Latest NewsMortgagee Auctions May Sound Appealing but You May Not Bag a BargainSaturday, 11 March 2017

Buying a house at a mortgagee auction can seem like a way of getting something at a discount to normal market price, but experts say houses sold after repossession don't necessarily come at a bargain price.

Adrian Jones, immediate past president of the Real Estate Institute, says mortgagee auctions won't generally represent a bargain these days.

"I think the public are very aware of the nature of mortgagee auctions and the fact that most mortgagees have a very keen desire to sell," he says.

"Therefore reserve prices are very keenly marketed and that invariably attracts a little bit more interest than might otherwise be the case and therefore market forces come into play. The only difference is you have a very committed vendor. There's not a bank in Australia or anywhere in the world that wants to be in the business of owning homes."

Noting that the stigma once attached to selling a property in a mortgagee sale has almost disappeared, Mr Jones says that while vendors in a mortgagee auction may accept slightly less than otherwise if competition for the property is low, "rest assured there wouldn't be a mortgagee around who wouldn't sell without getting a sworn valuation beforehand, to protect themselves.

"You've got to remember mortgagees have got a very strong legal obligation to try and get the best price - and that's why invariably they are auctioned."

Steve Munchenberg, Australian Bankers' Association's chief executive, agrees.

"The mortgagee's duty requires an appropriate and adequate marketing campaign to be conducted so that, in the final result, the best market price on the day is able to be achieved."

Figures from the Sheriff's Office show that in the 2009-10 financial year, 321 people had about 352 Victorian properties possessed by Sheriff's officers as ordered by the courts. The number of defendants dropped significantly from 500 the previous financial year while data on the number of properties from 2008-2009 was unavailable.

John Kovacs is managing director of NMD Data, a company specialising in listing sales of "distressed assets" including mortgagee properties from across Australia (although the website only lists mortgagee sales that are advertised as such).

Mr Kovacs, a former eastern suburbs real estate agent who started the company almost four years ago, says mortgagee sales are mainly found in the outer suburbs of capital cities, that is, "the mortgage belt".

There has been a 5 per cent rise in the number of mortgagee repossessions in residential and rural markets in Victoria since January, he says. He expects more, given recent interest rate rises.

"Every time interest rates start to rise you can actually visually see what states are rising as far as mortgagee repossessions are concerned."

Savings of 10 to 20 per cent on the market price are possible if buying property at a mortgagee auction or sale, says Mr Kovacs, but while "a lot of people are focused on bagging the bargain", real estate fundamentals - such as location and design of a property - are still just as relevant when buying a property at a mortgagee auction.

So how do you find a mortgagee auction? While some mortgagee sales are nominated as such, it's not as common as it once was.

The ABA's Mr Munchenberg says decisions about whether to advertise a property as a mortgagee sale or not are made by the mortgagee in consultation with their agent. If it's not marketed as such, "potential buyers need only read the contract of sale to understand that it is a mortgagee's sale", he says.

While you can pay to use the information gathered by a company like NMDData on where mortgagee auctions are, buyer's advocate David Morrell says that apart from looking at the title or contract of sale, another way to determine whether a home is being sold via a mortgagee's sale is to look at whether the chattels - stove, light fittings and so on - are included.

"In a real mortgagees' auction where the bank has taken possession [and] changed the locks, the aggravated old mortgagor comes and says, 'Well, this wasn't on the contract,' and it's not, so they take out all the light fittings, the stove, the hot water system. It's just the shell of the property. That's another reason why the banks let the mortgagee take control of the process because they'll represent the property in the best light."

Like Mr Kovacs, Mr Morrell says that while people can become entranced by the idea of bagging a bargain, it's the research you do before you sign on the dotted line which is the key to a good buy. "It's the old adage in property - knowledge is king."