The process involved in buying a repossessed property differs significantly from that of a standard residential sale. There are many more factors to consider so it’s wise to be aware of what to expect.
A repossession is a property that has been seized by the bank as the owners have failed to maintain their mortgage payments. As standard in any mortgage agreement, the bank will take control of the property in this situation and arrange for a bailiff to attend and evict the owners at a set date and time.
When a repossession is placed on the market it is given to the control of an Asset Management company. This company work on behalf of the mortgage lender and are who the estate agent will communicate with during the sale.
As the mortgage lender has an interest to recuperate as much money back as possible, it is not unusual for the property to be marketed with several estate agents. The marketing price is usually recommended by the estate agents to the asset manager and is backed up using comparable evidence of similar properties that have sold in the area.
Let’s imagine that you have viewed a repossessed property and have decided to make an offer…
What happens next?
These guidelines apply in England only
Viewing & offer process
In order to qualify your offer, the estate agent will ask to see proof of how you intend to financially purchase the property. If you are a cash buyer you will be asked to provide bank statements showing that you have sufficient funds to cover the cost.
If you are purchasing with a mortgage you will be asked to show proof of your deposit and a valid Agreement in Principle (AIP) as well as providing the contact details of your financial advisor. The asset manager will not consider your offer, no matter how tempting, until these have been provided.
As the asset manager is duty bound to achieve the best price for the lender, this means that viewings will still commence on the property even if your offer is accepted. It may be possible that someone else comes in at a later stage with a higher amount and they will have to consider this.
For example, even if you are a cash buyer and can move quickly, the property will always remain on the market, for sale, until an exchange of contracts has taken place. I can assure you it is pointless trying to negotiate this otherwise as it simply will not be agreed to.
Being outbid (known as gazumped) is fairly common with repossessions and this is something you need to be prepared for if you decide to make an offer.
You will more than likely need to instruct a mortgage and/or a structural survey as well as a conveyancer too, all at an upfront cost, so you could stand to lose money if the property is suddenly sold to someone else. You will not be refunded on these costs.
On a positive note, due to the duty of care the asset managers are bound to, you should be given the chance to increase your offer prior to the other being accepted. If you do increase your offer, the other person will also be given the chance to increase theirs and so forth. If several bids are placed between you both, you may enter into a bidding war here and the negotiations could then revert to a process known as “Best and Final”.
What is Best and Final?
The Best and Final process is used when there are multiple offers submitted on the same property. Instead of the agent having to communicate every offer or increase to the asset managers, who then have to report it to the lender, all interested parties will be asked to submit their best offer, usually in writing, by a predetermined set date and time.
Once this deadline has elapsed the asset manager will report to the lender to make a decision based on the price and financial position of each applicant. It is worth noting that the highest amount isn’t always accepted as other contributing factors, such as being involved in a chain or individual financial arrangements, will also be taken into consideration.
However, the conflicting part is that even if your offer is accepted after this process, the property will still remain on the market open to other viewings and offers. The best and final process is usually used to eliminate buyers when multiple offers are received at one time.
During any negotiation process estate agents are not permitted to disclose other buyers offers to you nor yours to them. You will not be aware of what anyone else proposes.
The agent will be able to indicate whether your offer needs to be increased but they should not give anyone an unfair advantage and provide any further information during negotiations.
Exchange of contracts
A lot of buyers aren’t aware that if your offer is accepted on a repossession, you will be expected to exchange contracts within 28 working days and complete shortly after.
During my whole property career, I have never known for an asset manager to pull a sale purely because the buyer has been unable to meet this deadline in time. But that’s not to say it can’t happen.
However, if the solicitors involved can confirm that the legal work has just a few minor issues to resolve, it is likely the sale will remain active.
If you are involved in a chain ensure you confirm that everyone involved can complete within a 28 working day deadline. Your offer is unlikely to be accepted if there is resistance in the chain to move this quickly.
Leasehold information & charges
If the property concerned is leasehold ensure you are fully aware of any terms, pre-existing conditions and relevant lease lengths in the Management and Leasehold packs. Ideally, the estate agent will be in possession of a copy of these documents so ask if you can see a copy.
Your solicitor will not allow you to exchange contracts without this information and will request copies themselves, but you will need to consider it when negotiating your offer and calculating your mortgage affordability.
Have you bought a repossessed property before or are you currently in the process of buying one? Share your experience and thoughts in the comments section below and don’t forget to share this guide!
To your successful move,
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