How to buy property at an auction
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Arun planned to invest in a good property for some time and it was only when a friend suggested considering properties being auctioned by the banks, he decided to find out more about them. As he researched, he was surprised to note that most of these properties were valued at a price much lower than their current market value.
With the price of properties soaring incessantly, this seemed like the perfect way of owning one at a good price.
How it works: The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act of 2002 allows banks and financial institutions to recover their dues from defaulting borrowers by auctioning the property pledged by them.
This does not require the intervention of the court, which implies that banks can take over the property at the earliest.
Fixing the Reserve Price: After the property has been taken over, an independent market surveyor conducts a valuation exercise and ascertains two values of the property. The first value is the current market price while the other is the reserve price or the distress value.
The reserve price is the minimum bid price at which a bank is willing to auction the property. This price includes the principal loan amount along with the interest and is usually lower than the ongoing market price.
The reserve price is finalised by an authorised officer along with the independent surveyor. It is this price of the property that is quoted during an auction and at which the bidding process begins. As the auction progresses, the price would increase depending upon the bids as well as the location of the property. This gives buyers an opportunity to buy a property at a price lower than its market value.