Repossessed houses for sale can sound like a great investment opportunity, but only if you are fully aware of the risks around purchasing one.
Having gone through the pain of losing a deal right on the deadline day after sending the exchange/completion documentation and approvals, it only makes sense to write up on what an investor has to be aware of purchasing repossessed houses for sale.
Repossession is a process where the lender or banks intend to reclaim the property from the owner due to missed mortgage or loan payments in its simplest definition.
That puts lenders in a position to get rid of the property as quickly as they can and to the fairest price to cover their liability.
Note that the lender will be working towards their own best interest and not in the interest of the seller or the buyer.
So here are the five facts that one should be aware of and understand in depth before anyone intends to purchase a repossessed house for sale.
Table Of Contents
28 Days Completion on Repossessed Houses for Sale
Repossessed houses for sale will have a very short time to exchange and complete and usually exchange and completion happen at the same time.
Have you ever wondered why?
The owner of the property has every right to stop the sale process at any given point if he/she is not happy with the price secured and hence can launch a legal proceeding.
Completing it quickly ensures the time window is reduced for any such reaction from the owner.
28 days is a little aggressive to complete on purchasing a property should a solicitor do searches for the property and one buys it on a mortgage.
Repossession properties hence work better when you are able to buy with cash.
Obligation to Get Maximum Price
The lender has obligation to get a fair sale price on the property to avoid any issues from the owner.
This means a repossession property is not always a deal when you see this truly from an investment point of view.
The property on the listing websites like Rightmove or Zoopla will have public notice from the estate agents on the offer received and exchange cannot be usually done until at least a week after providing the public notice.
As lender is obligated to get a fair price, the property will not be taken out of the listing website even if an offer is accepted.
It pretty much is too good to be true that a repossession property is being sold considerably below market value and no others are placing offers on the property.
If you have a strategy where you are looking to add value to the property and refinance the money, this has to pass through an extra pair of eyes.
This is the area where most of the investors fall flat and take the hit.
No surprises we did too….
The property that you have offer accepted on does not mean that the property will come off the market.
By default, lender would want to best price for the owner of the property and hence the property will remain on for sale until it’s exchanged.
There is every chance that a higher offer can be placed and the property is sold to somebody else after your offer is accepted.
A higher offer of about £500 was placed on one of the property we had offer accepted on the day of exchange after sending all the documentation and confirmation email to solicitor to exchange.
Issue with this is, investor is bound to lose money on solicitor/survey/mortgage valuation fees irrespective of the status of completion of the property.
Lesson learnt, but now we have an arrangement with our solicitor who is kind enough to lose the money if the property does not go through (searches are paid for though).
With a bit of knowledge now and experience we are able to judge on when to do the survey and when not to.
If it’s a repossession, preference would be to do a cash purchase to ensure we don’t lose out on any valuation fees or missed timelines due to delayed allocation of mortgage.
Unknown Charges and Notices
Repossessed houses for sale usually will have the electrics, gas and water supplies turned off completely. It becomes prudent to check the outstanding bills on the utilities and costs to reactivate them before you exchange on property.
Note that unlike a standard sale, seller’s solicitor may instruct to hold some amount of money keeping in mind of any outstanding debt on the property or outstanding service charges if it’s a flat.
This amount is called “Retention”.
The primary focus of the lender who is putting the property up for sale will be to complete the mortgage account at the earliest and hence will not be receptive to this retention.
I would be extra careful if you hear indemnity insurance as response for most of your queries within repossessed houses for sale.
Lack of Information
The seller who is initiating the sale of a property will not have information about the property and hence what you see is what you get.
There will be less appetite to respond to any queries you may raise with seller’s solicitor.
As a result, the exchange contract will have clauses which are heavy and more than usual. These clauses have to be carefully looked at before going for an exchange.
Your review of the property end to end becomes more prudent when it’s repossessed houses for sale.
Property and Reputation Damage
Check the property out before exchange to ensure everything is in order and same as what you have seen it while placing offer.
Within the scenario of repossessed houses for sale, you are dealing with an owner who probably is not very happy with the lender selling their house.
That negative emotion kicks in resulting in damaging the property many a times and/or unplugging the fixtures and moving them out of the house.
This isn’t to say everyone is such but in our own best interest as investor, a final viewing will ensure we are covered in all aspects.
Given that the owner has defaulted on the mortgage, it would be advisable to review your credit rating post the sale to verify that you are not adversely impacted from the previous owner’s arrears.