Investing in a Repossessed Property – Things to look out for
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An insight into unfortunate mishaps investors can fall into when buying a repossessed property
Hidden damage/Buyer Beware
Buyer beware means that the buyer is entirely responsible for judging the quality of the property and if they misjudge it is, unfortunately, their issue to solve. This fundamentally means buyers have to look out for themselves, and this is the common expectation when buying a repossessed property. When you are looking at a repossessed property that you are considering bidding on, you should be even more vigilant than you would be if you were assessing a regular property.
There can be a number of different reasons behind this. Firstly, there is a high chance that the previous owner would have actually been trying to sell the property for a while, however never received an offer that getting out of their financial situation required. So you may have to consider this and ask yourself, ‘why could they not sell this place?’
Secondly, and possibly, more importantly, the previous owner was evicted from their house and therefore may have inflicted purposeful damage on the property. There are many stories of this happening. When they are literally made to leave they can feel incredibly bitter towards both the situation itself as well as the future occupants living in their current home.
Thirdly, although they would not have done it purposely, it is sometimes difficult for bailiffs not to leave some wear and tear considering the situation their job puts them in.
So considering these 3 points, it is probably wise to approach the viewing in a somewhat pessimistic manner. By this, I mean you should not disregard any aspects of the property that adds to its value. Look high and low for any hidden damage that you may not have noticed in a regular viewing.
Although I do not wish to make any sort of generalization, there is a chance that those who are aware they may be evicted from their home very soon may not be attending to garden work on a regular basis. Japanese knotweed can actually be very hard to locate as it only needs one small root to rapidly expand and soon take over a whole garden. It is also a weed that mainly grows underground, so if you find just a crown of the weed it can still mean there are meters of roots underneath it rapidly expanding. They do look very similar to other types of weed which makes them even harder to locate.
However, there are a number of unique characteristics they have: A leaf that can often appear similar to the shape of a heart or a shield and a stem that looks like bamboo with a zig-zag pattern. If you do find a weed matching this description at a property you are viewing you must either assess it further to make sure it is not a Japanese Knotweed or if you are unable to do this end your interest in the property. This may seem a dramatic approach but the weed has such a negative effect on the properties worth that some lenders actually refuse mortgage applications on a property that has the weed, and it will certainly reduce the value of the property.
Gazumping in simple terms is when a seller agrees to sell the property to one bidder, only to accept a higher offer from a separate bidder later on in the process. It is a term that is frowned upon in the property industry and is fairly uncommon in the negotiations of regular properties.
Unfortunately, one of the main negatives of buying repossessions is that gazumping is far more likely to happen. When a property is repossessed, whoever is selling it (a bank, a mortgage company or a lender) has a legal obligation to obtain the highest amount of money possible for the property in order to recoup as much money as possible they lost on the property. Due to this obligation, there is virtually no sentiment or good faith in negotiations, they will get the most amount of money possible for the property, even if it causes frustration and annoyance to some interested parties. Sellers will not even hide the fact they are still open to higher offers once they have accepted one offer, in fact, they can still advertise in newspapers showing your current offer to beat.
To prevent gazumping from happening to you, try and be as pushy as possible. Make sure you are constantly in conversation with the seller in regards to the movement of negotiations and get everything signed as quickly as you can. Remember the seller will go back on an agreement with you even for an extra few hundred pounds, so don’t restrict yourself from being a nuisance until the transaction is complete. Being gazumped is incredibly frustrating for any investor. You can put time and money into it and end up with nothing, therefore it’s important to put effort into minimizing the chances of it happening to you.
This is something you may not expect yourself to feel when trying to invest in anything, however looking at a property days after it’s previous owner was forced to leave can be a disturbing experience. Picture it – you approach the property, there is tape in places saying ‘do not enter’ and multiple locks on the door, it is cold and almost empty inside, there are letters on the floor from bailiffs that are final notices, you see possessions that belonged to the previous owner and there may even be pictures of them and their loved ones.
Lenders will want to sell repossessions as quickly as possible therefore there is often almost no preparation prior to the viewings. So before viewing a repossession, it is important to get in the right mindset, try and block out tender feelings and focus purely on the value of the property. Remember, the previous owners distressing situation would have happened regardless of your interest in the property.
The identification of repossessions
One major difficulty in browsing the market for repossessions is knowing what homes are repossessed and what homes are not. This works in both ways, you may show interest in a property that you believe is a repossession that is not repossessed and vice versa. It’s common for estate agents to not label repossessed properties on their books as repossessions as they don’t want possible bidders knowing, for fear it will put people off. For this reason, it can be very difficult to purely look for repossessions when looking through estate agents.
The easiest way around this is actually going to an estate agent, introducing yourself and explaining how you are interested in repossessions as you believe they can be a great investment. Once you have a rapport with certain estate agents and they are aware you have a genuine interest in repossessions they may contact you when they come on the market, or let you know which of their properties have been repossessed. However, this outcome may differ between certain estate agents as each one will have different codes of conduct.
It’s also worth remembering that auction houses that sell property do not strictly deal with repossessions. It is often believed that all property for sale in auctions are repossessions. However, there are cases of homeowners who can’t sell their homes through estate agents so they go to auction in order sell. So if your heart is set on repossessions, as that’s where you believe the best deals are, it’s important to establish which properties are repossessions when browsing the market through whichever source you’re using.
Even after you bought the property and the transaction is complete, there is still something to look out for. There can be a number of reasons a house is repossessed, the most common one being, the owner cannot keep up with mortgage payments. Due to the financial difficulty, the owner could have turned to a number of different sources to prevent repossession from happening, such as the lenders. The owner may owe money to a number of different lenders, and these different lenders will not always be informed when the person is evicted from the property. And for this reason, there is still a likely chance of bailiffs trying to enter the house even after you own the property.
There are ways to prevent this from happening. One is to keep an eye on the post on a daily basis. If the previous owner did owe lenders money you will receive letters addressed to them giving warnings or notices. It is vital that you immediately contact the company the letter was sent from and confirm with them the owner no longer lives on the premises. Once they are aware of this they will no longer write to the property. For this reason, it is wise to visit the property on a regular basis for the first few days or weeks.
Another way to prevent this from happening is by asking the seller a brief background of the property and the reason why it is repossessed prior to bidding on the property. They will not always give this information to you, however, it is definitely worth enquiring and getting as much information as possible. The worst outcome of asking would be the seller not confirming any information with you, which may even make you less keen on the property anyway!
Thank you for reading!
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