Opportunities and pitfalls in property auctions
With property sales prices up 60% in the past six years and rents skyrocketing, auctions seem to be the only way for a household to avoid the complications of the housing crisis.
They are not the only ones. Real estate firms are also looking for properties through foreclosure auctions, as the barrage of buying and selling in recent years has drastically reduced the stock of properties that combine a good location and an attractive price.
Of course, the increased buying interest in sales is not new. In 2019, when more and more people were looking for properties to acquire and turn into short-term rentals, a 48-square meter apartment in Pagrati it was sold for 54,000 euros, i.e. about 95% more than the starting price.
However, although the bidding process for the acquisition of real estate (as of 2019 due to the owner’s debts it is under the control of loan servicers) dates back to the 1950s, for the “uninitiated” it is a difficult field with many pitfalls. This may be why only 10%-15% of auctions are completed, with around 150,000 properties sold over the last four years with a total valuation of over €18 billion.
“Auctions present important opportunities but also hide pitfalls,” says Michalis Athanasiou, head of the real estate agency by the same name, whose activity dates back to 1952 and focuses exclusively on buying and selling real estate through auctions.
“The auctions, which as of February 2018 are only online, began in the early 1950s and were, initially, held in front of the auctioned property every Sunday in the presence of a notary, an official and two witnesses. From the mid-1970s the procedure was transferred to the former Santaroza courts for the Municipality of Athens and to the Criminal Court of Piraeus. In the rest of the municipalities, the process took place in public spaces with… chairs and tables, but also in coffee shops. At that time, no more than 10 properties were auctioned per week in Athens, while today they reach 250-300. They began to increase progressively from 1990 as banks’ credit expansion expanded,” he explains to Kathimerini.
‘What you see is what you get’
But how can one acquire a property through the e-auction hub? After the interested parties have selected the property that meets the desired criteria in terms of location, price and area and have studied in depth the – posted on the e-auction – seizure and appraisal reports, they should register on the online platform.
“However they should know that it is not possible to visit the inside of the property, which they can only see from the outside. Until 2018, when the relevant provision was repealed because it was practically unenforceable, the visit of the bailiff to the property was allowed,” says Athanasiou.
The process of managing and conducting electronic auctions is undertaken by certified notaries, but the submission of bids, usually every Wednesday, is recommended to be done, on behalf of the prospective bidder, by professionals with a good knowledge of the subject.
“Mistakes that can be made during the bidding process are costly. For example, if the participant mistypes one more digit, e.g. €500,000 instead of €50,000, this mistake, as exaggerated as it may seem, cannot be corrected. As a result, the guarantee amounting to 30% of the price of the first offer, is forfeited and not recovered,” he explains.
Bidding
The mechanism of the bidding process is simple. Whoever submits the highest asking price, relative to the first bid price, is the winner. However, bidding more than the asking price, although it is a key step, is only one of the necessary steps to the final destination of securing the possession of a property. This is because the bidder is faced with the possibility of having the validity of an auction challenged, if the debtor considers that the procedure was flawed.
The auction can be contested either 45 days after the foreclosure has taken place or 60 days after the summary of the foreclosure report (written after the completion of an auction) is transcribed at the mortgage office.
“The legislation provides for the examination of the objection within a few months of its submission. However, the determination of jurisdiction may even require years due to the workload of courts,” warns Athanasiou. As long as the auction has been conducted according to what the law provides, the objection is rarely accepted. “Otherwise, the bidder would see his money frozen in a property that he won’t be able to capitalize on at least until the landscape clears up.”
The price of the auction must be paid within 10 working days from the date of award to a special unseized special-purpose bank account where the guarantee money has also been deposited.
“It seems paradoxical, but there are many cases where bidders are unaware that they have to pay the amount immediately, asking for time to pay the rest of the price, as a result of which they lose their guarantee payment,” reports Athanasiou.
No keys
Another issue overlooked by those participating in an auction is that there are no keys to the property. “In other words, they will have to enter it in the presence of a bailiff and with the help of a locksmith,” adds the head of Athanasiou Real Estate Services.
A “trap” noted in many cases is related to the mismatch of a property that appears for sale in an advertisement, in relation to the real one. “It has happened that the former owner has combined the property that is being auctioned with his neighbor’s. However, if the property being sold does not have a door, then the bidder can neither gain access to it nor obtain possession of it, i.e. physical authority over it.
Furthermore, given that the bailiff cannot have on-site access, it has happened that apartments are unfinished, even though the building they belong to is fully functional”, notes Athanasiou.
Also, if the property is leased, it is not possible to evict the tenant before six months have passed if it is commercial accommodation. Worse, if it is a residential property, the three-year period provided for by law must be completed, which makes it impossible to take advantage of a rented apartment.
What is common in auctions is hostile relations between the debtors and the expeditors, mostly banks. Therefore, those who lose their home usually leave nothing standing, removing everything that can be removed, such as sockets and electrical panels, resulting in many cases of the interior being in particularly poor condition. In other words, “a large number of properties that are auctioned have extensive damage, in addition to damage due to age”, as Athanasiou emphasizes to Kathimerini.
