When people decide to buy their first home, they usually decide to purchase from individuals or building companies. However, in recent years, out of the many real estate market opportunities Italy has to offer, auctions have become a popular choice among many people. In fact, participating in a judicial auction offers the advantage of purchasing a property at a significantly lower price than the standard market price.
The exclusivity of real estate judicial auctions is an old tale. As the Italian Code of Civil Procedures states, everyone can participate in the auction except for the debtor/owner. But let’s start with the basics, what is an auction?
An auction is a judicial process that begins with establishing a minimum price for the property in question, and a set time period within which the participants must present their bids.
There are four benefits when purchasing a property from an auction:
- You are buying a property at a lower price than its market value.
The Court will assess the property and the bidding will start at a fixed price (prezzo base). However, offers will begin from a minimum price (prezzo minimo), which is 25% less than the initial fixed price. Therefore, properties purchased through auctions are sold at a much lower price than they would be on the real estate market.
- No realtor and notary fees
As the purchase occurs directly between the awardee and the Court, not only are there no third parties (such as realtors) involved in the process, but as the Court draws the deed internally, there is no need for a Notary, who charges on average €2,000 per transaction.
As stated previously, the purchasing process through auctions in Italy is managed by the Court. This guarantees maximum security and transparency when checking the property’s legal status and structural conditions.
- You can use a mortgage to purchase a property
While paying in full after being awarded the property is certainly faster, there are also other payment options. As a matter of fact, participation in auctions is not reserved to individuals with high financial assets only. In fact, there are specific types of mortgages one can apply for and some are designed to last short periods of time.
Finally, as in any deal, there are risks to take into account when purchasing a property through an auction, which is why many people rely on professionals to assist them throughout the process. The risk factors which are related to the state of the property, financial coverage and faults can be summarized as follows:
a. Not respecting deadlines
In the auction market, the adage “By failing to prepare, you are preparing to fail” is accurate. Budgeting is important since you will only have a certain amount of time to pay off the entire price after winning the auction. Failing to do so could cost you your brand-new home. As a result, you risk losing your initial deposit (which ranges from 10% to 40% of the minimum price) if you bid an amount that is too high for your budget and do not pay the balance due.
b. Overlooking inconsistencies
Properties in auctions go through a foreclosure process. Therefore, one should keep in mind that there may be several types of issues that could significantly lower the value of the property, such as inconsistencies regarding building permits, occupants refusing to leave, and outstanding debts.
c. Overlooking structural faults
Buying at an auction may sometimes be risky as there might be properties with structural faults, such as properties without a building permit, for instance. Therefore, it is always worth relying on the services of an attorney who can carry out due diligence on the property for you.
In conclusion, real estate auctions come with great benefits but there are also a few risks to consider. This is why relying on the help of the right real estate consultant can make a difference in the type of property you buy.
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