How to buy a cheap property at auction?

JUDr. Ondřej Preuss, Ph.D.
5. 2. 2024
9 minutes of reading
9 minutes of reading
Real Estate

Are you tempted to buy a cheap property at a foreclosure auction but don’t know how to go about it? We’ll walk you through the entire process step-by-step so you can be confident.

Nemovitost určená ke koupi v dražbě

Chapters of the article

How to choose a cheap property?

Getting to a property in foreclosure was almost a detective story in the old days, where you had to search through the official boards of individual bailiffs, individual cadastral offices and municipalities. Now the situation is much simpler.

The easiest way is to follow the Auction Portal of the Executors’ Chamber of the Czech Republic, where the properties to be auctioned are regularly listed. The portal is very clear, you can select whether you are interested in a plot of land, an apartment, a house, a holiday home, a garage, etc. It is also possible to search by map, choose a price that is affordable for you (remember that this is an estimated price, not the final price, so the final amount may be lower, but also significantly higher).

Searching for properties on the Auction Portal is a bit of a different search. If you’ve been browsing estate agents ‘ servers with homes that have undergone home staging, Photoshop photo editing and a talented copywriter’s description, you’ll take longer to get used to. But with a little imagination (and some luck), you can find your dream property here, too.

According to experts who are in the foreclosure auction business, auctions typically pay off for land or properties in rural areas, where sometimes even repeat auctions occur due to low interest. There is also little interest in co-ownership interests for quite understandable reasons, but if you have the patience and effective legal tools, it can also be a bargain in the end. However, if you are looking to buy an apartment in Prague for a song, you will probably meet with a bad one. Currently, the Auction Portal does not offer a single.

Tip: Have you bought a share in a property at auction and are thinking about settling the co-ownership? We will prepare a quick and efficient settlement of the co-ownership for you, so that it is as advantageous as possible for everyone involved, and especially for you.

Auction order and registration

The auction is opened on a specific date and at a specific time. The end of the auction is also set for a specific time. There is one essential condition for its observance, namely that no one will bid in the last five minutes. Otherwise, the end of the auction is always delayed by another 5 minutes after the bidding has been made.

Anyone who has paid the auction security, is a participant in the auction taking place on the auction portal and has provided proof of identity may participate in the auction.

In order to become a participant in the auction, you must register on the online auction portal and verify your identity using the form at least three days before the auction takes place(however, for the reasons set out below, it is advisable to start registration a week earlier). The identity verification form is available in your user account after registration.

Tip: In order to understand foreclosure auctions, it is also necessary to understand the nature and process of foreclosure by sale of real estate. We have described how it works in our separate article.

The form can then be:

  • (a) printed with a handwritten signature, sent by post to the address of the bailiff’s registered office, or
  • (b) printed with a handwritten certified signature, be converted into electronic form and sent to the auctioneer’s e-mail address; or
  • (c) converted into PDF format and sent with a guaranteed electronic signature to the auctioneer’s e-mail address; or
  • (d) convert to PDF format and send with a guaranteed electronic signature to a data mailbox, or
  • e) sign in person in front of the user whose auction you intend to attend and at the same time present a valid personal document to prove your identity. The user then delivers the form to the data box converted into electronic form,

However, sometimes the rules for user verification are different – for example, according to the auction portal rules, you may always need to print the form, have your signatures officially verified on it and then deliver it to the auction administrator, either:

  • (a) by registered letter to the Auctioneer’s address, or
  • (b) electronically in the form of an authorised conversion
    • upload to the system via a user account, or
    • by e-mail to the auctioneer, or
    • sent to the auctioneer’s mailbox.

It is then possible to log in directly to a specific auction at the latest at a predetermined time before the auction starts.

Tip: Are you on the other side of the barricade – are you in insolvency and afraid of losing the roof over your head? Under what conditions can the owner sell his property? What is the owner’s options when selling a flat or house in insolvency and what happens if the sale proceeds exceed the secured claims? Find out in our next article – How to sell a property in insolvency.

Composition of the auction security

A necessary condition for participation is the deposit of the auction security in a predetermined amount, no later than a specified number of working days before the auction starts. It may therefore be advisable to register for the auction earlier. The auction security may be deposited either in cash at the bailiff’s cash desk or in cashless form to the bailiff’s account under a specified variable and specific symbol.

On some auction portals, when you bid, you also indicate:

  • whether you are acquiring the object of the auction in a special way (in the matrimonial property or jointly owned property),
  • whether you are a standard auctioneer or an auctioneer with a specific right – e.g. a pre-emption right. You are usually obliged to prove this again a few days before the auction. In the case of a contractual pre-emption right, proof of the pre-emption right, if this cannot be ascertained from the bailiff’s file, is in particular the delivery of the relevant contract (the bailiff should have publicly available contracts on file and there should be no need to resend them, but as a precaution, resubmission may be recommended).

Once the auction security has been credited to the bailiff’s bank account and the conditions for participation in the auction have been met, the bailiff will authorise you to participate in the chosen auction and you are entitled to actively participate in the auction – the bailiff will inform you of this via emails. In this context, the bailiff notes that he/she usually checks and authorises participation in the auction only on the day of the auction or the day before. Also, only before the auction starts does the bailiff decide by order whether the pre-emptive right is proven (no appeal is allowed against this order).

Do you need advice on buying a property at a foreclosure auction or on settling a co-ownership interest?

Simply email us your legal query online and one of our real estate law experts will get back to you within 48 hours.

Course of the auction itself

The auction itself follows, with individual bidders making their bids. The lowest bid should always correspond to 2/3 of the price determined by the valuer in his report. The new bid must be higher than the last one received, at least by the amount indicated as the minimum bid (in the case of pre-emption rights, only matching bids are allowed). In this way, the auction continues as long as the auctioneers are making bids. After the bidding period has expired, the auction is closed and the auctioneer is granted a preference – a preference order is issued and published on the portal of the auction concerned (the auctioneer is also served with the order).

Paradoxically, there is a period of uncertainty at this point, as anyone may propose in writing to the auctioneer within 15 days of the date of publication of the knock-in order that he or she wishes to acquire the auctioned item into his or her possession for at least one quarter more than the highest bid made – the so-called pre-auction price. If no one does so, the order of the auction becomes final and the auctioneer must pay the highest bid (the difference between the security and the highest bid). Once all these conditions are met, the registration in the Land Registry follows – the registration should be ensured by the executor by sending the resolution on the auction with a legal force clause to the Land Registry.

Tip: Are you facing foreclosure by sale of movable property? Learn how foreclosure sales and auctions of movable property work.

Advantages and disadvantages of buying at a foreclosure auction

The main and fundamental advantage is the low price at which you can often acquire a property. In the first round, you can get the property for as little as 2/3 of the price determined by the expert. In the second round you can even get half of the price, in the third round 40%, in the fourth round 30% of the price and in the fifth round the price is a quarter of the price.

Another positive is that you acquire the property as the original owner. This means you don’t have to worry about various lawsuits claiming that the original owner’s acquisition of the property is invalid.

However, this can again be offset by a number of disadvantages, which should be carefully considered before embarking on such an action:

  • Very often you cannot inspect the property in advance. There is no legal entitlement to inspect the auctioned property It rather depends on the specific approach of the auction organiser whether and how they will allow the auction participant to inspect the property.
  • The ideal is to have the money in cash. Financing with a mortgage is not completely out of the question, but it requires a friendly bank and another property that you can pledge (it is extremely difficult for the bank to accept the property you are buying as collateral)
  • As a new owner, you may face assisted eviction from the original owners. And that can be very unpleasant.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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