Buying real estate at auction - how does it work and is it worth buying real estate there?

What is an auction?

An auction is a public sale of real estate and other property according to predetermined rules. The main condition is compliance with the principle of competition between buyers: whoever offers the highest price for housing will be sold to him at the end of the auction.

If we are talking about buying an apartment through an auction, the opposite is true: the buyer himself looks for lots acceptable to him, taking into account the parameters and cost of the property, and submits applications.

Note! The sale of an apartment under Federal Law 44 through an auction is carried out without fail by budgetary institutions that own the property being sold. There is no other way to implement it; it is a violation of the law.

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How is the winning bidder determined?

According to the legislation of the Russian Federation, the winner is the bidder who offered the highest price for the auctioned lot. Previously, the bidding was won by the participant who submitted the bid first, but now the new Federal Law has changed the bidding system.

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The auction organizer is given five days to conclude a purchase and sale agreement for the auctioned lot. If the winner of the auction is not announced, then the lot goes to the second participant. The deposit will not be returned to the first person. If during the auction only one application was submitted for the lot, then the auction organizer can transfer the lot to him without holding a auction or not count the auction at all.

If, after the participant’s victory, the organizers identified any violations or inconsistencies in documents, the winning bidder will automatically be excluded and will not receive his winnings.

What apartments are being sold at auction?

You can buy a variety of apartments at auction:

1. State or municipal property. The law obliges such institutions to sell property only through auction. It can be received under a state annuity contract, as well as through inheritance if the property is recognized as escheat. Or if the company is declared bankrupt and its real estate is sold.
2. Sold by real estate agencies. If the owner urgently needs money and is ready to significantly reduce the cost, a realtor can put his home up for auction. The agency itself may own the property if it previously bought it from another person.
3. The property is sold by the bank. If an apartment was pledged as collateral for a mortgage or consumer loan, and the borrower was unable to repay the lender, accumulating debts, it is sold through auction. The bank needs to get money faster. The remainder is given to the borrower.

Note: sometimes buying an apartment at auction is also possible from the developer. It probably won't be of the best quality if the company has to sell it that way.

Buying an apartment in favor of a third party

Buying an apartment in marriage for one of the spouses

How do electronic auctions of apartments work?

Apartments at auctions or auctions are sold in three stages:

1. At the first stage, the initial cost of the apartment - lot is established. As a rule, the price will be lower than the market value, and then buyers will make their offers regarding the value. The price will rise. At the first stage of bidding, the majority (about 60%) of the presented lots are sold. Buyers in this case have the opportunity to save about 10-15% of the cost of housing.
2. At the second stage, re-tendering takes place, which is similar to the first. The main and very important difference will be that the starting price will be approximately 10-20% lower than the original starting price. Thus, you can buy an apartment at the second stage even more profitably than at the first stage and save up to 30% of the market value of housing.
3. The most attractive is the third stage. In this case, during a public offer, the organizers can buy the property several times cheaper than it would cost on the real estate market. The third stage differs from the first two and is carried out as follows:

• the apartment is put up for auction with a starting price lower than what was announced in the first or second round;
• bidding takes place not to increase prices, but to decrease them.

In this case, the buyer can save 50-70% of the original cost of the apartment.

Terms of participation in the auction

The terms of purchase at the auction depend on the specific site - they are different everywhere. But in general the criteria look like this:

1. Registration on the site and obtaining an electronic key is required. It will be instead of a signature. You can order it from a certified company, SKB Kontur, Taskcom.”
2. Age of majority.
3. Making a security deposit to confirm the availability of money for the purchase. The amount varies from 100,000 to 300,000 rubles. If the buyer wins the auction, the money is applied to the property. If you lose, they will be returned to your bank account within 5 days.
4. Participants register approximately 5 days before the start of the auction.
5. The seller can determine the cost of the trade step. For example, if it is equal to 50,000 rubles, then the buyer has the right to raise the price by at least 50,000 rubles.

Example. The apartment is being sold at auction for 2,000,000 rubles, its real market value is 4,000,000 rubles. The trading step is equal to 100,000 rubles. The first auction participant offered to buy the property for 2,100,000 rubles, the second - for 2,500,000 rubles. If they had offered to raise the price not by 100,000, but by 50,000 rubles, this would not have been allowed at the site, because the step price is below the minimum. More is possible, less is not.

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Why is an advance paid?

Once the application for participation is approved, the participant must make an advance payment, which confirms the intentions of the potential buyer.

An advance payment is needed to ensure the fulfillment of obligations - if the buyer refuses to pay for the lot that he won
(at any stage of the auction)
, that is, in fact, disrupts the auction, the money will not be returned to him. All other participants after the end of the auction can safely withdraw their money, except for the winner, in his case the advance payment is counted towards the full payment amount. In principle, after the auction is closed, you don’t have to take the advance payment, but simply transfer it to future auctions.

How to buy an apartment at auction?

To buy an apartment through auction, you need to select a site and register on it. Most likely, the system will request passport data, TIN and bank account details. After this, the documents will be sent for verification, and after a few days the user will be informed about the results.

What to do after registration:

1. List the deposit. It will go to your personal account in the system.
2. Choose an apartment and submit an application. After this, the buyer will be checked again. If everything is in order, he will receive a notification of admission to trading.
3. Participate in the auction. Typically, trading is held on weekdays, from approximately 09.00 am. First you need to select the lot for which you have applied. If there are several applications, bidding is held. The rates increase every 30-60 minutes. If there is only one, the contract is concluded with the one who submitted it.
4. Receive an extract from the protocol of summing up the auction results by email.
5. Conclude a purchase and sale agreement (hereinafter referred to as the PSA) with the seller.
6. Submit documents to Rosreestr to register the transfer of ownership.

Payment under the agreement is most often made through an irrevocable letter of credit, and the bank acts as an intermediary between the seller and the buyer. Immediately after registration of ownership, the money will be transferred to the seller; this will take about a month from the moment the contract is signed.

Contents and sample agreement

If the owner sells the property on his own, he is indicated in the DCP as the seller. If a home is sold due to bankruptcy, a bankruptcy trustee acts on behalf of the debtor. Information about the parties to the transaction must be indicated in the DCP.

What else should be in the contract:

1. Information about the property: address, area, number of rooms, cadastral number, floor.
2. A document on the basis of which the property belongs to the seller.
3. Details of the protocol based on the results of the auction.
4. Cost of housing, payment procedure.
5. Rights, obligations, responsibilities of the parties.
6. Signatures of the parties to the transaction.

Consultation on document preparation

Documentation

To participate in the auction, the buyer will need a passport and a bank statement confirming that he has the money to purchase the property. When entering into a transaction, a passport and a protocol are sufficient.

The seller must provide an extract from the Unified State Register, a technical passport and a document on the basis of which he acquired ownership.

Expenses

The buyer's expenses when purchasing an apartment through electronic auctions are reduced to making a deposit and paying the state fee for re-registration of ownership (2,000 rubles). Additional costs are rare.

Models of participation in government procurement of real estate

Model№ 1

 — Participation on behalf of the owner
This scheme is extremely rare, because owners do not want to dive into the topic of government procurement; for them it is extremely difficult. And those who agree sell their property with the help of special organizations or representatives. The specialist helps in preparing an electronic signature, registering in the Unified Information System, opening a special account, participating in auctions, and concluding contracts. Thus, all actions occur under the control of the intermediary.

Important point!

If the documentation specifies the requirement that only owners can participate in the procedure, then in this case Model No. 1 is the only possible one.

Model№ 2

 — Participation on behalf of an intermediary (representative)
This option can be used by realtors and tender specialists. You need to find a suitable premises and act as a representative. It will be very difficult to explain the interaction algorithm to the owner, conclude an agency agreement with him and obtain a power of attorney to represent his interests (certified by a notary).

After winning the auction, it is important to draw up an additional agreement indicating the owner as a participant in the legal relationship. After receiving the money, the owner transfers you a percentage for the services. Moreover, the commission is agreed upon immediately so that there are no misunderstandings in the future.

Model№ 3

 — Buying an apartment for a won tender
The scheme of actions is similar to the scheme described in Model No. 2. Only after winning the apartment is bought from the owner, the purchase and sale agreement is entered into Rosreestr, and then resold to the customer. This is an expensive option, it is suitable for those who are ready to invest and have a financial reserve.

This option has its drawbacks. If the customer does not accept the housing, then it will remain with you. And in the future we will have to look for a buyer for it. It may turn out that you freeze your money for a long period.

Important point!

Before deciding to buy, agree on the apartment with the customer to determine whether it meets his requirements. 

How to sell an apartment through government procurement?

It is more difficult for an individual to sell an apartment through a UIS auction than for a budget organization. In the EIS, most of the advertisements are about sales, not purchases.

How to sell an apartment to the state through an auction:

1. Find in the Unified Information System a notice of the purchase of real estate in the region of its location.
2. Read the terms of reference to understand whether the living space is suitable.
3. Submit an application to participate in the auction.
4. Participate in the auction. The one who offers housing at a lower price will win.
5. Conclude an agreement and hand over the keys to the apartment to the customer.

Note! Selling an apartment through auction takes quite a long time. If the customer has no applications at all, the auction is not held. At least one participant is required.

Registration, application for participation in the auction, EPC

To take part in the auction, you first need to register on the electronic platform and submit an application, which will be included in the register of potential buyers. However, participation in the electronic trading format presupposes the emergence of legal relations between the participant and the auction organizer, and agreements (rights and obligations of the parties)

within these relationships must be recorded.
If, when signing an agreement in paper form, the obligations are recorded by affixing the signatures of the participants, then to submit an application (and for subsequent operations)
the participant is required to have an “electronic digital signature” or EDS.

An agreement signed via the Internet has the form of a file, and the digital signature is information that is attached to the file data. Electronic digital mail allows you to verify the identity of signatories and also makes it possible to find out whether the document has been altered after it was signed.

You can obtain an electronic signature from companies certified to issue electronic signatures; you need to collect and submit a package of documents, pay for the service and after a while receive a signature. By the way, some companies offer to issue a purchase order in just one hour, but the digital signature must be updated annually.

Risks of buying and selling an apartment through auction

Buying an apartment at auction is accompanied by quite a large number of pitfalls:

1. Old tenants may be registered in the apartment. They can be written out by agreement or through the court. It is more difficult if a minor child is registered: all actions will have to be coordinated with his parents or guardianship authority.
2. Reservation of the right of lifelong residence by a stranger. This happens when the seller initially buys an apartment under a contractual agreement with the right of residence by another person. It is almost impossible to challenge this, but such a nuance is usually communicated before the start of trading.
3. Unauthorized redevelopment. The new owner will have to re-register the documents themselves or return everything to its original form.
4. Debt for utilities. It does not pass to the new owner, but the HOA is unlikely to be interested in this. If there is a long period of non-payment, the electricity or water supply may be cut off, and the buyer will have to deal with this themselves.
5. Purchasing low-quality housing. Most of the real estate is sold through auctions with “grandmother’s” renovation or without it at all; having problems with utility networks.

Legal advice: sometimes people pay even more than the market value for apartments at auctions, getting excited. Dubious savings. It is advisable to decide on the maximum amount that can be spent on housing before the auction begins.

Elena Plokhuta

Lawyer, website author (Civil law, 7 years of experience)

The risks for the owner when selling an apartment through an auction are minimal. He can set any price. But if the buyer subsequently abandons the transaction and does not compensate for the losses incurred, he will have to go to court to recover.

Recommendations for participating in the auction

Keep in mind that the cost of housing will definitely increase relative to the original price, if, of course, the apartment is worthwhile, so determine the upper threshold in advance - the maximum amount of money you would like to pay. Auction trading is quite a gambling activity, and for this reason, the cost of real estate can rise higher than the prices of apartments with similar parameters that are available on the market, where you can buy them at any time. Therefore, determine for yourself a price limit, above which the transaction will, in fact, be meaningless.

Cases have been recorded when the cost of auction apartments during auctions exceeded the market price by one and a half times only due to the rush of participants. Therefore, try your best to stay within the limits, and remember that if you cannot pay the price you quoted, the advance payment will not be returned to you.

When buying an apartment at an auction, keep in mind that at the time of physical transfer of the apartment, residents may refuse to move out; such cases do occur. For example, refusal to evict may be motivated by the presence of a newborn, a disabled person, or a number of other reasons. Do not forget that apartments are often sold through an auction by a court decision, and not by the will of the owners, and in such a situation people often find themselves without money and physically cannot move to a rented apartment.

The district police officer will not help you in this matter.

To evict, you must apply to the court with a corresponding application; sometimes such processes drag on for years.
In addition, owners can stall for time in every possible way by remaining to live in the apartment, and in some cases this works out quite well. To do this, you just need to file various claims in court (and other authorities)
. Court decisions, the results of an auction, a court case with a mortgage bank, etc. may be challenged, and even if the case is obviously lost, the time allocated for consideration makes it possible to live in the apartment for an extended period.

Lawyer's answers to private questions

How long does it take to buy an apartment at auction?

About two months. You can register and receive an electronic key in one day. Finding a suitable lot takes an indefinite amount of time: it all depends on what the buyer wants. Registration is required 5 days before the start of the auction; the auction itself can be held for one hour or a week. When submitting documents through the MFC, ownership rights are issued in 9 working days; directly to Rosreestr – 7 working days.

I want to buy an apartment through an auction. The owner failed to pay the mortgage, the bank is selling it. How to find out if there are debts on contributions for major repairs?

You can find out if there is a debt by requesting the latest receipt from the seller.

I won the auction, but I want to refuse to buy the apartment. What will be the consequences?

According to Art. 448 of the Civil Code of the Russian Federation, in case of refusal to sign the protocol, one party is obliged to compensate the other party for losses caused by the refusal.

We looked at the apartment, the seller bought it several years ago at auction, it was arrested by the bailiffs. What are the risks?

It all depends on how many years have passed since the purchase. If at least three years have passed (the statute of limitations), the likelihood of third parties appearing who can lay claim to the property is reduced. You need to order an extract from the Unified State Register of Real Estate and see if there are any restrictions on the apartment.

I am buying an apartment at auction, it belongs to the mortgage debtor. How long will it take for the mortgage to be lifted?

The encumbrance is removed within three working days after the debt to the bank is repaid.

What are the pros and cons of real estate auctions?

Taking into account all the above factors, let's look at the pros and cons of buying an apartment at auction.

The advantages are:

• prices are below market prices;
• all actions of participants are regulated by the laws of the Russian Federation and state authorities;
• The apartment will be sold anyway. The question is at which stage.

The disadvantages of auctions are:

• discrepancy between the reality of the exhibited lot and its documentation. It is worth checking the documentation carefully and it is advisable to inspect the lot;
• some objects cannot be assessed and viewed before the start of bidding;
• Participation in bidding is a rather difficult process that requires experience.

Auction apartment: how to save on your purchase

The real estate auction market in Russia mainly consists of debtors' property. In the West, selling apartments at auction is a common practice; in our country, few people buy residential properties through auctions. Although any resident of the Russian Federation can compete for housing.

Auction is different from auction

So, there are several types of objects that are put up for sale. This can be either the property of debtors or ordinary apartments that are sold by the owner himself or the municipal authorities.

The auction method itself was developed in the United States by Efros. So, the property is offered at a reduced price to attract a large number of potential buyers. If an object is truly of any value, it can be purchased at two to three times the average market price. The apartment goes to the person who offers the highest price for it.

Today in Russia this method of selling square meters is not very popular. The very first auctions appeared back in the nineties of the last century. The first couple of years there was a real boom in auction objects, the cost of which at auction sometimes increased twenty to thirty times the starting price. But to get a similar result, you had to try. It didn’t even make sense to put up an average “one-room apartment” as a lot. But real estate in the center of Moscow or apartments in buildings located in historically significant places immediately went under the hammer.

The person who organized the auction had two tasks: to convince the seller to offer the lot at a reduced price and to find those who were ready to compete for the object and buy it. The property owner risked the most, since the final cost might not be much higher than the starting price. In this case, the seller lost money. But if the apartment aroused interest, the income was significant. It should be noted that everything depended on the behavior of the auctioneer, his skills and artistry. In other words, it was a kind of performance where everything was based on excitement.

Now you can buy an auction apartment on the Internet. There are a great many portals where electronic trading is carried out. It is believed that in this way the risks of collusion between bidders are minimized when, for example, they agree not to raise bids on a certain lot. Complete anonymity and confidentiality are maintained here.

“Primary”, “secondary” and mortgage real estate are put up for auction. The lot is provided:

– Municipal authorities;

– Banks;

– Real estate agencies and private owners.

Auction real estate

In addition to mortgaged apartments, property of the Moscow government is put up at auctions. Two and a half years ago, the capital's authorities began to sell secondary housing. Trades are held once or twice a month. At the same time, not only elite properties are sold, you can buy a simple “one-room apartment” or even a room. But mostly housing is located in prestigious areas of Moscow and the Moscow region.

As of December last year, the capital's authorities put up more than a thousand apartments for auction. The lion's share is “primary” in the Central Administrative District, Northern Administrative District and the Moscow Region. About 50 objects are “secondary” in the Central Administrative District, Southern Administrative District, South-Eastern Administrative District and Eastern Administrative District.

For example, the OP’s apartment is 65 sq. m., located on the 13th floor of a 17-storey building in North-East Administrative Okrug, the initial cost was set at 6.6 million rubles. The amount of the deposit is 131 thousand rubles. Apartment in the Central Administrative District (Presnensky Val St.) OP 56 sq. m. “starts” from 14.2 million rubles. Deposit – 284 thousand rubles.

Naturally, there is a bar below which home owners are unlikely to agree to list their property. For example, apartments usually start at five million rubles, rooms at three. Three years ago, objects could be sold for 5-7 percent more than the auction price, in 2015 – by 10%. Every year these figures are only growing.

It’s not only sellers who risk money by putting an apartment up for auction. There is a risk that the cost of the property during the bidding process will be several times higher than the market average. Therefore, initially you need to think about what the demand for square meters will be. The more exotic the option, the more people will want to buy it. But in fact, the course of events cannot be completely predicted.

If we talk about the “primary” market, they started selling apartments in new buildings under the hammer relatively recently. But now you can find many good options in promising or elite areas. Basically, municipal or state property is exhibited here, since this is the only real way to sell such real estate. This type of sale of objects is regulated by the law of the Russian Federation. The starting price in this case will be lower than on the secondary real estate market. For example, you can find options starting from four million rubles. At the same time, “kopeck pieces” and “three rubles” practically do not rise in price during the auction, but “one-room apartments” are considered an attractive lot. But even if the cost increases by five to ten percent, it will still be below the market average.

Why is it profitable to buy objects put up by the government at auction? Firstly, the contract will not be contested. Those. You don’t have to worry that in a couple of months you will be asked to leave your home, since, for example, minors were registered there. Secondly, the cost of real estate in any case will be lower than the market average. As for the disadvantages, these are a limited number of offers and a large deposit, which, if the transaction is not completed, is returned after five days. Plus, banks can charge a percentage for conducting cash transactions. You didn’t buy an apartment, but spent a certain amount.

Collateral: cheap apartments

Experts recommend taking part in an auction where collateral is offered for those who want to purchase residential real estate at a large discount. The bank putting the debtor's apartment up for sale seeks to get its money back. His task is to sell the property as quickly as possible, so the price is set to a minimum in order to interest potential buyers.

But you shouldn’t chase cheapness, as auction real estate can turn out to be problematic. Former owners who were unable to repay the loan need to be evicted, and they can continue to fight for their square meters. It is very difficult to kick people out both from a moral and financial point of view.

Since banks practically do not advertise auctions of collateralized real estate, and it is quite difficult to find complete information about the lots, you can only find out about an interesting object by accident. Typically, apartments are put up for sale at a fixed price, sold through storefronts.

Despite the many difficulties that you may encounter when purchasing collateral properties, you can be sure of one thing - such apartments are legally clear. Plus, if you want to buy a property using a mortgage loan, you may be offered a favorable interest rate.

Private auctions

Auctions where real estate is presented by private individuals are not particularly in demand. Firstly, people are still afraid of facing fraud. Secondly, it’s easier to buy a ready-made option at a fixed price than to fight for ephemeral happiness.

How does the sale take place? First, the agent lists the property at a price that is attractive to potential buyers. The specialist has been advertising for about a month, attracting clients. The property is inspected by interested parties for a couple of days, then the agent negotiates with those who want to purchase housing. Having found the buyer who offered the highest price, he brings him together with the seller. True, it is not profitable for the property owner to cooperate with agents, since in this case they take money not for the result, but for the work done.

How to take part in the auction

“Any adult citizen of the Russian Federation who has a taxpayer identification number can apply for participation,” says Alexey Shmonov, CEO of the real estate portal Move.ru. – First of all, you need to obtain an electronic digital signature and undergo accreditation, pay a deposit (usually about two hundred thousand rubles). In fact, all this takes at least a week and a half. If the auction is planned to be held in two or three days, you will not have time for it.”

During the auction, everyone offers their own price. The participant who names the highest price for the object is considered the winner. He will be able to become a full owner of the property in ten days.

Despite the serious professional approach of the organizers to the sale of property, when buying collateral real estate at auction sites, you still take a risk. Remember that there are a number of nuances and problems, which, however, do not interfere with the implementation of the object. For example, debt on utility bills. It is unlikely that you will want to pay the extra 100 thousand that have accumulated over the years of residence of the previous owners.