A property can be sold through a sale agreement where the seller sets the price, and the buyer negotiates to get the best deal. There is also the process of auctions wherein potential buyers can bid on the property. In this article, we will discuss property auctions and how they work.
Auction: Meaning
An auction refers to the process of buying or selling goods or services by offering them for competitive bids and selling them to the highest bidder or purchasing them from the lowest bidder. Typically, the auctioneer conducts events and announces the price. The participants bid the maximum price they can pay for the product or service.
Auctions: How do they work?
Auctions can be conducted as open auctions or closed-format auctions. In an open auction, the participants come together at a venue or present online for bidding. The participants are aware of the competing bid amount and continue to increase their bid until they are declared the winner of the auction. On the other hand, in several business transactions, auctions are conducted in a closed environment where interested parties submit sealed bids to the seller. The amounts are known only to the seller and the participants are not aware of other bids. The seller may choose to conduct one round of bidding or choose two or more bidders for an additional auction round.
See also: What is E-auction of a property?
Auction: Rules
- Auctioneer: An auctioneer is the person who conducts an auction sale by announcing the product put up for bidding and calling for bids from prospective buyers.
- Reserve price: The reserve price refers to the minimum price at which a seller is willing to sell the property. If no bidder meets or exceeds the reserve price, the property remains unsold.
- Bidding increments: Usually, there are predetermined bidding increments that define how much a bid amount can be increased.
- Auction closing time: The auction sale should have a specified ending time.
- Sale completion: In an auction, the seller is required to complete the sale once a bid has been accepted.
Types of Auction Sales
- Public auctions: In this type of auction, the seller is the government.
- Private auction: This auction sale is conducted privately if the seller and buyers are known to each other.
- Live auction: This is an open auction where potential bidders participate live by either physically attending the event or virtually.
- Advertisement auction: In this auction, the seller publishes a notice in a newspaper or online about the product or item he wants to sell.
- Sealed bid auction: In this auction, prospective buyers send the bids to the seller in sealed envelopes. The highest bidder is the winner at the end of the bidding process.
- Sale in lots: It is an auction sale in which the items are sold in lots or batches.
- First lot auction: In this auction, each lot is sold to the highest bidder at a time during the auction process.
- Second lot auction: This auction involves batching goods into two parts and offering those as individual lots to prospective buyers interested in buying them.
- Auction sale of unsold lots: In this auction, the seller offers only those lots that he was unable to sell during the first or second lot auctions to interested bidders.
Properties auctioned by banks
In India, banks are entitled to hold a real estate foreclosure auction under the SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act, 2002. The act allows banks to auction repossessed or foreclosed properties to recover losses.
A property may be sold at an auction by a bank if the borrower missed a loan payment. A bank auction is initiated after the borrower misses three consecutive EMI payments on a home loan, which results in foreclosure. The borrower is allowed 60 days to reply to the bank’s notification requesting why the bank should not initiate an auction of the property owing to payment default. If the borrower makes the payment, the notification is withdrawn by the bank. If not, the borrower may object within 60 days, giving a reason for not making EMI payments. In case the borrower does not respond, or the bank is not satisfied with the response, the bank auction process starts. After this notice has expired after 60 days, the bank has 30 days to hold an auction for the property.
FAQs
What are the different types of auctions in India?
The different types of auctions include open and closed auctions, private and public auctions, and live auction.
What is the purpose of an auction?
An auction is conducted for the public sale of a property to get the highest financial returns for the owner.
What is a land auction?
The government may conduct a public auction for the sale of land. The government gives a notification for the same.
Is auction legal in India?
Auctions in India are governed by various laws and regulations.
Can an auctioneer sell a property below the reserve price?
An auctioneer cannot sell an item or property below the reserve price.
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