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Posted on 29th Mar, 2021

The potential risks of investing in repossessed properties that you should be aware of

At, we want all our investors to be well informed and understand the potential risks as well as the rewards of investing in repossessed property.

The reason people choose to invest in repossessions – The costs:

Below Market Value is a loose term in the property market, but realistically everyone wants to source property that classes as ‘below market value’. This is the main reason why many people wish to find repossessed houses, as they can be undervalued in the negotiation process for various reasons that will be discussed in this article. Despite this being the main reason behind people being attracted to repossessed houses, it’s far from guaranteed that you bag a good deal when bidding on distressed property.


It’s possible to get a good deal with repossessions:

When a bank repossesses a house, they can afford to sell below market value, as any loss they make when selling will be reimbursed by the previous tenant.

Bank owned property

Repossessions belong to a lender or bank, so as long as they receive an amount that fully settles the mortgage, they can accept.

For example – if the previous tenant had repaid 50% of their mortgage prior to being evicted, the bank will only need to sell the property for half the worth of the mortgage not to lose out (any extra will go to the previous tenant).

On the other hand, if only 10% of the mortgage had been repaid prior to the tenants eviction, and the bank only receive an offer that’s 70% of the loans value, the previous tenant will then need to pay the remaining 20%. Either way – the bank gets their money back and has made profit from the mortgage.

This can be a massive positive to potential buyers, as it that it means repossessions won’t be on the market for long, so if you offer a bid early on that the bank considers as sufficient, it will be yours within days.

Consider the sentiment that goes into a generic sell of a property – the present owner would have probably lived in the given property for years, and assuming they were happy living there, will have a potential bias opinion of the property’s worth. They may happily wait months before accepting the ‘perfect offer’ from the ‘perfect buyer’, making a harder negotiation process.

buying property. Below market value property

Banks form no bias opinion of the properties value as they’ve never resided there, making them less likely to over estimate its value

Now compare this to the sentiment of a bank when selling a repossessed property – they have thousands of pounds still owed due to outstanding mortgage payments and will likely have a number of repossessions on their books to turnover regardless. There will be no feelings there that could trigger a bias opinion of the properties value and therefore could increase the chances of buying the property below market value.








The risks of investing in repossessed property:

Having outlined some clear positive attributes of repossessed property investment, let’s discuss some potential risks and downfalls to be aware of:


They can still be over priced, despite being repossessed:

Although the bank want a quick turn around time from repossessing the property to selling it on, they are still under a legal obligation to gain the highest amount possible for the property. For this reason, if they get an opportunity to sell it for a larger cost than it’s valued at, they will still take it.

As discussed previously, the banks don’t have sentiment or have in depth knowledge about the property. This can work in the favour of the buyer, as the seller doesn’t recognise the signs that increases the value of the property. However, the possibly alarming outcome of this is that they will also not recognise factors that drastically decreases the value of the property.


Damage to the Property:             

One of the most common mistakes people make when buying repossessed houses, which eventually results in a bad investment, is the failure to identify damage to the property when making a bid and therefore pay well over the odds for a property that needs extensive refurbishments.


Why are repossessions more damaged?

As obvious as It sounds, you must remember the previous tenants have been evicted. Chances are they would have been aware of the circumstances in the weeks or months prior to eviction, which may be why the properties can be damaged. We have listed 3 examples of why a repossession may be damaged.

1) A Lack of care from the previous tenant for an extensive period – The previous tenant was aware of the situation in the months approaching eviction, therefore all effort in keeping the house in healthy condition may have stopped. This leads to a property that is ‘run down’. When a property is not looked after for months, it’s something a good paint job can’t fix, as there may be more serious, structural issues that need to be attended to.

2) Purposeful Damage – This is a less common occurrence, however unfortunately can still happen. The previous tenant, as a result of a bitter feeling of being evicted from their property, purposefully damages their property shortly before leaving. This can be something that is strategic and therefore difficult to locate upon viewing

3) Bailiff damages – There could have been bailiffs in the property just days before you view it and they could have damaged it simply through wear and tear.

Any of of these (or all three), could have occurred to the repossession you are viewing, therefore you need to give extra due diligence.

renovating properties

Sometimes renovation costs outweigh the money saved on the initial purchase.

Sometimes the costs vs gains of repossessions simply don’t result in a good return of investment – you can potentially buy a repossessed house that could be considered as 10-30% below market value, but if the property is in such bad condition it may cost 20-25% of the properties worth just to get it in living condition – meaning A) you have over-paid for the property in question and B) It’s required hours of work organising refurbishments and finding the right tradesman for the job.

Weeds in the garden may have started to get out of control, the kitchen may have become unhygienic and need a refit, or damp could have started to set in and cost thousands to fix. These are just some common examples of damage repossessed properties could have, that may not be clearly obvious to the untrained eye and therefore may result them in wrongly considering the property as ‘below market value’.


Gazumping is Far More Likely to Happen:   

It’s not just viewing the properties that takes more vigilance when dealing with repossessions, it’s also the actual transactions that has a larger room for error.

Gazumping is a phrase used when buying property, and is particularly present in the negotiation period of repossessions. Gazumping is when the seller has agreed to sell the property to one bidder, only to then retracts the agreement later on in the process to accept an offer from an alternative bidder.

repossessed houses for sale.. Gazumping

Gazumping is more likely to happen when bidding on property that has been repossessed

Gazumping causes extreme inconvenience to the bidder that loses out, as they may have organised refurbishments on the property with the belief they have had their bid accepted, only for it to be taken away from them at the last minute.

Typically in the modern property market gazumping is not common as it’s so frowned upon, and is actually illegal in Scotland, however it still happens fairly consistently with repossessed properties. Sometimes they will not even take the property off the market after accepting one bid, anticipating that a higher offer may come in.

Again, the reason behind this is the lack of sentiment from the seller in the negotiation process and the legal obligation the bank has to retrieve the highest offer possible for the property. For this reason, they would rather break a gentleman’s agreement for a higher bid, therefore if they have to sell ugly, they will.


Rushed Negotiation Process Leading to Overbidding:             

Repossessed houses that hold good value are not on the market for long, and this is something that will become apparent the more you view and keep up to date with our property stock. Essentially, if the property holds good value, it will go fast. This understandably leads to a sometimes frantic bidding process between interested parties.

When one is rushed, and feeling somewhat competitive with knowledge that a rival bidder can beat them to the possible ‘perfect property’, it can lead to rash and regretful decisions. When bidding on a property that hasn’t been repossessed, you can build rapport with the seller and be given time to firm up the pricing of a final offer. This minimised the chances of a over-bidding via a rash decision made in the heat of the moment. With repossessions, you do not get this time where you can consider your options.

bidding on repossessed houses

With repossessions, there are less people to answer questions you may have – meaning you can go into the negotiation period being unsure of what approach to take.

Imagine it now – you spend no time getting to know the seller, and there’s no one that knows the property well who can answer the many questions you have. You may believe there is a great opportunity to buy a repossession that’s below market value, but you bid quickly with the knowledge good repossessions go fast, and you are purely relying on your own judgement to price the final offer. This can be a recipe for disaster and result in you massively over bidding for the property, and again is far less likely to happen during the negotiation process of a generic property.


Far Less Choice of Properties:         

 If you have any specific requirements for the ‘ideal’ property, for example – A balcony, three bedrooms, or an en-suite with a south facing garden etc, then repossessions are probably not a viable route for you to go down. There’s far less choice with repossessions as a whole, as demand generally outweighs the supply.

Now lets compare that to other types of property – All you have to do Is look at any established online portal and It allows you to filter options when searching property (eg number of bedrooms or bathrooms), as it finds you the most suitable property

off plan property

Off-plan development allows buyers to purchase the property in the development phase. These are often sold at discounted prices, once the property is ready the value often increases

Conversely, off-plan development is another viable option to find below market value property away from repossessions, as you can buy the properties in the construction phase it becomes yours before it’s even finished and therefore is often sold at a discount.

There’s not quite the variety down this route as you would get through regular properties, however you can still choose from a range of developments and therefore can provide more choice than going down the route of repossessions.





‘Buyer Beware’: 

Let the Buyer Beware’ originate from the Latin term ‘Caveat Emptor’, and suggests that if there any issues with the property, it’s down to the buyer to locate them, and if they don’t – it’s there problem. So the buyer essentially has to look out for themselves.

This is far more relevant with repossessed properties, as previously mentioned, it’s the lack of sentiment in the selling period which makes it a lot harder for the bidder to form a good idea of the properties worth. Again, the bank is legally obliged to get the highest amount possible for the empty property – there’s even been cases of potential damaging issues with the property being hidden, making it harder for the potential bidders to locate the properties downfalls.


You will probably need a licensed property surveyor:

For the reason just stated, unless you have experiencing surveying properties, it is strongly recommended for you to get a property surveyor to take an extensive look at the distressed house, so there is no hidden surprises once the property is yours. There’s a variety of issues that are found fairly commonly in repossessed houses, such as damages to piping, over grown gardens (eg Japanese Knotweed), damp and structural issues.


Check the Post:

There are a few steps you should do once you have bought a repossessed house and have access to the property. The most important one is to check the post addressed to the previous tenants.

repossessed house

Ensure you immediately alert any alternative lenders that have written to the previous tenant following their eviction – they are not always properly informed that the house has been repossessed.

The previous tenant was so behind on mortgage payments that they were evicted. Before this, they may have turned to other options to help keep up with mortgage payments, such as other lenders. They may owe other companies money, and sometimes these other lenders may not be informed that the house has been repossessed.

The worst case scenario – more bailiffs arriving at your new property expecting to find the previous owner and taking their possessions. The way to stop this happening is by keeping an eye on the post. If any appear to be warnings, ensure you contact the company immediately and inform them the previous tenant no longer lives there.


Final Thoughts:

There are more factors to consider and more things that can ‘go wrong’ when buying a repossessed property, and although there is potential to find good deals, you need to work hard for them as the risk is higher.

The ways to minimise this risk can either take money (such as surveyors), counter-acting the ‘below market value’ attraction of buying repossessed houses, or effort on your behalf, such as learning to survey properties to a professional standard or learning how to accurately calculate renovation costs.

The main take home message from this discussion is – once you have located a repossession you are interested in buying, you are very much on your own when viewing, pricing, negotiating and buying the property. There is so little information on each repossessed property when they become available, and there’s usually no one to contact that knows the property well, meaning there is a much higher risk of not locating something that reduces the properties value and therefore over bidding for the property itself. However, there is still no doubt that they can offer great value for money and a great long term investment.


Start Your Repossessed Property Search With Us Today have a wealth of experience sourcing repossessed investment opportunities across the UK and can assist in your property search. Subscribe today to have access to thousands of exclusive repossessed properties all within one cost effective and user-friendly investor platform. If you have any questions whatsoever please get in contact with our 24/7 customer service team: [email protected] or give us a call on: 07543 119 918

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