Buying a repossession: what you need to know
by Multi-Prêts Mortgages
What you’ll learn
- Lower price?
- Maintenance and renovations
It can be tempting to believe that repossessions are synonymous with good deals when you’re looking to buy. But does one person’s bad luck really guarantee savings for future buyers?
To help you see more clearly, here are a few things to consider.
Are prices really far below market value?
Admittedly, the financial institution will be responsible for the property’s costs (electricity, maintenance, insurance) and taxes after the repossession. And we haven’t even touched on the brokerage costs, or the visits required by the insurance company.
All this could lead one to believe that the institution would be tempted to lower the asking price for the property and get rid of it as quickly as possible. However, it also drives it to sell as close to the market price as possible in order to recoup its costs.
Furthermore, as these properties are sought out by veteran bargain hunters, supply and demand tends to prevent prices from dropping too low. This also means that buyers must usually make a decision more quickly than with a normal sale.
Experts usually refer to a 60-day window between the time the house goes on the market and the time the papers are signed. It can be harder for the average buyer to continuously scan the land records and get information from bankruptcy trustees, bailiffs and banks.
Maintenance and renovations
Even though time is of the essence, it’s still crucial to have the house inspected and set aside a sum for renovations. In many cases, it’s likely that maintenance was neglected because the former owner could no longer afford it, or simply didn’t care.
Note that in most cases, repossessions are not covered by a warranty. This could considerably limit your legal options in case of problems, such as hidden defects. Read our article to find out more about hidden defects.
Don’t forget to add on the normal fees when buying a house.
In the end, many experts agree that, for the average buyer, repossessions are only worth it in a small number of cases. That’s not to say that there aren’t any great bargains to be had, but you should explore this market very carefully and, ideally, with a certain expertise.
- Supply and demand tends to prevent prices from dropping too low.
- It’s likely that maintenance of the property was neglected.
- Repossessions are not covered by a warranty.