Repossessed Property Auction – a critical guide for buyers

Are you hoping to bag a bargain at a Repossessed Property Auction?  Then read on. . .

There is no doubt that buying a Repossession or ‘Repo’ is a potential way to acquire property at Below Market Value (BMV).  

In 2011 approximately 20% of properties sold at auction were repossessions.  Sadly (depending on your perspective) this looks set to increase at Property Auctions in 2012.

The potential benefits of buying at a Repossessed Property Auction are well publicised with reports of 60-65% being market value being a typical sale price achieved)

However, buyers should be forewarned – Repossessions are certainly not always bargains and it is just as easy to end up paying over the odds.

What is a Repossessed Property?

This is when a property is legally reclaimed by the lender as a result of a homeowner being unable to pay the mortgage.  

It may also be where a developer has run out of money on a new development or a landlord has been unable to let a property to cover the mortgage.

Why are Repossessions sold at Property Auctions?

Banks and Building Societies are focused on recovering their equity i.e. the amount of money loaned to the homeowner.  

Since the banking crisis, lenders have been seeking to re-capitalise as quickly as possible and this makes the Property Auction an obvious route to dispose of property quickly.

Lenders are not always up front that the property being auctioned is a repossession.  In such cases there will still be clues.  It may be described as’ By order of Bank/Building Society’ or ’By instruction of the liquidator’.

Selling the property is virtually guaranteed, assuming the reserve price is set low enough.  It is quite well known in auction circles that the percentage of Repos sold at auction tends to be higher than other types of property.  

Some suggest that this is evidence of lower reserves meaning a greater chance of getting a bargain.  

Of course other factors could be at work here for example:

  • Repossessed Properties are less likely to be seriously structurally compromised (they must, after all,  have been mortgagable in the first place)
  • they are less likely to have defective legal titles 
  • the hype around Repossessed Property Auction bargains has increased interest and with it the tendency for bidders bid higher
  • they tend to be more attractive to less experienced buyers

Buying a bargain Repossession at Property Auction

At one time Repossessed Properties were being auctioned at frankly quite scandalous discounts – 40 -50% below market value sometimes.  

Lenders were focused solely on recovering their equity. Even over the past few years 25-30% BMV is considered quite common.

However bargain hunters take note – there has been so much talk of Repossessed Property Auction bargains, that interest has increased to the point where it is significantly more difficult to find a bargain.  

In some cases, such is the hype that Repos have sold for in excess of the market value.

What to watch out for when buying a Repossessed Property at Auction

Typically a lender will have been through a fairly protracted process before the property was finally repossessed.

Sadly during this period properties can fall into disrepair and they may even have been completely stripped ( e.g. Kitchens and bathrooms gutted).  This can however, make Repos attractive to 'do-er uppers' and investors.

  • Make sure the property is sold with vacant possession.  Imagine buying a repossessed property from a Buy to Let landlord only to turn up with your removal van to find a tenant in situ holding a 1 year lease!
  • Sometimes repossessed properties come up at auction because the homeowner was unable to sell in time to prevent repossession.  This could be because the property is not desirable and for this reason we advise you conduct added due diligence before bidding.
  • A full investigation into the repossessed property is essential, as with any property.  Always get a HomeBuyers Report and Solicitors Pre Auction Report (SPAR) before you bid.
  • Often Repos are sold without a Title Guarantee
  • You may find yourself being badgered by creditors mistaking you for the previous owner when you move in.

What is the future for repossessions sold at Property auction?

The CML Council of Mortgage Lenders are predicting an increase to 45, 000 Property Repossessions in 2012.  This is a 22% increase on 2011 and very sad news indeed for homeowners caught in this situation.

The predicted growth of activity at Property Auctions in 2012 along with this increase could see the Repossessed Property Auction as a bountiful hunting ground for some time to come.