Open Market v Force Sale

Q.
Would it be more expensive if property is traded in open market? Is the cost higher?

A.
When a force sale happens, it is usually the bank that is initiating the proceedings.

But before this happens, there had been indicators that the seller is in distress. The installments had lagged, probably for more than six months. Sometimes, even more months had past and intermittently the seller is trapped in his financial difficulties.Probably over a year by now...

What are these financial difficulties? There are many. First and foremost, the financial difficulty is not occurrence like economic down turn or sudden catastrophic event like MH17. These down turn or MH17 are not so common, and far in between - like 10 years cycle in a economic downturn. Rather, it is more likely after a losing bet in a World Cup game or some gambling scam or share market. Next and commonly heard is divorce or family issues, and some occasions, business failure.

That aside, the subsequent steps the seller would take is to force sale his property. Now, the clever seller would ask the bank to restructure his loan, and probably buy some time. Or, the desperate or angry type (divorce or caught cheating) would not reconcile, and would give it to the legal council to proceed to sale.

This time, the sale is within close door, or 'limited knowledge'. The legal council cannot buy up himself as he is a professional party with conflict of interest. Hence, the seller would have to look for a buyer himself or through an agent (broker). This type of property is good value to hunt for!

When the bank takes action, and it becomes an auction, it is in the Open Market. The bank would not want any third party to interfere with the process of the Court. Therefore, the auction system kicks in and the 'players' would mark up the property for "oiling the deals". Some of these types of properties can be sticky too, as the seller would have unpaid maintenance of many months, and other encumbrances.

As the auction process is viewed to be the highest bidder takes the bid, you have it, a higher price!

If the clever seller tries to sell it himself, he may get away if the location of the property is hot, and at a fair market price. However, it is usually not that easy as buyer needs to secure a loan and out front deposit which can be in ten or hundred of thousands.

At this juncture, the negotiating power is with the buyer, hence a lower than market price.

As for the cost of transaction, buying in an auction is usually standard processing fees. There are other hidden costs like mentioned above - unpaid maintenance charges, etc. However, if it is bought during close door, the cost of the legal fees and other charges remains the same, but these unpaid costs can be negotiated to be paid by the seller.

Otherwise, the stamp duty is standard tax paid to government and legal fees being standard of the legal profession. No other charges being higher that could be more significant than a well negotiated price from a desperate seller!