6-step guide to buying a property on mortgagee sale

With the government likely to cease its relief measures for homeowners in 2021, there’s a real chance we’ll see more mortgagee sales this year. As buying a property that’s under a mortgagee sale is somewhat different from a standard resale unit, here are the steps to go about it, and what you should bear in mind.

What is a mortgagee sale?

Mortgagee sales occur when the owner of a property cannot service the home loan, and the bank forecloses on it.

There are legal and business obligations on the bank to liquidate (i.e. sell) a foreclosed property as fast as possible. So, it’s rare for banks to go through the traditional route of finding an agent to list the property and negotiating one-on-one with different sellers. Instead, the bank will use an auction method, as this the fastest way to sell a property.

Due to the urgency of the sale, buyers have a good change of finding a property that’s being sold at a discount. Hence, a mortgagee sale attracts both property investors, as well as home buyers hoping to catch a good deal.

Do note that, while mortgagee sales are auctions, they should not be confused with owner-auctions. Mortgagee sales are usually initiated by a bank, whereas owner-auctions are initiated by the property owners (e.g. property firms like PropNex even organise auctions for resale HDB flats, for willing sellers).

Other common terms for a mortgagee sale are distressed sale or bank sale. A related form of mortgagee sale is an Auction by Sheriff’s sale. This means the property was seized due to legal issues, but as far as buyers are concerned, it’s functionally similar to a mortgagee sale.

Steps to finding a good property at a mortgagee sale

1. Know where to look for the mortgagee sales
2. View the property and make sure you’re eligible
3. Check the transaction history and surrounding prices
4. Understand the pricing and payment method
5. Formulate a plan for the bidding
6. Follow up with private negotiations

1. Know where to look for the mortgagee sales

The easiest way to find mortgagee sales is to go to 99.co. Key in the area you’re interested in, or just type “Singapore” as the location if you want to see the wider list of available mortgagee sales.

Under the filters, just types the keywords “mortgagee sale” or “bank sale”. This will bring up all the properties that have been listed as a mortgagee sale. From here, you can contact the agent in the listing, for help in viewing the property, knowing the time of the auction, etc.

If you want to do it the old-fashioned way, you can also visit web sites of various property firms (e.g. Knight Frank), and check out their auction pages. From there you can view the current list of upcoming property auctions. Some property firms also have a mailing list you can sign up for, to receive the latest updates on coming auctions.

Mortgagee sales are sometimes also announced in newspapers (look in the classified section).

2. View the property and make sure you’re eligible

One key difference between mortgagee sales and traditional sales is the time limit. When the auction notice is put up, it’s ideally one to two weeks before the actual event; but this isn’t always possible. Regardless, by the time you see it, you may find out the auction is tomorrow or the day after.

It’s up to you to scramble, call whoever is in charge, and rush down to view the property.

Besides deciding whether you like the property, you should pay attention to any needed fixes or renovation. Here’s a quick list for you; but for older and bigger properties (like a landed property), do think twice if your inspection / viewing was rushed. It might be safer to wait for the next auction, rather than buying half-blind.

Remember that if you’re a foreigner or Permanent Resident, you need approval from SLA to buy landed properties outside of Sentosa Cove. If you’re a Singapore Citizen, make sure you don’t do anything silly, like buy while you’re still in the Minimum Occupancy Period (MOP) of your HDB flat.

3. Check the transaction history and surrounding prices

You can’t hunt for a discount if you don’t know what a discounted price is.

So check the transaction history of the property, to get a sense of what it’s worth. The easiest way to do this is to look on 99.co, which records the price history based on URA data. Otherwise, you can use the URA website itself to check the past prices.

You should also check the prices of surrounding properties – if the auctioned unit itself doesn’t have any history, then you can get a sense of the right price from other properties in the same development or neighbourhood. 99.co will also show you these surrounding units (within a one kilometre radius) and their prices.

A discounted price should fall below the median transacted price of the property, or of surrounding properties.

4. Understand the pricing and payment method

At a property auction, there are two prices for the property: the offer price (which the auctioneer will announce), and the reserve price (the minimum price that must be met or the property won’t be sold). As a buyer, you won’t know the reserve price of the property. The highest bid that meets or exceeds the reserve price will win.

After a successful bid, you’ll typically be required to pay 10% upfront for the property, so make sure you have cash or a cheque ready. The remaining amount will be payable within two to three months, depending on the wording in the Conditions of Sale document (you can ask the firm conducting the auction for this, and bring it to a lawyer if you don’t understand it).

Note that for some sales, there will also be a GST charge, which has to be paid separately.

In any case, buying a home on mortgagee sale means two things:

First, you must have an In-Principle Approval (IPA) from the bank, before you start bidding – you need to know how much you can afford.

Second, your bid must also be constrained by the amount of cash you have on hand; so if you have S$300,000 set aside, and must pay 10% upfront, then don’t bid more than S$3 million.

You can be sued if you fail to make the purchase after a successful bid.

5. Formulate a plan for the bidding

It shouldn’t be exciting, it should be boring (you’ll soon notice how calm and mechanical the veteran investors are).

Even before the bidding starts, you should have a fixed plan on how high to go. Don’t break your own rules and bid more than you planned to, because you get caught up in the heat of things.

For this reason, auctions of any sort are better suited to investors than home owners, as they require a degree of detachment from the property.

6. Follow up with private negotiations

If the property wasn’t sold at the end of the auction (it didn’t meet the reserve price), you can approach the sellers privately afterward. It’s common for a property to proceed to the “private treaty” stage after an unsuccessful action, and many homes on mortgagee sale (such as this) are ultimately transacted this way.

In most cases, the seller would have seen all the bids, and become ready to accept a more realistic price that is well-below the initial reserve price at an auction.

Mortgagee sales don’t always mean an undervalued property

Even at mortgagee auctions, it’s rare for properties to sell drastically below market valuation. In most cases, buyers are more than happy if they can get a price that’s roughly 5% below value.

Still, 5% off the price of a property is nothing to sneeze at; and it may be worth your time. If you’re already in the market, how can it hurt to look at a few more options?

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Will you buy a property on mortgagee sale? Let us know in the comments below.

If this article was helpful, 99.co recommends Mortgagee sales seem to keep rising for CCR/ luxury condos and Properties being auctioned: 47.4% (137) of mortgagee listings in 2021 were residential properties.