Do you want to buy a house at a lower price than those on the market? Then maybe properties pawned and sold at auction are a good option for you. The properties being sold at auction in Portugal are usually seized from their former owners because they defaulted and stopped paying the financial institution with whom they had taken out a mortgage.
As a rule, these homes are sold at a price about 40% lower than the market price. In addition, in the case of these properties, the market offers specific financial conditions which can ensure a loan of the entire value of the property and other more attractive options.
As the Portuguese financial advisor “Doutor Finanças” explains in this article prepared by idealista/news, buying a property at auction can be a good business, but it can also have its risks and cause unexpected problems. So, what are we waiting for? Here are a few steps you should take before you buy a house at auction so that you don’t get into difficulties and end up regretting buying the house in the future.
Characteristics and location of the property
It is important that, before deciding on buying a house at auction, you define a few things: the location you want, as well as the characteristics you are looking for in a house and if the access is favourable.
It is critical that you analyse all these aspects and that you compare the price of the properties the intended area compared to the price that is being asked for your chosen property. If the value of the property at auction (considering the possible need for work or renovation and tax costs), is equal to or higher than the value of new properties in that area, then it doesn’t compensate the investment of the repossessed house.
It is also crucial that these details are considered and defined in advance, because when it comes to consulting the properties available at auction, you can filter bids that interest you beforehand.
Keeping an eye on auctions
There are various types of auction in Portugal and the houses repossessed and sold at auction may be held by various institutions, such as:
- Financial institutions: real estate seized from those who defaulted on their mortgage payments. They can be found on each bank's website
- The Tax Authority: on the finance site under "Vendas Eletrónicas” (Electronic Sales), you can find several assets seized from taxpayers with financial debts
- Social Security: you can put real estate up for sale via public tenders. Just access the Social Security website and click on under the tab "Património Imobiliário” (Real Estate Assets)
- Local councils
- Order of Solicitors and Enforcement Agents (OSAE) - through the e-auction platform.
Registration with the auctioneer
Once you have decided on one of the various entities referred to in the previous point, it is necessary that you register in order to have access to the various properties and so that you can participate in the auction of the property that fits your needs.
To register and bid, you need your ID, to sign a declaration of acceptance and pay a deposit that varies depending on the auctioneer chosen. This deposit will be returned to you if you do not buy any property.
If you do decide to buy, then the value of the deposit is deducted from the payment of the deposit for the house when signing the Property Pre-Purchase and Sales Contract (Contrato de Promessa de Compra e Venda (CPCV)).
Verifying the condition of the property
Before you make any bids, you must visit the property.
Sometimes what is presented in the photographs is not exactly what you will find in reality, and the photos are not enough for you to make a good evaluation and know if work or renovation will be necessary.
There may also be many details that are not included in the description. For this reason, always make a visit to check the state of the property and the veracity of the characteristics described.
Knowledge of the rules
All auctions have specific rules, so it is essential that you know them and read them carefully before making any bids.
If you don't, it may not be possible to cancel a bid on the grounds that you weren't aware of them. In addition, you should be aware of the deadline for auctions, so that you do not miss any opportunities.
Financial capacity
Before you make any decisions to purchase and commit to an auction, you should evaluate your financial situation and understand whether:
- You have the economic capacity to purchase a property, even if it is for a lower price
- You can guarantee 10% of the initial deposit, in case the house is not 100% financed and you need to resort to a loan from the bank
- If you are able to take out a mortgage.
If you need financing, look at the market well in advance to see the best option for your case. You can also count on the help of specialist companies and credit intermediaries who can take care of all the paperwork for you and find the best market conditions.
Right of preference and remission
If you bought a property and didn't check if it was rented at the time, be aware that you don’t have priority. In other words, when an apartment which is for sale at an auction has a tenant, that tenant has the right of preference over that apartment.
According to the law, it is written that the tenants with lease contracts longer than 3 years have the opportunity to buy the house at the price that was auctioned. Likewise, the husband, wife or heirs (descendants or ascendants) of the landlord from whom the property has been seized have the right of remission. They may also acquire the property at the price that was auctioned. This right of remission prevails over the right of preference according to the order: spouse, children or parents of the owner.
Therefore, before making any offer or acquisition it is extremely important that you question the entity responsible for the auction, whether or not there are tenants, beneficial owners or heirs. This type of information is also included in the Certificate of Land Registry (Certidão do Registo Predial ).
Content Certificate
In addition to the aforementioned aspects, which are no less important, it is vital that you check that the house is not seized because of tax debts (mortgage charges and seizures for example). For this purpose, you can consult the Certificate of Contents (Certidão de Teor), on the site land registry site or at a land registry office. Both options have an additional cost, but the risk you can take compensates for this cost.
In short, in order not to waste time or money and not to be caught off guard with some unpleasant surprises, you should take these aspects into account if you really are considering buying a house at auction in Portugal.
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