Finding repossessed houses for sale: the ultimate guide

Repossessed houses for sale can make potentially great property investment opportunities. However, it’s important to effectively evaluate the opportunities and risks involved.

Repossessed homes often come at discounted rates, but these kinds of properties can be trickier to buy. This thorough guide will help property investors understand repossessed properties better to effectively valuate the opportunities and risks that come with them and ways to beat out the competition.

Are Repossessed Houses Cheaper?

A repossessed house is a property that has been seized by a lender. This is often a mortgage repossession, which is due to mortgage repayments not being made. 

House repossessions are usually a last resort for lenders, but sometimes it becomes inevitable. The homeowner could have fallen on hard times and couldn’t keep up with their mortgage payments. But sometimes repossession can be due to a short lease for a leasehold property, a planning or building control issue, a property being built on contaminated land or structural defects, such as damp or subsidence. These situations could make it difficult for the owner to sell or remortgage the property.

Property investors are always on the lookout for property bargains they can buy below market value. Homes being sold after repossession can often be bought at a significant discount. Prices can be 10-30% less than the current market value.

Lenders are often wanting a quick sale with repossessed property as it’s losing money while the house sits empty. When a bank claims back a property, it has a responsibility to get as much as it can for the house to minimise losses. However, banks usually won’t spend time beautifying the property. Instead, they price the properties cheap to sell quickly, so you can often get a repossessed house for much cheaper than a similar property from a normal homeowner.

How Do Banks Sell Repossessed Properties?

After a bank repossesses a property, it has two main ways of selling it. The first option is to hire an estate agent to put it on the open market. Alternatively, the bank may opt to auction the property off. This is usually done if the property has been on the market for some time without being sold. 

Lenders continue marketing the property even after an offer has been accepted. They are typically required to issue public notices, usually in the newspaper, about any offers. Contracts can’t be exchanged until the public notice period of 14 days elapses. And completion usually needs to happen within 28 days.

How Can I Find Repossessed Houses for Sale?

If you are interested in investing in a fixer-upper, repossessed houses for sale can be a great opportunity. But you’ll need to know where to look and how to get the best deal. Here’s some of the common ways to find repossessed property.

Auctions

Some properties that are sold at property auctions are repossessed homes. These can be sold at auction houses or online. When buying at auction, you’ll usually be provided with a description of each property and sometimes a few photographs will be available too. This will help give you some background information on the property. A legal pack can usually be made available. It’s recommended to ask a solicitor to look over these legal documents before the auction. 

To help you know if a property at your local auction house or on an auction website is a repossessed property, there may be a comment or statement stating “mortgagees are in possession”, “on sale by receivers” or similar wording.

You can find repossessed houses going to auction on websites like Allsop and Barnard Marcus. It can be helpful keeping an eye on local newspapers as well. 

Estate Agents

Another way to find repossessed houses for sale is through estate agents. For any property investor, it can be beneficial to build relationships with local estate agents, and this is especially the case for those who are interested in purchasing repossessed houses.

It can be more challenging to spot which properties are repossessed with estate agents’ listings as they don’t tend to publicise this information. However, some photos could give away clues. For example, if in the background, there is some tape, notices the water has been turned off or personal possessions labelled as needing to be collected within 14 days, these could indicate a property is in repossession. 

Repossession Websites

Due to the rise in repossessions in recent years, a number of specialist repossession websites have sprung up that source repossessed properties for you. For example, PropertyData.co.uk has a repossession sourcing list. You can search by postcode and setup email alerts so you can get notified of new repossessed houses for sale.

Evaluating the Opportunity of Repossessed Houses

Refurbishment Costs

Most repossessed houses for sale will need a range of refurbishments to bring it up to speed. Factor these costs in to the overall property investment opportunity and ensure you leave extra room in your budget for unexpected costs that could come up. 

It’s recommended to take a builder to the property before putting an offer in to get accurate estimates on how much the refurbishment work will likely cost.

To effectively evaluate the opportunity of a specific repossessed house for sale, there are a number of things a property investor should do. For starters, visit the property several times if you can and ideally bring a handyman or builder along with you. Do your due diligence and ensure you are fully informed on the property before taking a chance on it. 

Buying a repossessed home is quite different from buying more conventional properties. Usually, you’d be able to easily contact the existing titleholder to ask specific questions about the property. However, with a repossessed property, the agency will unlikely be able to provide answers to important questions about the property. Despite that, it’s important that you still gather the necessary information in order to effectively evaluate the opportunity.

Valuation Reports

Valuation reports are vital to ensure a property is valued correctly. This is a requirement when getting a mortgage, but even if you are planning to buy the property with cash, this is still important to have done.  

Note: Some mortgages come with a free valuation, which can be beneficial in case the sale falls through. With other mortgage products, you have to pay a fee for this, and the cost should be factored in.

Structural Surveys

Before agreeing to purchase a repossessed property, get a full structural survey undertaken. This will help ensure there aren’t any hidden or serious defects. There could be a problematic issue that previously prevented the owner from selling or remortgaging the property, and that is why it led to repossession.

Additionally, ensure structural alterations to the property are supported by necessary paperwork. This can be more difficult when you only have access to the agency or lender, but it’s essential to ensure the structural integrity of the property.

Risks Dealing in Repossessed Property

There are a number of risks involved when buying a repossessed property. Here are a few risks that must be considered.

Gazumping

Gazumping is when an offer has been accepted on a property by the seller, but before the sales has completed, the seller accepts an offer from another buyer. Repossessed houses for sale are not taken off the market when an offer has been accepted. This makes gazumping more likely when trying to purchase a repossessed property. 

Before putting an offer in on a repossessed house, it’s important to know the risks involved of being gazumped as lenders will have no qualms of accepting a higher offer from another seller. Or if the property transaction takes longer than expected, the lender may pull out of selling it to you. 

Missing Fixtures and Fittings

With repossessed houses, the previous owner may have stripped out all of the fixtures and fittings in the property before leaving. This is another cost that needs to be factored in.

“Wasted” Fees

If you get gazumped or the sale doesn’t complete within 28 days, you could lose the money you had put towards the valuation survey, structural survey and mortgage and legal fees. These can really add up, making it a riskier form of property investment.

Beating the Competition

Appealing repossessed houses for sale can attract a substantial amount of interest from homebuyers and property investors alike, so you may have to fight off some competition. But don’t get into a bidding war. Know how much you are willing and able to spend on the property and don’t budge over that number.

In order to effectively beat out the competition, it’s important to be able to execute at speed. Here are a few ways to help you do that.

Get a mortgage in principle. Prove yourself to be a genuine and serious buyer by getting a mortgage in principle prior to viewing the property. This shows you likely have the necessary finance in place to be able to purchase the property. And it can help the transaction move along quicker, which is what the lender is looking for.

Appoint an experienced legal team. As buying a repossessed property is trickier than buying a more conventional property, appoint an experienced legal to help you along the way. A solicitor who has experience dealing with repossessions and understands how this is different to other property purchases will be imperative to the buying process. Additionally, this can help speed up the transaction as they are experienced in this kind of property purchase.

Mitigate gazumping. To mitigate gazumping, it’s worth completing as quickly as possible. Make sure you have all of the necessary documentation you need at hand and answer any queries as quickly as possible. Until contracts are exchanged, you don’t a legal right to purchase the property, so try to get to that point as quickly as you can. Keep in regular contact with your legal team to ensure progress is continuing to be made.

Concluding Thoughts

Repossessed houses for sale can be potentially lucrative property investments. But it’s important to ensure you effectively evaluate all of the opportunities and risks involved before putting an offer in. 

And seek out advice from a range of professionals to help you when considering buying a repossessed house and when taking the leap.

While buying a repossessed property is a riskier property investment purchase, it can be worth it for the right property. 

Peter D Doherty

Peter D Doherty is the founder of the Property Investor Academy.

A Masters graduate in accounting and finance from Dublin City University, Pete worked in the City of London for 14 years. He held senior finance roles (Financial Controller) in several substantial UK commercial banks. He is a graduate of Macquarie University.

With over 10 years property investing experience, he is the owner of a London based lettings agency as well as proptech consultancy. He regularly contributes to online landlord forums such as Propertytribes and Reddit.  Peter is a member of National Residential Landlords Association (“NRLA”).

https://uk.linkedin.com/in/peter-doherty-tal
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