and information contained in the POS can help buyers make an initial assessment.
Buyers can also seek information from relevant parties and consult a lawyer before making a decision. In other words, buying an auction property is not simply a matter of being brave or cautious but of knowing what to check.
Another common concern is what happens if the property is still occupied.
Some auction properties may indeed be occupied by former owners, tenants or squatters.
This must be taken into account, as ownership of a property does not necessarily mean the buyer can immediately move in and take possession on the same day.
However, this does not automatically make the property an unworthy purchase. What matters is that buyers understand the property's status, the terms of the POS and the procedures required after the purchase.
Any action to remove occupants must also be carried out through the proper legal channels.
Outstanding land tax, assessment tax, maintenance charges and other fees are additional concerns that often deter buyers from auction properties.
Again, these are not matters to be feared blindly but costs that must be calculated.
Buyers should establish what arrears exist, who is responsible for them and how these liabilities are addressed in the POS.
They should not focus solely on the reserve price while overlooking other potential costs. In some cases, even after accounting for additional expenses, the overall cost of the property may remain attractive compared with other options on the market.
This is where the potential for higher returns begins. Buyers who are willing to conduct the necessary checks and calculate costs carefully may have an opportunity to acquire properties at more attractive prices.
For some buyers, the price difference could provide room for renovations, rental income or potential capital appreciation in the future, depending on the property's location and market conditions.
Auction properties do carry certain risks, but risk does not necessarily mean a purchase is not worthwhile.
In fact, risks that are identified and properly assessed can form part of a strategy to achieve higher returns.
Consider two buyers looking at the same property. The first focuses only on the price and becomes apprehensive upon hearing about arrears, occupants or the property's condition.
The second conducts due diligence, calculates all costs, assesses the location, secures financing and understands the POS.
The second buyer is not necessarily taking on greater risk. Instead, they are better prepared to manage it.
This is what distinguishes buying an auction property by chance from making a strategic investment.
For investors, auction properties can also offer opportunities to acquire assets at attractive prices, upgrade them and potentially benefit from capital appreciation or rental income, depending on the location and market conditions.
For first-time homebuyers, auction properties may also be worth considering, provided the price, financing arrangements and purchase are within their financial means.
Therefore, buyers should not dismiss auction properties simply because of the risks involved. As with any property purchase, knowledge and preparation are essential.
Instead of asking only, "How cheap is this property?", buyers should also ask, "How much will I actually have to spend, and what value will I get in return?"
In the auction property market, a low price may open the door to an opportunity, while risks must be understood and managed.
For those who understand the process, conduct the necessary checks and know the intricacies of property auctions, auction properties are more than just an alternative option. They could potentially be a gold mine.
The writer is a lawyer at Tetuan Nazri Azmi Islinda.
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