Are real estate auctions to be trusted?

Antonis Loizou F.R.I.C.S.

For those who are interested in buying real estate through auctions, we keep noting various scams which surface from time to time with the result being the unsuspecting buyers as victims.

Initially the auction is published giving the public as little information as possible, including a reserved fee for the auction (usually 10 to 15 per cent of the reserved price).  Those who bid must deposit the amount required and if unsuccessful their money is returned.  If successful however and the bidder changes their mind for whatever reason, the deposit is lost.

Let’s look at the details:

It is logical that the interested bidder wishes to collect more details over and above those which are published such as the existence or not of a building permit, the unit’s square metres, the existence of a valuation given in detail and most importantly whether the bidder can visit the property.

One of the auctioneers informed us that we may not inspect the property in auction unless the registered owner so permits – so if the owner is hostile to this procedure for reasons of his own, there will be less interest with an increasing chance for the reserved price not to be achieved at the loss of the financier, the bidder and of course at the end – the registered owner, who will suffer an added loss to conclude the higher price possible.

The second item is the non-disclosure of any existing “secret” agreements that the registered owner has to third parties. In one case the bidder learned after their acquisition bid, that the registered owner had let the property for a period of 20 years, plus an option to extend the lease for another 10 years.  He was also informed that the rents for the first 20-year period were prepaid (in cash!) so the prospective buyer in this case not only could not take possession of the property or the rents.  In addition, he was told by third parties that the apartment had accumulated €11,000 in common expenses, dues and other legal issues.  So, in this case the young couple with an acquisition price of around €220,000 were not only left without the property but were now debtors for another €11,000.

So, should those who undertake the procedure of sale not be obliged to provide to the public the information which they have, or which they ought to have for the legal and physical situation of the property to be sold?

These secret deals which come up after the bidding, we consider them to be an organised scam perhaps in collaboration between the financier and the registered owner.  It is our opinion there is a criminal offence and those who participate in this scam should have a criminal case against them.

It is not easy to undertake a criminal procedure against those involved in the scam since in the sale of the apartment, the unaware buyer must prove the illegal wrong doings for the auction including the payment of the prepaid rents, where those have been deposited. This is a procedure which might take three to five years in the Cypriot courts.

In another case, an ad referred to an apartment building for sale in Strovolos comprising of 14 apartments at a price of €900,000.  Upon inspection, the prospective bidder realised that eight of the apartments were constructed without a building permit.

This messy situation carries bad side effects, and the market responds negatively. This is a very serious matter which the Financial Commissioner should investigate and hold accountable those who are involved in such sales and auctions.

As far as we are concerned such auctions are not worth the value of the paper that they are printed on, and we urge the public to avoid them.

www.aloizou.com.cy

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