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Buying a house at auction is a very convenient solution for those who want to save a considerable amount on the normal price of a property. In fact, compared to the market value, with the purchase through a real estate auction it is possible to obtain a discount of up to 20-30% and in some cases, as we will see, up to 50%.
In this guide, we will find out what are the advantages of buying a house at an auction and how the procedure for winning a property through the court works. We will also provide some tips on how to find a real estate deal and see what to pay particular attention to avoid mistakes.
Buying a house at auction: how it works
The property that ends up in a judicial auction has undergone a journey that sometimes lasts many years. On the basis, there may be foreclosure by a bank or anyone who has a claim against the owner of a property. In this case, the procedure for the forced expropriation of the asset starts in order to recover the sums due from the creditors.
Another case applies to buildings owned by public bodies, such as municipalities that decide to dispose of land or buildings in disuse, and for this, they must do so through a public auction.
In particular, there are three reasons why a property goes to auction:
- the first case concerns the homes of individuals who are unable to pay the loan to the bank where they applied for a mortgage loan;
- the second reason, the most widespread in recent years, sees as protagonists the companies that suffer bankruptcy, whose properties are first foreclosed and then auctioned;
- the third case concerns precisely the public bodies, which in order to sell a real estate property, by law, must necessarily do so through the competent territorial court.
Once the property enters the judicial auction procedure, the competent court publishes the description of the property through its website, the appraisal of a trusted technician of the same court, the address of the property and the date of the judicial auction, in addition to the procedure for participating.
Anyone, except for the enforced debtor, can participate in a judicial auction and offer the price they deem appropriate, starting from a starting value attributed by the court based on the indications of the expert and which can be increased by the participants with a minimum increase established by the order of sale.
The proceeds from the auction sale are intended to repay, in whole or in part, the banks and creditors of the debtor to whom the property was foreclosed.
Buying a property at auction: practical advice
For many, buying a house by participating in a judicial auction is still considered a complex action and only for professionals, but in reality, to realize the dream of buying a property with a strong discount on the price, no technical skills are required, nor much less legal. With the right preparation and foresight, anyone can participate in a judicial auction independently.
Before participating in a judicial auction to try to win the property of your interest, it is essential to know the basic rules and follow some tips in order not to fall into easy mistakes. Let’s see them:
- carefully read all the documents available on the court’s website, in particular, the appraisal which specifies any constraints, cadastral anomalies and the related charges to be borne by the buyer;
- contact the bankruptcy trustee as soon as possible to make an appointment to view the property and ask for any doubts to be resolved;
- establish in advance the maximum limit that you are willing to offer, without getting “involved in the competition” and considering both your availability and the possible amount of the loan, which for greater security can be requested even before participating in the auction;
- have at least 10% of the price to be offered available in order to be able to present themselves at the judicial auction, the minimum percentage of down payment usually accepted by the courts to participate in the tender;
- be aware of all costs related to the sale, as well as the charges to be incurred in the event of abuses or cadastral irregularities present on the property. We remind you that in addition to the award price of the asset, the buyer will have to pay notary fees, registration tax or VAT, and in the case of a mortgage loan, all items relating to the taking out of the loan;
- consider the times established by the court. In the order of sale, the judge indicates how soon after the auction award date the price must be paid in order to become effective owners of the property. Usually, a period of 60 or 90 days is established. After this deadline without having paid the promised sum, the court will consider the successful bidder in default, who will lose the deposit paid as a fine, plus any other costs that may be charged to him;
- make sure that the property is not occupied or in any case, check whether the release of the property is foreseen in the order of sale by the date of the signature of the decree by the judge so as not to have to request the intervention of the public forces.
- seek the assistance of a professional with experience buying homes at auction, including an accountant, lawyer or credit broker if you are applying for a mortgage.
Buying house at auction: how to present the offer
Nell’s court order is given all the information needed to participate in the auction proper judicial manner relative to the property of interest. It is possible to rely on professionals, specialized real estate agencies or ask for the advice of a lawyer or notary’s office designated by the court.
The process for submitting the purchase offer begins with the presentation, as a deposit, of a cashier‘s check in a sealed envelope equal to 10% of the proposed price which must be delivered to the place indicated in the court order, usually at a law firm or by the notary chosen by the judge.
The deposit must be presented within the established deadlines and usually within the day before the judicial auction. The participant must also present a photocopy of his identity document and tax code, in addition to the documents required in the ordinance.
Difference selling with charm and without charm
The procedure for winning a property at auction involves two types of sale: without enchantment and with enchantment.
The sale without enchantment provides for the instant award of the property at the time of the auction. In this case, the successful bidder is obliged to pay the balance price within the terms established by the court.
Otherwise, the sale with enchantment does not guarantee the winner of the tender the definitive award. In fact, within 10 days of the judicial auction, it is possible that other parties submit new bids, with the requirement that they are 1/5 higher than the price reached in the auction.
Is it worth buying a house at auction?
In the official document of the court which highlights the characteristics to be respected in order to present one’s offer, the amount of any discount is also indicated in the event that the auction should go deserted. In fact, it is important to know that after each unsuccessful attempt to sell the asset, the judge can order a price reduction of up to 25% compared to the previous value, and if even in the three subsequent appointments no one should appear at the auction, the initial price could drop by up to 50%.
For this reason, buying a house at an auction can be very convenient, especially for those who do not have the possibility to buy a property at the normal market price, to the advantage, for example, of many young couples who have found the ideal solution in real estate auctions. to buy your home.
Attention to the cadastral conditions of the property
Often, especially for older homes, it happens that the property at auction presents anomalies or cadastral problems. These, as reported by the technical report attached to the announcement, must be remedied by the purchaser as soon as it takes possession of the property, or after the transfer decree.
The same report drawn up by the court’s trusted technician reports all the discrepancies present and estimates the costs of regularization. Based on this information, the participant in the auction should consider the price to offer, which will have to take into account the expenses he will have to incur in the future to make the property compliant with the law.
For the benefit of those who buy, on the order of the judge who will assign the property to the new owner, the awarded property will be delivered free from mortgages, previous foreclosures, and other detrimental transcripts.
Attention to the rights acquired before the notification of the attachment of the property, such as the usufruct, in the presence of which, even the judge himself cannot order the cancellation.
The same also applies in the event that the property is occupied by a tenant with a regular rental contract signed before the auction procedure of the property. Whoever wins the property, in this specific situation, will have to wait for the natural expiry of the lease before being able to take possession of the property awarded at auction.
Participate in the auction electronically
The Public Sales Portal, managed by the Ministry of Justice, has been active since 2018, which allows you to submit a purchase offer electronically. Despite the digitization of the auction procedure, the traditional method of physical participation in the court continues to exist and still remains the most widespread today.
Through the portal, moreover, it is possible to search, based on the required characteristics, the type of property desired. The search can be filtered by entering the data relating to the city, the competent court, and the basic auction price.
Home purchase at auction: first home subsidies
The sale of real estate through an auction follows the same procedure as for other buildings. Therefore, in the case of the purchase of the main residence, the successful bidder will be able to request the first home benefits and pay a reduced registration tax, or VAT.
Buying a property at auction through a mortgage
When you buy a property at auction, you can access a mortgage loan. However, not all banks provide for the provision of a loan for purchase at auction. For this reason, it is advisable to move in time and identify the institution to apply for a mortgage as soon as possible.
In this regard, various credit institutions offer their customers the possibility of obtaining a pre-feasibility of the loan transaction in order to present themselves at auction with the certainty of being financeable and allow the participant to lean more confidently towards a higher price in order to win the property more easily.
In addition, some banks grant a mortgage at 100% of the auction hammer price, allowing the borrower to pay only the ancillary costs. The reason why banks come to finance a higher amount in the presence of an auction is linked to the value of the mortgaged property, which is usually higher than what was paid at the auction. An extra guarantee for both the buyer and the bank.