In Spain, when people or businesses are no longer able to pay their mortgages or debt, the bank will usually repossess their properties and then sell them at subastas or auctions.
For some people the practice is ethically debatable, for others it's just another example of what constitutes a competitive property market.
While buying a property at auction can be risky and you need to know what you’re doing, it can also be a good way to grab a bargain.
Here are some crucial points you need to know about buying a property at auction in Spain to decide if it’s right for you.
Keep in mind, in order to buy a property at auction in Spain you must be of legal age and have the capacity to enter into a legal transaction.
You must also have the financial capacity to purchase the property or to be able to get a mortgage or loan to do so.
1) Generally, prices are well below market value
One of the main advantages of buying a property at auction is the chance to grab a bargain and buy a property at a low price. According to real estate giant Idealista, you can expect to get around a 15 to 20 percent discount.
Keep in mind that you will not always get a property below market value however, particularly not when it comes to luxury properties. You also need to think about how much it will cost you to renovate too, as many of these properties are not in good condition.
2) You need to put down a deposit
Usually, you are required to put down a deposit before you make a bid on a house. According to real estate agency Rentalias, this is typically around five percent of the starting price of the property, however many just ask for a flat fee of €3,000.
If you win the bid, you will have to pay the rest of the money within a certain time frame, usually around 15 days. However, if you do not pay the rest of the money by the deadline, you will lose the deposit.
3) There are some safeguards
Even though buying a property at auction can be risky, there are several safeguards in place. You can ask to inspect the legal documents for a property ahead of time (around 10 days prior), so you know what you’re bidding for. You can also arrange to visit the property before the auction.
In order to feel secure in your bid, you should have a full survey done on the property. If there are any major problems that were not disclosed during the auction or in the paperwork, your deposit can be refunded. Remember to always get a legal expert to help and advise you.
4) You need to consider the condition of the property
The best bargains are on apartments and houses that need renovating, but you may not realise the extent of the work that has to be done or have the budget for it. Make sure ahead of time that you know what you’re getting into and how much work the property will require.
5) Be aware of how the property is being sold
Houses are sold at auctions in different ways, some are sold with tenants already in them, meaning you can’t use the property for yourself. If you want to live in the property and make sure there are no tenants, you must choose properties marked as ‘Completa’. If not you may have to go through the complicated procedure of evicting them.
6) You need to know what the legal situation of the property is
Many of the properties sold at auction have complex legal issues because of the previous owner and their debts and may have several mortgages attached to them. While the mortgage should be wiped before the property is sold, if it has several, this can not be guaranteed. You should request a certificado de cargas to find out how much debt there is if it's not included in the information.
The property will usually also have community fee debts that haven’t been paid. Typically as a new owner, you can expect to pay the last three years of community fees, plus the current one. It can sometimes take a long time and a lot of money spent on lawyers to fix these legal issues.
7) All is not lost if the property doesn’t sell
If the property doesn’t sell at auction or you didn’t feel confident enough to make a bid at the time, you can always make a bid afterward and you could still be in with a chance.
8) Know where to look for auctions
There are several places you can look for housing auctions. Sometimes real estate agencies will have a few apartments up for auction, but the majority of course are sold by the banks. The main place to look is the government's state auctions website Portal de Subastas here. New properties are posted on here each Tuesday morning at 9am when you set the filter to show properties.
READ ALSO: How does Spain's new website to find cheap homes up for auction work?
9) You will need to secure a mortgage very quickly
If you need to get a mortgage for the property, you will have to do so very quickly because you usually have a short time in which to pay the rest of the money. This can be incredibly difficult to get done so fast, if not impossible. Although pre-approved mortgages do exist in Spain, most people don't do it this way and have to find a way of raising a large amount of cash in a short time.
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