Should You Buy a House From Auctioneers in Kenya? Pros and Cons

Should You Buy a House From Auctioneers in Kenya? Pros and Cons

Are you contemplating investing in real estate but torn between buying a house or land at an auction? It’s a common dilemma for many potential investors.

Recently, the number of loan defaulters has increased with the rising cost of living and the deteriorating economy.

Now and then, newspaper outlets are filled with adverts from auctioneers calling for bidders to purchase land, houses, rentals, commercial property, and other assets like cars and furniture.

Although the property enlisted in the auctions may seem affordable, it doesn’t mean the exercise is risk-free. Keep in mind the non-refundable deposits in some auctions. The highest bidder smiles all the way home.

Can I buy a home through an auction?

Previously, buying property from an auction was a preserve for cash buyers and investors, although that narrative has changed.

So yes, you can buy a house or land from an auctioneer. Auctions provide a unique opportunity for individuals to purchase properties through a competitive bidding process.

Property being sold can be of different types such as foreclosures, distressed sales, bank-owned properties, or those being sold by homeowners or real estate investors.

Auction properties can be listed in newspapers or on auctioneer websites and social media profiles.

Types of auction

You should be aware of different kinds of auctions, from reverse to minimum bid and absolute auctions.

The minimum bid auction has a set minimum price during the bidding which the auctioneer mentions before the bidding process begins.

Absolute dictates the highest bidder will purchase the auctioned property. In the reverse auction, the seller or auctioneer can accept, reject, or counter the winning bid.

How a House Auction Works

Usually, property is seized and auctioned for property tax default, foreclosure, or loan default if used as security or collateral.

Foreclosure

This happens when a person doesn’t make their mortgage payments for several months or renegotiate a payment plan with a lender such as a bank. In such cases, the lender files a notice of default with the county recorder and if no payments are made, the lender can legally force the owner out and place the house or land for auction.

Foreclosure auctions are mainly held by bank-hired trustees.

Property Tax Default

It occurs when the property owner defaults property tax on their home. The property is seized by the tax authority and not the bank.

Buying a Property at Auction

Pros

Immediate usability. You can buy a house at auction and move in or start generating income right away. It’s particularly appealing for individuals looking for a quick return on investment.

Known condition. Unlike purchasing and developing land, when you buy a house at auction, you have a better idea of its condition. In most cases, someone was already living in the house. Auction properties mostly come with detailed inspection reports, giving you a clearer picture of any potential issues or renovation needs.

Potential for bargains. Auctions can sometimes present opportunities to snag a property at a below-market price. The goal is to sell faster and recover the required amount. Motivated sellers, distressed properties, or foreclosure auctions can result in significant savings for savvy buyers.

Contracts are signed as soon as the auction has finished.

Cons

Competition. Property at auctions can be fiercely competitive, driving up prices. In the end, the highest bidder wins. It’s good to set a strict budget and stick to it to avoid overpaying in the heat of the moment.

Limited customization. Although you are buying a house or property with immediate usability, it also means inheriting the existing structure and layout. If you have specific customization plans in mind, you might find yourself constrained by the property’s existing features.

Hidden costs. Auction properties often come with additional fees and costs that buyers should consider like potential repair expenses, auctioneer fees, and closing costs. Factor these into your budget to avoid financial surprises down the line.

Limited inspection time. Auctions allow limited time for property inspection. This means you might not have enough time to thoroughly assess the condition of the property, potentially leading to unexpected post-purchase issues.

What is the Auction Fee in Kenya?

Keep in mind that buyers are responsible for covering transaction costs when buying property from an auction. Some costs that may arise during the process of acquiring a property include fixed costs, commission fees, and fees charged by chosen professionals. They can vary depending on the required documents, the type of real estate, and the property’s location.

Auction rules and regulations are governed by the Auctioneers Act and the Auctioneer’s Rules. The rules outline the guidelines for auctioneers’ charges in scenarios like distraint, repossession, and attachment.

Wrap Up

Auctions offer great deals when it comes to property. However, while they offer opportunities to buy at potentially lower prices, the risks involved necessitate careful consideration and thorough research before participating.

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