There have been several instances reported in the last few months where a home that went to auction ended up being damaged. It is certainly a possibility that a person facing the loss of their home bears ill will toward the lender and will take whatever steps necessary to ensure the property is devalued before leaving the premises.
Many times the displaced homeowner will take everything possible with them, including such items as the shower head, light bulbs, and kitchen appliances. In extreme cases, landscaping is maliciously poisoned, trash is dumped on the grounds, or other wilful destruction perpetrated.
Auction Buyers Beware
What this means to the person looking for a bargain at a home auction is that the considered property could require a large investment in renovation, replacement, and repair. Until the day that the new mortgagee takes possession of the home, anything can - and often does - happen.
This is a real risk and one that must be factored into financial consideration. When you buy a house at auction, you are purchasing the property "as is". There is no warranty, and certainly no guarantee that all the fixtures and furnishings will be in place upon the move-in date. In fact, the house may not even be vacant.
The selling price of auctioned properties is generally 30% less than the market valuation. This is due to the absence of any warranty or guarantees of the home's contents.
Buyer Options
When a purchase contract does not include chattels and fixtures, it is up to the buyer to ensure they are fully aware of exactly what they are getting. Chattels are those items not actually installed and easily removable such as window coverings, appliances, light fixtures, or even such things as door handles whilst fixtures refers to any object hard-wired into the home or part of its construction.
The best way to minimise the risk of purchasing an auction property is to finalise the contract and take possession as quickly as possible. This prevents the disgruntled debtor from taking destructive action whilst the house is vacant. Remember to factor in the expense of replacing chattels and fixtures in determining whether or not the investment will be a profitable one.
A bargain is not really a good deal if the buyer enters the transaction with blinders. Yes, you can make money by purchasing an auction property but do be aware that the cost of making improvements and additions may negate the expected profitability.
Author Resource:
Paul Easton is working with Gilligan Rowe & Associates are New Zealand Accountants and are a specialist Accountant firm and experts in property and family trusts.
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