Introduction

We help our clients participate at German property auctions, whether they be the public auctions which are organised by the state council, or private auctions. Although this can be the most complicated way to deliver property, we conduct perhaps around 20% of our sales in German property auctions and try to make the whole process as simple for you the buyer as possible.

Property comes to auction typically as a case of foreclosure, ie the old owner has failed to maintain the monthly payments on their mortgage. This is not always the case, there is a mix of stock which comes to auction but most of it comes from bank foreclosure stock and the bank use the official public auction to clear the old land charges.

The type of property can vary, almost every sector of the market can come to auction from single apartments to whole portfolios of property. The tenanting and rental state are given in good detail, and some property will suit financed buyers and some cash buyers only.

Taking the Public auction route first, here are some typical questions we get about auctions:

German Property Auctions: The Public Auction

Who can be part of an auction?

• Everyone, because it is a public event. You must have your passport with you.

Is it easy to bid at an auction?

• Yes. If you want to bid for another person, a Power of Attorney is required, signed at a notary.

• If you are there on behalf of a company, you need a PoA that you are allowed to act on behalf of the company, as well as a company Certificate of Registration that is not older than 3 weeks.

Do amateurs have any chance against professionals?

• Everyone has an equal chance of being successful at an auction, the result is entirely related to the highest bid.

What are the advantages of an buying through an auction?

• There’s a always an independent survey available with the property, which you are not required to pay for.

• Immediately after the auction, the land registry immediately after the auction will be free from any encumbrances. This will enable a speedy completion of the deal.

• The costs for the creation of the purchase contract at an auction are lower than those for a purchase contract created by a notary in a non-auction deal.

What are the disadvantages of an auction?

• You can visit the property beforehand, but there is no guarantee in terms of the condition, or any kind of commitment to refurbishment. Therefore the cost of any survey you undertake may be lost if you are unsuccessful in bidding at auction.

Can I Buy At Auction if I Need a Mortgage?

• Yes. Arranging a mortgage will usually need 3 weeks or so, therefore you will need perhaps 4-5 weeks before the auction date to view the property and prepare everything for the finance case. ProVenture would advise if a unit is likely to be able to gain finance.

What is the court fixed market value?

• The independent survey provides the market value. A person attending the auction wishing to bid must have 10% deposit of the market value at the auction.

Where does an auction take place?

• Usually in the city courthouse, although occasionally nearby the property that is being auctioned.

Is it important to be there at the beginning of an action?

• It is very important to be at the auction right at the very start. This is because the auction begins with the Law Office providing all key, fundamental information about the property.

• In addition, the Law Officer also states the amount of the minimum bid which is necessary in order to bid. After that, the bidding begins, and the fixed period lasts 30 minutes.

How long does an auction take?

• The ‘bid-hour’ takes a minimum of 30 minutes. • If there is still bidding at the end, the bidding will be extended until there are no more bids.

What type of security deposit need to be bought?

• When a bidder makes their first bid, you must immediately follow it up with proof of deposit.

• This can be a bank guarantee or a crossed cheque, which must have been written within 3 days prior to the auction.

• It must come from a German bank, and must not be related to your own account.

• The bank guarantee must be without any associated conditions.

• A final alternative for the provision of the deposit would be to transfer the money to an account of the court prior to the auction.

What is the minimum bid?

• This will be stated by the Law Officer at the start of the bid.

What are bid borders?: ‘5 out of 10’ and ‘7 out of 10’

• If the final bid is not more than half of the market value (ie, the 5 out of 10 rule), then the Law Officer must decline the last bid, and re-arrange another auction.

• If the maximum bis is higher than 5 out of 10, but lower than the 7 out of 10 rule, then the creditor may refuse to sell the property.

• These borders are only valid on the first auction process. At later auction dates, these borders are not valid anymore, unless no-one bid at all at the first auction.

When will the bid be accepted? • The last bid will be accepted when the ‘bid hour’ (30 minutes) finishes.

• If this is the first auction for this property, the bid must be more than 50% of the market value. For a guaranteed sale, the top bid must be more than 70% of the market value.

When will I be the landlord?

• As the bidder with the highest bid, you will become landlord immediately. This is confirmed when you receive the Court order in a few days afterwards. The entrance in the land registry will be made at a later date, once the stamp duty is paid.

What charges do I have to pay?

• A successful bidder would have to pay the following:

◦ Court acceptance fee

◦ Land registry fee

◦ Stamp duty

◦ Interest payments (maximum 4%, starting auction date, until they receive payment. Capital is calculated on highest bid minus the provided deposit).

When do I need to pay?

• The security deposit will need to be paid immediately once the bid has been accepted.

• It is likely that the remainder of the payment will be called for in a few days. The date of the payment will be fixed by the court after the auction.

• The successful bidder will need to pay 4% interest from the date of auction to the point of the rest of the payment being made. If you would prefer to avoid these payments, the entire payment can be transferred immediately.

Can I Secure a Price Before Auction? On occasion, a selling bank may discuss a suitable price level before an auction. They will then sign a pre-auction contract, effectively allowing the buyer to push any competition away during the auction with a high bid level, but only pay a pre-agreed price as per the pre-auction contract. For example, a bank may accept a price within a pre-auction contract of 100.000 Eur for a property, but allow you to bid 15% more that this price in auction, and still only pay 100.000 Eur. The auction process is then just used to clear the old charges on the land registry and the bank have assurances that they get a sale at a pre-arranged price. This is a typical way we would prepare a client for auction.

The Private Auction

There are a number of private auction firms, effectively Notaries with the power to sell property and conduct contracting within a private auction setting. The process differs slightly in that around 30 or so lots of property will go under the hammer in a morning session. The properties are then contracted immediately after the hammer goes down with a deposit being paid at that point.

The main difference with these auctions is the type of property being listed and the price of listing. At private auction, all manner of properties are listed. Many properties are unrefurbished or distressed in some way. But on the other hand, some very good property is offered by a seller wanting to give their property good exposure and secure a quick and assured sale. The properties are more often listed with a minimum price or bid level. This level indicates what the property will be sold for, if only 1 bid is received for the property.

Typically property goes for between 40-100% above the minimum bid level, and very good deals can be secured. It really does depend on the number of active bidders in the room of course.

Conclusion

Although not a straightforward route to purchase, auction deals can be a very good way of international clients securing good value property and gaining immediate possession and rental collection rights.

The ProVenture team have good experience in supporting clients through this process, so do get in touch if you need more advice on this topic.