22nd December 2023

Things to consider when buying a repossessed property by auction

One of the most important pieces of advice we give all potential buyers, whether they’re in the position of developer, investor, or personal home buyer, is that doing your research before making an offer or placing a bid is essential. Not only does prior research allow you to make informed decisions by providing access to important information about the property, as well as a wider understanding of the current market, but it can also steer you away from risks you might not otherwise have been looking out for. 

While in-depth planning is always key to a successful property purchase, that’s especially true when it comes to buying a repossessed house. Something which inspires both trepidation and excitement, repossessed houses represent the chance to build an incredibly lucrative investment – but only for those who know what they’re looking for. 

In this blog, we’ll be helping you to make the safest investment possible when buying repossessed property by introducing you to the most common risks and rewards associated with them. We’ll cover what they are, whether or not they’re worth buying, and the process involved in buying them by auction, so that you can navigate the complexities of this area of the housing market with confidence. 

What is a repossessed property?

A repossessed property is one which has been seized by the mortgage lender following the owner missing repayments. Because anyone can suffer loss of income due to unforeseen circumstances, repossessed properties can come in all shapes and sizes, though most commonly repossessed homes are in a poor condition. One thing all of these types of lots do have in common, however, is that they are an inconvenience to lenders. 

Expensive to keep for any period of time due to ongoing basic running costs and selling fees, lenders are usually in a hurry to sell off their repossessed properties. This means two things; firstly that they typically sell very quickly, and secondly that they can often sell below market value. These two factors combined make them highly sought after by buyers of all backgrounds hoping to find a steal. 

Do repossessed houses go to auction?

Yes, if you’re looking to buy a repossessed property, the first place to look should be at a property auction. This is the most popular method of sale for lenders looking to sell these assets onto new buyers as auctions offer the safest way to sell on property quickly and securely, with sales rarely ever falling through thanks to the binding nature of the bidding process. 

This isn’t to say that estate agents don’t accept these types of properties from lenders and list them alongside their more typical sales, but this is much rarer. This is because, as it’s not uncommon for repossessed properties to sell below the market average, they are naturally less-lucrative to agents who take a percentage of the sale as their fee. As a result of this, estate agents may put less time into marketing these properties, which can impact the speed of sale considerably. The knock-on effect of this is that lenders will have higher expenses for retaining the property while awaiting the sale, and that’s not even considering the increased risk of a buyer pulling out at the last minute. 

Is it good to buy repossessed houses?

As with any investment, buying a repossessed house carries with it benefits and risks. The trick to finding a good investment opportunity is to be aware of these pros and cons, and apply them to every repossessed property you find as part of your assessment process. Those which tick all the right boxes, and which have manageable drawbacks, can be a real asset when adding to your property portfolio or buying your own house.

In the section below, we’ve laid out the most important positives and negatives of buying a repossessed property. We recommend noting these down, or saving this article to your favourites, so that you can easily refer back to this list when it comes to doing your own due-diligence on a property that’s caught your eye. 

Pros of buying a repossessed property

Speed

As we’ve mentioned, the number one priority of lenders is to achieve as fast a sale as possible so that they can keep their expenses to a minimum. Repossession is a costly process, not only have they already lost money through the previous owner’s missed repayments, but their losses increase every further day the property is in their hands. This continuously-increasing loss is what drives lenders to aim for a quick sale, even if it means accepting an offer below the market average.

Auctions are the fastest way to buy or sell a property, with most contracts expected to complete within 30 days of a buyer making a winning bid. There is, however, an additional route to speed this up further by making an offer on the property before the auction itself. This type of offer has a high chance of being accepted by sellers of repossessed homes as it removes the waiting time between making the listing and the auction event itself, further chipping away the expenses incurred while selling.

Cost 

While the lender’s urgency to sell the property does have benefits for the buyer in that they themselves can be more sure of a fast sale, the biggest benefit seller circumstances have on the buyer is their willingness to sell the property at a cheaper price. According to Money Saving Expert, repossessed houses are sold for up to 30% under their typical market value, with opportunities to save even more than this not unheard of. Of course, these sorts of savings are by no means guaranteed, and there is a risk that repossessed homes will need more investment put back into them if they’re sold in a poor condition, but the profitability remains enticing enough to attract buyers looking for a good deal.

Renovation

Not something that every buyer will be attracted to, repossessed properties are often in need of renovations and repairs. This gives buyers the opportunity to bring their own personal flair to a property if they’re looking to live in it themselves or, to design it exactly to their specifications to sell it or rent out. This type of work can incur significant costs of its own, but with savings available on the right property, re-budgeting initial spend into a renovation fund can help you make the most of your investment. 

Variety

There are a wide range of causes which lead to a house being repossessed by a lender, and while the owner landing in financial difficulties and failing to meet their repayment requirements is the most common reason, this doesn’t always tell us everything about the property itself. For example, a property could have been repossessed from a developer or buy-to-let landlord, meaning you could see everything from new-build homes to already tenanted accommodation in an auction sale. Divorcing couples and people who’ve inherited a property following the death of a family member can also see their property go through this process, so we recommend that buyers don’t fall into the trap of assuming anything about a specific repossessed lot, as the circumstances that have lead to its sale can vary significantly..

Cons of buying a repossessed property

Competition

With so many benefits to buying a repossessed property, it’s no surprise that one of the main drawbacks is that competition on these types of lots can be very high. In the setting of an Auction Event in particular, this can cause bidding wars, which in turn increase the price of the property. In order to avoid this as much as possible, we recommend either making offers prior to the auction in order to snap up a property before the event itself, or increasing the range of properties you’re considering for the day. These methods protect you from spending more than you want to on a lot, either by cutting out the competition, or spreading your hopes across more lots.

Condition

Both a positive and negative, the condition of a repossessed property can draw in buyers while scaring others away. We’ve already mentioned the benefits of purchasing a property which is ripe for renovation in the section above, but we know this isn’t for everyone. In particular, buyers who are looking to finance their purchase through applying for a mortgage loan may run into issues, especially in cases where the property is classified as of ‘unlivable condition’, as many lenders won’t grant funds for this type of property. As a result, these run-down lots are primarily bought by cash buyers, or those who have their financing in place through other means.

How do you buy a house that has been repossessed?

If you’ve decided that this type of property is the right one for you, and you want to make the most of the speed, reduced price and variety on offer, we’ve detailed our top tips below on how to make sure your investment is as water-tight and safe as possible.

• Finance: We’ve already touched on this, but make sure that you have your finances in place before you bid for your favoured property. If your auction sale falls through because of financing issues, you’ll still be liable, and will lose the deposit and fees paid, so it’s absolutely essential that you have everything in place first.
• Budget: Another pre-auction task, evaluating your budget and setting a limit on how much you’d be happy to spend on it. Use this time to also take into account how much you’d want to spend renovating the property if it’s in need of some work. To make your estimates as accurate as possible you can also arrange to have a survey done.
• Make an offer: With competition levels high on repossessed properties, you can try to tempt the lender to sell early by making an offer before the Auction Event. In order to be considered, offers must be above 10% of the asking price, but with the high competition we often see at auctions for repossessed properties, this may actually save you money. 
• Check if there’s a tenant: If the property you’re considering was previously owned by a buy-to-let landlord, then there’s a chance it will be being sold with a tenant in-situ. Whether this is a pro or con will depend on your position as a buyer and your plans for the property, but if it aligns with your interests it could be the perfect chance to secure a tenanted investment.
• Remain aware of issues post-sale: Buying a repossessed property can come with some unique problems, starting from when you first look to get the house up and running with utilities, to further down the line. We’ve outlined these problems below, but don’t worry too much – they’re uncommon and definitely fixable, but it pays to be aware of them.
  • Utilities – For properties which have previously been left empty, utilities such as gas, electric and phone lines are unlikely to be in place. This means you’ll need to organise these for yourself when you get your keys.

• Letters – You might find yourself receiving red debt collection letters intended for previous owners. These should be left unopened, but can be dealt with by contacting the relevant companies and informing them of the change of ownership.
• Bailiffs – You may receive a visit from bailiffs at the property even after ownership has transferred to you. While this may be alarming, so long as you are able to provide evidence of your new ownership through purchasing documentation (which is always provided when going through SDL Property Auctions) this doesn’t need to be a cause for concern.
• Credit rating – Perform a credit check a few months after making the purchase to make sure that your own finances haven’t been incorrectly muddled with those of the previous owner. 

Is it worth it to buy a repossessed house?

Overall, yes, it’s easy to see why so many buyers are attracted to the unique opportunities and advantages that repossessed properties present. Even with risks involved, and some obstacles needing to be overcome, most of these properties are worth investing in, particularly if you can get it for a good price. 

If you’re considering buying a repossessed property by auction, take a look through the wide range we have available here at SDL Properties Auctions by clicking the button below.