OK, repossessions come with bad karma, but I’ve heard plenty of stories of developers making money out of buying repossessed property. The temptation of buying a repo is led by the thought of a bank seeking a quick sale and a property that is tired and requiring modernisation.
The truth is there are some repo properties that fall into this category and some developers are lucky enough to buy at below market value. But for the vast majority of repo’s (and certainly in my expereince) it’s hard to find a bargain with a repo. Here’s why.
Once a property become vaccant it is normaly ‘given’ to a mangement company who has the job of looking after the property and the overall responsibily of getting the best price for the bank (thier client). The management compnay will secure the property and instruct an estate agent to act on their behalf to sell the property. All well and good.
So, the agent rings around their list of developers and on day 2 the property recieves 10 viewings. And on day 3 there is an offer; it’s reasonable enough and the buyers in a good position so the agent puts the offer forward to the management company. Then, surprise, surprise, the offer is rejected.
Here’s what’s going on. The management has the responsibily for getting the highest price possible for the property. This is fair enough. What people don’t know is the management compnay (who you’ll never come into contact with) are paid a retainer to management property. This is normally done on a weekly or monthly basis. So tell me, why would any management company want to sell a property quickly, even if it was a great offer?
The problem with repro buyis is just this. Management companies don’t always, in my opinion, act in the interests of their clients but the interestes of themselves.
The other problem with repro buying is that they tend to be very heavily marketed. Even when an offer is made the agent has to publicly advertise the offer before accepting it. This makes it easy for other interested buyer to counter offer leaving both agent and buyers with a potential line of guzzumpt offers as well as line of peed off buyers.
Whilst I’ve never been able to buy a repro at a price that was right for me, I do know people that have. The trick, they say, is to work with the estate agent. Most expereinced agents know the situation with management companies, so they’re reluctant to put offers forward too early. By working with an agent they will save their time and expense and you get to put in the offer at the right time. A time when the management company is expecting the property to sell.
Of course, many repos go straight to auction which may be a better sales route for both buyer and the bank. So if you still think you can get a bargain from a repro try the auctions first. You’ll avoid the management agents and the counter offers and it could be a far better route.
Finally, and it goes without saying really, repos come with a history. An evicted family who lost their family home or just someone who bit off more than they could chew. Whilst you might see your purchase as business transaction any new neighbours might not. Any repro purchanse needs to be handled with sensitivity and diplomancy from the outset.