Buying and selling repossessed property
A repossession sale is a process sale. The lender is following a procedure to recover a debt, and the price reflects its need to do so quickly.
When a lender repossesses a property, it sells it to recover the debt. It is not trying to achieve the best possible price, and it is not in a position to negotiate at length — the property is a liability on its books, and the objective is to realise it.
That produces prices that are usually below market, and it also produces a set of risks that a normal purchase does not carry.
Why the prices are lower
The discount reflects several things. The lender will typically sell at auction or through a specialist agent, accept a quick sale, and has no interest in holding out for the last few per cent. The property is usually vacant and often in poor condition, because a repossessed property has often been empty for months.
- The property is sold as seen, with no warranties about condition
- It is usually vacant, which is convenient, but may have been empty and unheated through a winter
- Fixtures and fittings may be missing, and the lender may not know what should be there
- The lender's knowledge of the property is limited to what is in the file
- The timescale is usually fixed and short
The specific risks
The most significant risk is condition, because nobody has maintained the property and no seller is making any representation about it. A full survey is essential, and it should include the services, the drains and the roof.
There is also a risk around the previous occupier. A property may be subject to a tenancy the lender did not know about, or to an occupier who has not left. A lender will normally warrant vacant possession, but establishing that it can actually deliver it is worth doing before you exchange.
Where the value is
The opportunity is in a property with a known and finite problem. If the survey identifies a defined set of works with a known cost, and the price reflects them plus a margin, the purchase can be sound. The danger is a property whose problems are not knowable before exchange.
The other point is competition. Repossession sales are well known as a source of cheap property, and popular ones attract multiple bidders at auction, which removes the discount. The bargains are the ones where the condition or the paperwork has put others off.
Common questions
- Are repossessed properties cheaper?
- Usually somewhat cheaper than comparable properties in the same condition, because the lender wants a quick sale and is not holding out for the best price. But they are often in poor condition, so the apparent discount may simply reflect the work needed. Value them against comparable properties in similar condition, not against well-presented ones.
- Can I get a mortgage on a repossessed property?
- Often yes, but the property must be mortgageable. Lenders will not lend on a property that is uninhabitable or that has structural problems, and the valuation may impose a retention until work is done. If the property is unmortgageable, you need cash or bridging finance.