For those interested in buying real estate through electronic (or other) auctions, I keep noting various scams that surface, resulting in the unsuspecting public or buyers as the victims.
Initially, an auction is published, giving the public as little information as possible, including a reserved fee for the auction (usually 10-15% of the reserve price).
Those who bid to participate must deposit the amount required, and if not successful, their money is returned.
If successful, however, and the bidder changes his mind for whatever reason, the deposit is lost.
So far, we can say this is understandable, but let’s look at the details:
- It is logical that the interested bidder wishes to collect more details over and above those published, such as the existence or not of a building permit, the unit’s area in square meters, the existence of a valuation given and most importantly, whether the bidder can visit the property, details which are not recorded or provided.
- One auctioneer informed me that we might not inspect the property unless the registered owner permits. So, suppose the owner is hostile to this procedure for their own reasons. In that case, there will be less interest with an increasing chance for the reserved price not to be achieved at the loss of the financier, the bidder and, of course, the registered owner, who will suffer an added loss to conclude the higher price possible.
- The second and most important item is the non-disclosure of any existing “secret” (or otherwise) agreements that the registered owner has committed the property to third parties. In one case, the bidder learned after the acquisition bid that the registered owner had let the property (an apartment in Limassol) for 20 years, plus an option to extend the lease for another 10 years. He was also informed that the rents for the first 20-year period were prepaid (in cash!), so the prospective bidder/buyer, in this case, could not take possession of the property nor collect the rents. In addition, he was told by third parties that the existing owner of the apartment had €11,000 in common expenses dues and other legal issues. So, in this case, the young couple with an open/acquisition price of around €220,000 were not only left without the property but are now a debtor for a further €11,000 plus any possible added dues.
- Are those who undertake the sale procedure not obliged to provide the unsuspecting public with the information they have or what they ought to have for the legal and physical situation of the property to be sold?
- These secret deals which come up after the bidding, we consider them to be organised scams, perhaps in collaboration with the financier and the registered owner.
- In my opinion, there is a criminal offence, and those who participate in this scam should have a criminal case against them with possible imprisonment for those who participate.
- It is not easy to undertake a criminal procedure against those involved in the scam since, in the above sale of the apartment, the unaware buyer must prove the illegal wrongdoings of the auction, including the payment of the prepaid rents, where those have been deposited (as was the registered owner who received the pre-rents). Moreover, this procedure might take 3-5 years in the Cypriot courts, with time and cost, which could raise the bidders’ cost to several thousand euros.
- For a person who wishes to buy a property, the least of their concerns should be if there is a scam behind the whole procedure. In addition, the bank financing the new purchase will withdraw the finance offer notwithstanding the bidder’s creditworthiness.
- In another case, the advert referred to an apartment building in Strovolos for sale comprising 14 apartments most suitable for rental income at a price of €900,000. However, upon inspection, the prospective bidder realised that eight of the apartments were erected without a building permit – just as well as he found this before the conclusion of the bid.
- In this messy situation, the market responds negatively and negatively affects the market as a whole.
This is a very serious matter which the Financial Ombudsman should look into.
He should insist that those involved in such sales should come in with clean hands and be responsible for protecting the public with all details necessary or declaring they do not have all details. The commissioner should point out to persons that they are responsible.
Online or otherwise public/private auctions are not worth the paper that they are printed on, and we urge the public to avoid them.
It’s a major job for the authorities to examine and take measures to put the matter right and increase public protection.
By Antonis Loizou FRICS – Antonis Loizou & Associates EPE – Real Estate Valuers, Estate Agents & Property Consultants