Facts Behind Low-Price Home Auctions

Considering home is our primary and basic need, we are familiar with the two ways to buy a home—cash and through a mortgage.

Auctioned house, Indonesia house auction system, buying auctioned house
Minute Read

3 mins

Published

03.02.2021

With property prices that keep rising every year, owning a home seems impossible. Considering home is our primary and basic need, we are familiar with the two ways to buy a home—cash and through a mortgage. However, apart from these two ways of buying a home, there are other options that you can consider, that is the auction of bank foreclosures. When it comes to buying a low-priced home, houses sold at an auction are usually cheaper and priced below the market values.

Home auctions are done by the creditors to prevent losses of the credit that have been disbursed to the debtor. As a result, houses sold in an auction are priced under the market rates. Other than a private auction house—BTN, Mandiri, and BNI are the three state-owned banks that usually publicly held a home auction.

Houses that are sold in auction are typically confiscated houses, either from debts or the homeowner fell behind on their mortgage installments with their mortgage leader. During the auction, bidders decide how much the cost of a home is worth and works by understanding the local prices in the area. As so, buying a property at an auction is cheaper than buying from a real estate agent.

Bear in mind, even if the houses at auction are priced under the market rates—the bank as the originator has set up the minimum price limit, so there will be no arbitrary bargain.

Auctioned house, Indonesia house auction system, buying auctioned house

What You Need To Know

Whilst an auction can be held online and in-person, there are several steps that you need to undergo to buy a home at auction, and the first is to register yourself with the private sector or Kantor Kekayaan Negara dan Lelang (KPKNL) appointed by the bank. Then, there will be some 20%-25% security deposit that you need to pay but will be returned if you do not win the auction—if you won the property auction, the fee must be paid in full amount within a predetermined period.

Before you put in your bid, a house being sold at the auction is rarely in perfect condition. There are still chances that you still need to do some repairs, which means that you also have to make sure to make an additional budget of your time and money for it. Nonetheless, buying an auction house means that you are saving major cash.

Remember, at any time when buying a house, it is important to do your research on the neighbourhood to not only get to know the nearby area and the property itself but also to understand the market price before putting your bid.

Can You Buy a Home at Auction With a Mortgage?

In Indonesia, BTN and BRI bank are the two banks that provide a mortgage service. But before applying for a mortgage, carefully look into the condition of the house as it is likely that the bank’s appraisal value will be low if the condition of the house does not match the market price.

The Advantages of Buying an Auction Home

Apart from the price that is below the market value, buying an auction house is safe. Although we have to still make sure that all the completeness of the home certificates—including the building permit and property tax, a property that is confiscated and then auctioned off by the bank will always be inspected and ensure that all the house documents are complete.

Auctioned house, Indonesia house auction system, buying auctioned house

The other advantage of buying an auction house is the tax relief. The Acquisition Fee for Land and Building Rights (BPHTB) is the benchmark for tax payment from the auction home—which is the benchmark for tax payment from the auction home—which is the purchase or sale of land and buildings originating from the minutes of the auction. This makes the tax that the homebuyers need to pay much lesser than buying a home in a traditional route.

The low-priced auction home makes an alternative to those who want to own private property at an affordable price. But remember, buying an auction home comes with the requirement to pay off the property within the predetermined time. Therefore, in that case, you need to have a large sum of funds for the auction process to run smoothly.

However, you can consider applying for a mortgage if you do not have insufficient funds to pay off the auction home. This way, a mortgage can help you to get a house at a lower price, while you can pay less by understanding your home instalment loan simulation.