Real estate auction: what is it?
A real estate auction is a judicial sale by which a property is sold to the highest bidder during a hearing before the judicial court. It most often occurs in two situations: real estate foreclosure, when a debtor can no longer meet his due dates, or licitation, when joint owners cannot agree on the fate of jointly owned property.
Unlike a private sale, tendering follows a strict formalism, regulated by the Code of Civil Enforcement Procedures. The property is priced at a starting price fixed by order of the enforcement judge, and the auctions take place at the hearing, exclusively through a lawyer. It is not possible to bid yourself: you must mandate a lawyer registered at the bar of the competent court.
A real opportunity for savvy buyers
Auctions attract buyers for one main reason: the prices displayed can be significantly lower than the market value, especially when the starting price is set low to encourage auctions. In a tight market such as that of Paris or large cities, this represents an interesting lever for acquiring a property at conditions that are inaccessible for traditional sales.
The profiles that are positioned on this type of sale are very varied: rental investors, property dealers, patient first-time buyers, or even renovation professionals. In all cases, the common point is thorough preparation prior to the hearing.
The auction is not a sale like any other. Knowledge of the procedure and associated risks makes all the difference between a good deal and a costly commitment.
Risks that should not be underestimated
The auction has specific features that make it an operation in its own right, with its own risks that the uninformed purchaser can easily overlook.
The absence of the usual guarantees
In a traditional real estate sale, the seller is bound by a guarantee against hidden defects and must provide a complete diagnostic file before signing. In terms of tendering, these guarantees are very limited. The sale is made “as is”, which means that the successful bidder cannot, in principle, appeal against the debtor seized for defects discovered after the sale.
Some diagnoses may be available in the registry file, but they are sometimes incomplete or outdated. A visit to the property is organized prior to the hearing, but it remains limited and does not always allow for an accurate assessment of the real condition of the property.
Occupation of the property
One of the most delicate issues is the issue of occupation. The property may be occupied by the seized debtor, by a tenant in title, or by an occupier without right or title. The successful bidder must manage the release of the premises himself, which may require an eviction procedure — with the time and costs that this implies.
It is therefore essential, before any auction, to verify the occupancy situation of the property and to anticipate the cost and duration of a possible eviction procedure in your financing plan.
Deadlines and ancillary costs
The auction involves specific costs that are added to the auction price and that the purchaser must include in his calculation:
- procedural costs (bailiff fees, court fees, registration fees);
- the emoluments of the prosecuting lawyer and the lawyer representing the bidder;
- unpaid condominium fees: if the condominium regulations provide for it, a portion may remain the responsibility of the successful bidder;
- interest if the deadline for payment of the price is exceeded (10 working days from the auction).
This payment deadline is one of the most restrictive points. The successful bidder must have organized its financing in advance: no suspensive condition for obtaining a loan is possible in a judicial auction.
How do you prepare effectively?
Preparation is the key to a successful auction. It starts well before the day of the hearing and requires several essential steps.
- Consult the terms and conditions of sale : this document, available at the court registry, contains all the information relating to the property, the procedure and the expenses incumbent on the successful bidder;
- Visit the property during the visit organized by the bailiff, paying attention to structural elements and possible signs of occupancy;
- Analyzing condominium fees unpaid and any ongoing procedures;
- Securing its financing : the bank must be notified in advance, because the conditions of an auction loan are different from a traditional mortgage;
- Set your bid limit taking into account all ancillary costs and any work;
- Mandate a lawyer from the outset, to analyze the file, represent you at the hearing and manage post-award formalities.
After the auction: the steps not to be overlooked
Once the auction has been declared, the successful bidder has 10 working days to record the price, otherwise the property will be put back on sale by the candle at his own risk and peril. Once the price has been paid and the formalities have been completed, he becomes the owner of the property with retroactive effect to the day of the hearing.
There is also a 10-day period during which a third party can outbid the auction price by at least 10% — this is called overbidding. This possibility, which is often ignored, can call into question an auction obtained at a particularly low price.
Adjudication cannot be improvised. Legal support from the preparation phase is essential to secure the operation from A to Z.
The firm Aknin Associés assists buyers in all stages of judicial auctions: analysis of the file, representation at the hearing, management of post-auction formalities and, if necessary, procedures for vacating the premises.
