BUY INSOLVENCY PROPERTY
WHAT IS INSOLVENCY REAL ESTATE ALL ABOUT?
The purchase of a property from insolvency involves a property belonging to an insolvent debtor. If a real estate company becomes insolvent, the insolvency administrator takes over the administration and sale of the assets in order to satisfy creditors. The administrator, usually a specialist lawyer, is responsible for the sales process and must achieve the best possible price. Creditors themselves can also influence the process. Insolvent properties are sold in two ways: via a so-called forced sale and, more frequently,by private treaty, i.e. to private buyers as normal. In this article, we take a look at the sale of insolvency properties by private treaty in Austria and the most important points to bear in mind.
HOW DOES IT WORK?
Valuation & expert opinion: The valuation is carried out by a court-appointed expert. A professional valuation is essential for a fair payment to creditors. They use various methods, such as the comparative value, income value or asset value of a property, all packed into a report that is usually 30 to 100 pages long. Important: The estimated price is also the lower limit or minimum price below which the property should/may not be sold. If a purchase offer were to be made below this estimated price, this would give rise to the suspicion that the assets were being squandered, which the insolvency administrator and court should of course not expose themselves to. In addition, this price creates transparency and trust among all parties involved.
Sale & offer: The sale begins with the appraisal, which is published (https://edikte.justiz.gv.at/) and can be viewed by anyone. However, insolvency administrators and surveyors are not available to answer questions about the property. I have personally experienced how some people have tried to view the property privately but have not received any further detailed information or answers to their questions. It is therefore advisable to go through an estate agent who specializes in insolvency properties, perhaps even has a legal background themselves, and who knows the process inside out and can provide you with massive support. Once you have decided on a property after careful examination, you can submit an offer to the insolvency administrator. Some require specific conditions for submitting an offer, such as the commitment period, while some insolvency administrators are more flexible.
Award & settlement: Ideally, you are the only bidder and the seller wins the bid. If there are several bidders in the running, the insolvency administrator has the option of either setting a deadline by which all bidders can submit a further bid or inviting the bidders to a court hearing where a bidding process takes place. Once the bid has been accepted, the purchase agreement is deemed to have been concluded. The buyer must then submit a purchase contract, which is agreed with the seller, and then transfer the purchase price to an escrow account held by the administrator. The final step is to go to the insolvency court, which still has to approve the purchase agreement. If the purchase price achieved is at or above the estimated value, you will usually receive this court approval without any problems. A practical tip at this point: Because the insolvency administrator's commitment to the purchase offer is already fully valid and court approval only postpones its validity, so to speak, it can make tactical sense to submit a commitment period for your own purchase offer that is as short as possible. If the trustee in bankruptcy then agrees, you may have beaten out other bidders who do not manage to submit their own purchase offer by the end of the commitment period. So time is of the essence here. Important note: Even after the purchase agreement has been concluded with the insolvency administrator, it is still possible to submit a higher offer before the court approves it. This makes it all the more important to act quickly with the help of a specialized real estate expert (like us).
DISADVANTAGES & RISKS
Overlooked defects: due to hasty purchase decision
Lack of warranty: Exclusion of warranty, no liability, as no assets available
Complexity of insolvency proceedings:
1. communication with the insolvency administrator is more complex, as he is not specialized in sales and can hardly provide any information. They usually only refer to the valuation report of the court expert. Other documents are usually not available, so communication and documentation on the property are too poor for most interested parties and professional support should be sought.
2. waiting period until the final approval of the purchase contract by the court;
3. no trustee - prepayment obligation without a trustee is unusual, but you pay into a separate trust account of the trustee in bankruptcy
Financing problems: no financing proviso, financing commitment must be in place
VAT: In the case of property developer bankruptcies, it can happen that a property is then sold with VAT. This must be taken into account when submitting the purchase offer.
ADVANTAGES & OPPORTUNITIES
Properties at or below market value: Why? The appraisal represents a general market value, but often does not include all aspects relevant to the purchase, as many appraisals often do not take into account factors such as micro-location, furnishing details or energy efficiency. In addition, many appraisals are prepared as so-called desk appraisals, without an on-site inspection of the actual property. And there may well be attractive estimates in terms of price. Here, too, it is important to consult a real estate expert or estate agent who can at least provide a second estimate of the property so that you don't buy too expensively.
Lower risks for the seller: A purchase from a bankruptcy estate typically involves considerably lower risks for the buyer than a purchase from a private or commercial owner, whose financial situation, reliability and dependability are often difficult to assess. In any case, a purchase from the liquidator eliminates the risk that the property will be sold several times or otherwise encumbered with a lien.
Deletion of liens / mortgages: Transferring the purchase price to a bankruptcy account also ensures that the purchase price is used to satisfy the bankruptcy creditors at a later date, which ultimately also results in the deletion of the liens and mortgages.
Sale for financial reasons: Conversely, this means that the probability of selling due to structural defects is lower in the case of insolvencies. Nevertheless, this does not exempt you from taking a very close look at a property, including its construction.
Lower ancillary costs: 1. since the insolvency administrator himself is the trustee of the insolvency estate and therefore no extra trustee is required, there are no trustee costs. 2. if you buy without the help of a real estate expert or broker, their fees are eliminated.
COMPARISON INSOLVENCY VS. PRIVATE PURCHASE
SUMMARY & RECOMMENDATION
There are often opportunities when buying insolvent properties, but there are also risks. Appraisals set a minimum price, but hidden defects and complicated processes are possible. It is therefore advisable to seek advice and support from an expert when buying insolvent properties - from gathering information, viewing, appraising and assessing the advantages and disadvantages of a property to communicating with the insolvency administrator.
So, despite the greater complexity, which a professional estate agent more or less offsets for a potential buyer, the purchase of such a property can be a worthwhile acquisition if approached correctly.
There are other aspects to the whole topic and some additional tips that I would be happy to discuss with you in a personal meeting. If you have any questions or need advice, my team and I will be happy to help you anywhere in Austria!
Any questions ?
Dr.iur. Andreas Bonschak, LL.M.
Costs of selling real estate in Austria
Essential costs when selling real estate in Austria: A comprehensive guide for sellers
What are the costs of selling a property in Austria?
In principle, in Austria the main burden of the additional costs when buying/selling real estate, and that is about 10% of the purchase price, is borne by the BUYER and not the seller. We will now go through which costs typically affect the seller and which are negotiable:
Broker commission
Costs: 3.6% of the purchase price incl. VAT; negotiable.
Important: Only due on sale. Includes services such as price estimation, advertisements, customer inquiries, viewing appointments.
Details: If you commission an estate agent with the sale, you will normally be charged 3.6% of the purchase price including VAT. This is a matter of negotiation and many estate agents will be a little more accommodating in terms of price. Important: This commission is only paid in the event of a successful sale and covers all the estate agent's expenses and work such as price estimates, advertisements, customer/prospective buyer inquiries, viewing appointments, etc.
Energy certificate
Costs: From approx. 200 EURO.
Important: Must be presented in the advertisement or before the purchase contract is concluded. Normally paid by the seller, but can be passed on to the buyer by contract.
Details: You must actually hand over the energy certificate to the buyer in the advertisement or at the latest before the purchase contract is concluded. The costs for the energy certificate vary widely. However, some can be ordered on the Internet from around 200 EURO. These costs are usually borne by the seller. However, the purchase contract may stipulate that the costs must be reimbursed by the buyer or these costs may simply be included in the purchase price.
Purchase contract obligations
Costs: Variable depending on obligations (repairs, clearing out, decluttering).
Tip: Costs usually deducted from the purchase price; seller typically responsible.
Details: If you commit to improvements, repairs or clearing out and decluttering in the purchase contract, the costs will of course be incurred. However, these are usually simply deducted from the purchase price so that the buyer is responsible for all repairs. In practice, it is advisable to stipulate in the contract what is to remain or be removed and who will bear the costs (typically the seller), especially for clearing out and decluttering.
Notary and purchase contract
Costs: Notary, trustee, drawing up the purchase agreement.
Common: Escrow costs are often split between buyer and seller.
Details: The costs for the notary, trustee and drawing up the purchase contract can be passed on to the buyer by contract. However, it is common for the escrow costs to be split equally in the amount of a few hundred euros.
Real estate transfer tax
Note: Is usually paid by the buyer and is therefore not incurred by the seller.
Real estate income tax
Costs: 30% of the gain achieved; with exceptions.
Exception: No tax for main residence or reduced tax for properties acquired before 2002
Details: This tax is generally 30% of the gain realized. However, there are some exceptions and exemptions: The most important of these is if you have registered your main residence in the property sold for 5 years continuously in the last 10 years or 2 years continuously from the purchase of the property, then this tax does not apply. In addition, a reduced tax rate of only 4.2% of the purchase price applies to properties purchased before 2002.
Release from encumbrances in the land register
Costs: A few hundred EURO for the deletion of existing mortgages.
Responsible: Usually to be borne by the seller.
Details: For the deletion of existing mortgages on a loan by a trustee, costs of a few hundred euros are incurred. These are to be paid by the seller, as they are to be carried out in his interest.
Mortgage loan
Possible: Extra costs for early loan termination.
Tip: Consider whether a loan termination can be avoided in order to avoid additional costs.
Details: If you have taken out a fixed-interest loan or fixed-rate loan and have encumbered the property with a mortgage, you may have to expect extra costs for the early termination of the loan. The financing bank may charge a so-called early repayment penalty if it has suffered a loss of interest due to the early termination of the loan.
Our tip: You should therefore consider foregoing a loan repayment, which incurs additional costs and does not result in a higher sales price. Instead, use the loan for the next property to be financed after the property sale.
Every real estate sale is unique and requires an individual approach. For comprehensive advice tailored to your specific case, I recommend that you contact us.
Disclaimer: Please note that the information provided here does not constitute legal advice and I assume no liability for the accuracy, completeness or timeliness of this information.
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In a series of articles we give advice and tips on the subject of "Real Estate in Austria" - especially from the perspective of a potential buyer from abroad. You can find more articles here '
