Buying a repossessed property

[nammynake]

Repossessed residential properties - I have a few questions:

1. Who buys them? BTL landlords, cash buyers looking to turn a quick profit?

2. Why do they typically sell for less than 'market value' (i.e. indexed value from the original purchase price) . By this I mean relative to a comparable property type in the same location. Discounts can be up to 30%+ in cases. Banks have an obligation to get a fair value for the customer so I don't think it's the result of a quick sale. I know some go to auction but the majority are sold via estate agents. Properties being trashed, or in the case of BTL properties are they just generally poorly maintained and so the discount relative to their expected value is high?

3. Discounts are generally higher in the North and are higher for flats than houses. Why? Less demand from buyers in the North? Flats more likely to be BTL and thus in poorer condition?

Sorry loads of questions - I've searched but can't find much discussion on here or elsewhere.


Thanks

[98elise]

The only "discounts" I've ever seen are due to condition, but thats in the south east. They are sold on the open market and generally stay on the market until contracts are exchanged, so the is nothing stopping somone offering more if the price is too low.

[Behemoth]

I've bought reposessed (in the SE). The discount exists because the reasons for reposession may be complex and/or deep seated. This limits the market and therefore exerts downward price pressure. If the situation is complex, the EA may be unwilling to put in the retail marketing effort to run viewings as their commission is eaten away when a property requires a vastly higher ratio of enquiries to viewings & sale. This lessens the market further. You need to do more due diligence, but can get a bargain as a result.

Flats achieve higher discount because there are added lease complexities and the repo may be pointing to, eg, a potential problem with the block collecting service charge.

Edited by Behemoth on Sunday 26th February 09:38

[anonymous-user]

nammynake said:

1. Who buys them?

Same pool of buyers as any other property, but they are often in poor condition.

nammynake said:

2. Why do they typically sell for less than 'market value'. I know some go to auction but the majority are sold via estate agents.

They do sell for market value. No house, car or anything else can be assured of an "indexed" selling price.

People who run out of money tend not to maintain their homes. They also have an unfortunate habit of trashing the place out of bitterness when they leave. Auction is particularly suitable for properties which are so damaged that a normal home-owner can't get a mortgage on them. Auction also delivers the certainty of sale in a sensible time frame. Some repossessed properties get stuck on an agent's book for ages.

nammynake said:

3. Discounts are generally higher in the North and are higher for flats than houses.

Properties in the north are cheaper, so the cost of putting one back into decent condition represents a bigger proportion of its "value". Once a cheap flat needs a lot of work it doesn't have much value - because there's no freehold "plot" to underpin its value.

[dogz]

I've bought a number of repos in the North. They are cheaper as they are a distressed sale. The bank typically wants to sell the asset quickly to recover funds - they do have a duty to get the maximum value but this I'm not sure how rigidly this is enforced. I've offered on a repo before to have an offer rejected but with time, if no one else is interested, the price will tumble further. At the end of the day, the property will sell for what its worth in the market - this is a factor of current economic conditions, mortgage availability and number of people looking for that type of property. All types of buyers buy repos - cash, first time, investor, next move up etc. I've also seen repos go for above market value if there is a lot of interest

Its true that properties can be in a bad state and often have hidden flaws which you need to be careful of. The last one I bought needed £18k spending to get it up to a good standard so it could be let

A repo purchase can yield a bargain but you can be outbid until you have exchanged contracts - if this happens you may loose money spent on solicitors, valuations etc

[Behemoth]

I should mention that the property I was describing above was in near perfect condition and just 3-4 years light wear and tear after the build. The repo reason was relatively complex and it was this that delivered discount to market rates (~15-20%). In hindsight I probably took a risk others wouldn't contemplate, but it paid off.

[MrJuice]

I know someone who bought a repo. It was marketed at 500k to get interest. It got plenty of that

My friend was one of the first to see it and went to the agent the next day and told him he'll have it at 500k. And there's 6k in cash on the day of exchange if you don't forward any other offers to the bank.

Property was worth more. Offers came in at 550k. My friend bought it at 500k, exchanged and completed the same day and agent took his bung.

I told him this was illegal. He didn't really flinch. I told him he robbed the poor previous owner of 50k. He didn't really flinch then either.

I suspect this goes on a lot

[benjijames28]

Me and the ex wife almost bought a repossession. The house was a mess, needed minimum ten grand spending on it, maybe more.

Market value was about 140k current condition, maybe 160k done up. We were gonna get it for 121k, then day we were due to exchange contracts they got a new bid, we were asked to match it, we told them to fk thenself. It was a very stressful situation for a first time buyer.

Turns out the new bidder couldn't put his money where his mouth is and pulled out. We should probably have jumped back on it but we had had enough of the stress.

In end they sold it for 136k months later. So good result for the bank, bad result for the buyer. Probably had no idea the roof was completely fked, the house needed rewiring and replastering, new kitchen and bathroom etc... Or maybe they did and just didn't mind living in a leaky st hole? Either way it would have made a good project.

[Welshbeef]

benjijames28 said:

Me and the ex wife almost bought a repossession. The house was a mess, needed minimum ten grand spending on it, maybe more.

Market value was about 140k current condition, maybe 160k done up. We were gonna get it for 121k, then day we were due to exchange contracts they got a new bid, we were asked to match it, we told them to fk thenself. It was a very stressful situation for a first time buyer.

Turns out the new bidder couldn't put his money where his mouth is and pulled out. We should probably have jumped back on it but we had had enough of the stress.

In end they sold it for 136k months later. So good result for the bank, bad result for the buyer. Probably had no idea the roof was completely fked, the house needed rewiring and replastering, new kitchen and bathroom etc... Or maybe they did and just didn't mind living in a leaky st hole? Either way it would have made a good project.

Or maybe they accepted that for £24k in the pot for renovations to make it exactly as they want it v a non new roof v probably same age wiring as this one but appears newer due to decor.

[Craikeybaby]

I bought a repossessed flat in the Midlands in 2008, it was a new build and it didn't appear that anyone had lived in it - I paid £40k less than people in the block who had bought from the developers.

[Welshbeef]

Craikeybaby said:

I bought a repossessed flat in the Midlands in 2008, it was a new build and it didn't appear that anyone had lived in it - I paid £40k less than people in the block who had bought from the developers.

Subtle difference 2008 was the financial crash so buyers were thin on the ground - not the same as today.

[brrapp]

I've bought several over the years. Houses in poor condition in areas of Southern and central Scotland where prices are low so a few repairs needed can half the value of the house. Cosmetic only stuff still adds expensive labour costs and if you're not doing the work yourself, it's not much of a saving to buy cheap and pay for repairs.
eg I bought a 2 bed cottage for £35K in an area where you'd get £70K to £80K at best for it in good condition. I put in a new bathroom and kitchen, repaired plaster and did basic decor and gardening and spent around £10K plus 6 months of my spare time on it and sold it for £67K. A profit of £22K for 6 months of evenings and weekends, but if I'd paid professionals, kitchen would have been £8K, bathroom £4K, plasterwork £3K, decor £3K, garden £5K, clearance and cleaning £2K so not much profit in it for me.

[Welshbeef]

brrapp said:

I've bought several over the years. Houses in poor condition in areas of Southern and central Scotland where prices are low so a few repairs needed can half the value of the house. Cosmetic only stuff still adds expensive labour costs and if you're not doing the work yourself, it's not much of a saving to buy cheap and pay for repairs.
eg I bought a 2 bed cottage for £35K in an area where you'd get £70K to £80K at best for it in good condition. I put in a new bathroom and kitchen, repaired plaster and did basic decor and gardening and spent around £10K plus 6 months of my spare time on it and sold it for £67K. A profit of £22K for 6 months of evenings and weekends, but if I'd paid professionals, kitchen would have been £8K, bathroom £4K, plasterwork £3K, decor £3K, garden £5K, clearance and cleaning £2K so not much profit in it for me.

Less tax of course unless it was principle primary residence?

Make sure you claimed your £10k capital gains tax allowance that year to reduce the tax burden

[Christmassss]

I used to sell the repossessed houses for a Building Society. Well I ran the team that sold them.

We had a wide variety of properties, some were empty shells as a result of valuer fraud and some were in absolute perfect condition,

They were sold on the open market, but the values were dictated by the local estate agents. We would get 3 valuations done, and then instruct 1 or 2 of the agents.

My team were there to ensure that we got the best possible price for the properties and i cannot tell you the amount of times we had to go back to the estate agents and question why the valuations were so low. One estate agent tried valuing a property 100k under the actual value!