Hidden Cost In Buying An Auction (Lelong) Property
When it comes to buying an auction property, many people fear that they may encounter many hidden costs. This can be detrimental if one does not have sufficient cash prepared. Without the cash available, the process of acquiring the auction (lelong) property after your successful bid will be halted. In the worst-case scenario, you may lose the 10% deposit that you have used to enter the auction.
But not to worry, we exist to help prepare our clients with the closest amount possible for the cash needed to acquire the auction (lelong) property. With a cost breakdown sheet accurate up to 90% of the total cost needed, you wouldn’t have to worry about not having to prepare enough cash for the purchase.
Hidden Cost 1: Title Transfer Cost (LACA Cases)
For bank auction cases (LACA), there is usually a title transfer cost between the purchaser and the developer. This cost can be quite high depending on the property. It is important to check whether the developer allows for direct transfer, as this is the lowest cost possible regarding title transfer cost. The title transfer cost is separated into 3 types;
Direct Transfer
Direct transfer means that the strata title is still under the developer name and is ready to be transferred. For this, the developer has a few ways to charge;
Flat Rate : Can range between RM200 to RM2000. Must be confirmed with developer.
1% Of First SPA: Can range between RM3,000 to RM10,000 and above, depending on the first SPA price (usually launching price).
1% Of Auction Purchase Price: Can range between RM3,000 to RM10,000 and above, depending on the auction sold price.
Indirect Transfer (Double Transfer)
Indirect transfer means that the strata title is already issued to the defaulters name. This case is commonly known as the “Double Transfer” case. Purchaser will have to pay for the first transfer charges (MOT) from developer to defaulter, then from the defaulter name to the purchaser name. This process can usually take 4–8 months, which will incur penalty charges from the auction bank. The cost for this includes;
First MOT : Default MOT calculation based on the first SPA price.
Eg; If the first SPA is RM500,000, the first MOT will cost you RM9,000.
Second MOT: Default MOT calculation based on your purchase price.
Eg; If you bought the auction property at RM300,000, the MOT will cost you RM5,000.
Deed Of Assignment (DOA)
By deed of assignment (DOA), it means that the strata title is not issued yet and the property can’t be transferred to the purchaser’s name yet. For this case, there are different charges depending on the property type.
Residential Properties: Usually between RM50 to RM500.
Commercial Properties: Usually between RM2,000 to RM10,000 and above, depending on the first SPA price. Developers can charge 1% of the first SPA or 1% of the purchase price for deed of assignment cases when it comes to commercially titled properties.
Hidden Cost 2: Outstanding Maintenance Fees
Outstanding maintenance fees can be a headache for the purchaser, as the purchaser will have to clear all the outstanding charges to obtain the green light from the management office. This is important to ensure the title can be transferred without any issues. Fortunately, if you are buying a bank lelong property under LACA, the maintenance fees can be claimed back. However, it is best to check the POS to see what is covered and up to how much, usually 80–90% can be covered.
Bank Lelong Cases (LACA): Cost between RM0 to RM30,000 and above. The bank will cover the outstanding maintenance fees to a certain degree. However, the purchaser must first clear the outstanding maintenance fees before claiming back from the auction bank after the title has been transferred.
High Court Cases (Non-LACA): Cost between RM0 to RM30,000 and above, depending on the outstanding amount. The bank does not cover the outstanding maintenance charges for High Court Cases (Non-LACA).
Hidden Cost 3: Legal Fees, MOT, Loan Legal Fees, Loan MOT
A common misconception when buying an auction (lelong) property, is that the purchaser does not require a lawyer to process the documents. However, this is false as many developers, and government bodies will only respond to lawyers rather than regular people.
Cost To Prepare: 6 to 10% of the auction purchase price. The charges varies depending on the legal firm you have chosen and the final amount offered by the legal firm.
Hidden Cost 4: Random Developer Charges (Rare)
In some cases, the developer will charge custodian fees, or title safekeeping fees which can be high. This amount is determined by the developer and is not fixed for every unit. It is best to double check this amount to count into your overall cost.
Cost To Prepare: From RM500 to RM30,000 or more.
Summary
In summary, it’s best to ensure that you have checked all these details before buying an auction (lelong) property. All of these costs have to be borne by the purchaser, with some claimable from back (certain outstanding maintenance charges for LACA cases).
We provide a cost breakdown sheet for every sale with all these details checked to ensure that our clients can gauge how much cash to prepare in advance to acquire an auction (lelong) property.
