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3 Potential Pitfalls to Buying a Repossessed House
3 Potential Pitfalls to Consider when Buying a Repossessed House
There’s no doubt that repossessed properties can make great investments but if you’re seriously looking to buy repossessed houses in the UK then you must consider these three potential problems before you place any offers. These problems are hidden damage, gazumping and the speed of sale.
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Hidden Damage
Repossessions Can Be Money Pits. Let’s take a moment to consider why properties are repossessed. We can assume that it’s not something the vendor wanted to happen…
Repossessions can represent a significant financial burden for a vendor. This is not just at the time, with arrears that might have built up, but also because in the UK mortgagors are still on the hook for the total mortgage debt and any shortfall from the sale. There is little doubt that the mortgage company will come knocking to claim back the difference if they can.
Many vendors don’t realise this or else they choose to ignore it (understandable, given that the process can be a very emotional experience). So, when the time comes, and the bailiffs arrive at the door it is likely that the property won’t be left in a very welcoming condition.
For example… When I was in my first week working as an estate agent in 2006, I attended a repossession eviction with my manager. The mortgage company had asked us to start marketing the property right away for sale.
When we got there, the bailiffs and locksmith had already arrived but the owners hadn’t left. They had locked themselves in the house, eventually having to be removed by police as they were threatening the locksmith.
Talk about a baptism of fire for your new job!
When the situation had calmed down and we were able to get access to the house we could finally see the state that it had been left in.
It was strange. The vendors had started to do some renovations to the house but then had suddenly stopped halfway through. It would be my guess that they had run out of money (hence the repossession).
The kitchen was brand new. There were nice worktops. A two-storey extension had been started at one side of the house.
But out of spite, the vendors had decided to trash the place. The new kitchen surfaces had been scraped, copper piping had been pulled up. The carpets looked intentionally stained.
It looked at first like it was mainly superficial damage but as the weeks went on and we had more and more viewings at the property we noticed more damage where the vendor had clearly gone to town. There were broken window handles, blocked toilets. There were missing floorboards and these are just to name but a few…
Investor Tip:
The one thing I took away from this experience is that you should never take what you saw at first sight, for granted. When you’re buying repossessed houses for sale in the UK second viewings are advised. You want to give yourself the chance to pick up on the things that are easily missed the first time around.
Often there will be hidden damage caused by upset owners who have found themselves in the unfortunate situation where their homes have been repossessed.
Gazumping
It’s an unfortunate truth, that because mortgage lenders need to be seen to get the highest possible price for repossessions, there are often bidding wars and gazumping is common (if you’re not sure what this we’ve written an article on gazumping and how to avoid it). Both of these issues are a lot more common with repossessions than with other types of property. And yes, some mortgage lenders appear to lack a moral compass.
Most residential repossessed houses are sold by banks via Estate Agents and they rarely honour the original bids. It’s all about getting the highest price.
So, you need to be careful when buying repossessions and be aware that your accepted offer won’t always mean a done deal as higher offers can be placed at any point before an exchange of contracts. This can leave you seriously up the creek. You might have already paid out for surveys, searches, legal fees, but if you haven’t exchanged and another bidder decides to put their hat in the ring then it’s game over.
Investor Tip:
Get all your systems ready to go…
Make sure you have a solicitor that has dealt with repossessions before, who understands the process.
The quicker you can get the deal through and can exchange, the less risk of another buyer being able to swoop on into your deal.
Speed of Sale
Most mortgage companies will only accept offers on repossessions with terms attached. One of these terms is often that the sale must complete within 28 days.
So, not only are you up against the wall with regard to your risk that other investors will gazump your offer, but you will also need to get your skates on with the purchase.
If you fail to get the sale through within the time limit then, even without another buyer, you could see the property back on the market and your offer declined.
Investor Tip:
When purchasing a repossessed property you must have available funds to invest. You need to be a cash buyer or have your mortgage pre-agreed.
You need to be ready to roll, or you’ll find it difficult to get your offer taken seriously.
What Happens Next?
Buying repossessed houses in the UK can offer a lot of opportunity for building your property portfolio, so don’t let me put you off with these words of caution.
If you’re actively looking for deals at the moment, then take a look at the post we wrote on how to find repossessed houses for sale in your area.
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