In recent years, the number of individuals defaulting on loans increased as the economy deteriorated and the cost of living rose.
Newspapers outlets continue to be filled with adverts paid by auctioneers calling on bidders to purchase rental homes, commercial property and other assets such as land and cars put on offer.
The property enlisted in the auctions may be affordable to the consumer but this does not guarantee that the exercise is risk-free.
First, keep in mind that bidders pay non-refundable deposits in some auctions and end up failing to purchase any property as the highest bidder smiles all the way home.
In an interview with Kenyans.co.ke, Geoffrey Maina, an auctioneer explained in detail what members of the public should consider before purchasing a property from an auction.
Types of auction
An individual should be aware of the different kinds of auctions, from minimum bid, absolute, to reverse auctions.
The minimum bid and absolute auctions are the most common. The minimum bid auction has an established minimum price during the bidding which is published and announced by the auctioneer before the bidding of the property.
Absolute action dictates that the highest bidder will acquire the auctioned property. In a reverse auction, the seller of the property can reject, accept or counter the winning bid.
They are limited by time as they should make their final decision before the auction event ends.
“The reserve auction is the most unpopular of the three because of the possibility that the winning bid might be rejected,” Maina stated.
Bidding process
Prospective bidders are given a specific time and place for the bidders to view and participate in the process.
The bidding process is systematic to allow serious bidders into the event. Bidders will be required to deposit a certain amount to receive bid numbers.
Individuals who have won the bid are expected to deposit at least 10 per cent of the bidding price to the auctioneers and complete the balance within 14 days.
“If the auctioned property has a fixed upper limit it is wise to be flexible and bow out if the price goes higher than what you expected. Checking your ego and emotions is essential to avoid paying above the market value of the property.” Maina explained.
Cost of repair
In some auctions, there are clear instructions that the auctioneers are not responsible for the condition or state of the item purchased. A bidder should be careful when inspecting the items before the auction date.
“There are properties sold to the bidders that financially distress them in terms of maintaining the property that has deteriorated due to neglect. Sale at the auction is on an ‘as is, where is basis’ which means the sellers involved do not bear any liability if issues arise in the future.
"The public should confirm the validity of the auctioneer, some auctioneers are not licensed by Kenya Auctioneers Licensing Board.”Maina elaborated.
Consumer rights
Individuals should not expect the sellers and auctioneers to do their due diligence on their behalf. Members of the public should seek the services of a lawyer when property such as land and apartments are involved.
Issues such as regulatory alterations, joint-owned properties will present a bottleneck to the winning bidder especially if there are more parties involved after the transaction.
“An individual should involve a lawyer since some auctioneers may not follow the law depending on the auction. Bidders can challenge the legality of the sale.”Maina explained.
Uncleared payments
A buyer should be wary of properties that have uncleared payments to financial institutions. Financial institutions are strict when recovering outstanding loan amounts.
If a property with uncleared payments is transferred to a bidder, financial institutions will follow up with the new owner to complete the outstanding loans.
“When an individual seeks to acquire auctioned property they should verify rates, taxes, and utility bills to avoid potential litigation processes,” he warned
Possession Issues
Individuals who seek to acquire immovable properties like plots and apartments should be aware of the distinction between symbolic and physical possession of a property.
When financial institutions are involved in a property, they have a symbolic possession legally but the owner has physical possession. Banks are required to take physical possession and transfer property rights to the new owner.
At times, the banks will complete a transaction and present the new owner with the challenge of vacating the previous owner from the property.
“The possession issues are rare with big financial institutions. There are microfinance institutions attached to such cases where the new owners were left with the challenge of existing the former owner.”He stated.
