Real estate auction: procedure, risks and important tips

If you want to sell a property to the highest bidder, you usually choose the bidding process. If a property is auctioned in this country, it is usually a judicial foreclosure sale. This is the case if the owner can no longer service the debts. However, it is very rare for an owner to commission a notary, lawyer, estate agent or private company to sell their house or apartment at public auction. That is why we have dealt with the topic of forced or judicial real estate auctions in this article.

How can I find information about judicial real estate auctions?

In the publicly accessible edict file of the Ministry of Justice, interested parties can find all dates of judicial real estate auctions throughout Austria as well as information on the respective properties, from photos to plans, easements and expert opinions. Information on the minimum bid, which documents are required to be admitted to bidding and the location of the auction can also be found there.

How does a judicial real estate auction work?

The forced sale of a property is initiated by the creditor, usually a bank or another credit institution. The prerequisite for this is an enforceable title, such as an enforceable judgment, settlement or notarial deed.

The district court in whose district the property is located examines the application for forced sale submitted by the creditor. If all requirements are met, forced sale proceedings are opened in accordance with the Enforcement Code (EO) and the entry is made in the land register.

In the next step, a court-certified expert draws up a market value appraisal. This estimated value forms the basis for the highest and lowest bids. The date of the auction is then set and published in the edict file. There must be at least four weeks between the date of publication and the auction. During this time, interested parties can view the property and inspect the available documents.

At the beginning of the auction, the judge reads out the conditions under which the respective item will be auctioned. This is followed by the bidding round(s) or auction stage(s). Bids can only be made verbally, and only during the auction. If no further bids are submitted after two requests by the judge, the highest bidder receives the provisional knockdown. However, an objection to the acceptance of the bid may also be raised under certain circumstances.

If this is not the case, the remaining purchase price must be paid within eight weeks. As soon as this has been done, entry in the land register is on the agenda.

What happens if not even the minimum bid is reached?

In this case, the court may not accept the bid. However, the creditor can apply for a new auction date and reduce the lowest bid.

Who can bid?

If a property is auctioned, anyone who is of legal age and legally competent can bid, with the exception of the previous owner of the property. In addition, you must register before the auction begins by presenting a valid ID and proof of the security deposit, the so-called vadium.

What is the minimum bid?

The minimum bid is set by the court before the auction and is usually half of the estimated value.

What is a vadium?

Only those who have provided a security deposit, the so-called vadium, may bid. This must be deposited with the court in the form of a restricted savings book in good time before the auction date and amounts to ten percent of the estimated value. If the bid is accepted, the deposit is offset against the purchase price and refunded if the bid is unsuccessful.

How do you prepare for a real estate auction?

Auctioning a property is probably not an everyday event for most people. This is one of the reasons why you should prepare thoroughly. To familiarize yourself with the process, you should attend several property auctions without bidding yourself. You should also find out as much as possible about the property in question: Be sure to take advantage of the viewing appointments on offer as well as the opportunity to look at the available documents. Find out how much comparable properties cost. Unlike in the past, properties that are sold at auction are no longer necessarily a bargain. Before the auction, determine how much you can spend on the property. Factor in other costs, such as interest on the loan, renovation or conversion work, and clarify the financing. Don’t forget that there are also other costs associated with the purchase, such as land transfer tax.

What are the risks involved in a real estate auction?

Probably the greatest risk is buying the proverbial pig in a poke, i.e. if the property is purchased without prior viewing. The same applies if only an external inspection is possible. In both cases, the new owner may be faced with unexpected renovation costs. Encumbrances or easements that are listed in the auction deed but overlooked in the heat of the moment can also be disadvantageous.

On the financial side, however, there are other stumbling blocks: These include offering more than you can actually afford. The additional costs incurred are also often underestimated.

Incidentally, if the highest bid cannot be paid after all, there is a risk of losing the vadium and claims for damages.

What costs are involved in a real estate auction?

Even if a property is bought at a forced sale, there are other costs in addition to the highest bid, such as land transfer tax (3.5 percent of the highest bid), the land register entry fee (1.1 percent) and the cost of any external financing. And, of course, the costs of any renovation work that may be required should not be forgotten.

What documents should you check before a real estate auction?

In principle, all available documents should be checked, especially the extract from the land register and the market value appraisal.

Do you need equity for a real estate auction?

Yes.

What happens after the bid is accepted at a real estate auction?

Once the bid has been accepted, the remaining purchase price must be paid within eight weeks.

Good to know:

• The debtor can pay the claim until the bid is accepted and thus avert the auction. If all creditors agree, he can also sell the property himself. Under certain circumstances, however, they can also apply for the auction to be postponed.
• Unlike traditional real estate sales, there is no purchase agreement between the seller and buyer. You become the owner when the court accepts the bid.

• If a property is acquired by means of a forced sale, there are no warranty claims.
• You do not have to take part in the auction yourself, but can also be represented. This requires a power of attorney from this person, certified by a court or notary, which must also expressly include the authority to represent a person at the forced sale of a property.

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