Britain has not experienced a major spike in repossessions in the wake of the credit crunch. But repossessed stock is still regularly brought to market by banks, estate agents and specialist 'below market value (BMV)' dealers. Typically sellers are in a hurry because they face the threat of repossession and a stain on their credit record. They are therefore willing to compromise on price. So what's not to like?
The basic problem is that the 'below market value' or BMV tag can easily become a misleading marketing tool for more normal scenarios. John Grant at Property Angels International, which runs a BMV property website, defines BMV deals as ones where the purchase price is below the surveyor's valuation. But surveyors' valuations are notoriously subjective - hence the wave of lawsuits currently being filed against them.
As a result, most mainstream property investors are mistrustful of BMV operators. David Lawrenson, landlord cum blogger at LettingFocus.com, thinks most stated 'market values' are simply inflated asking prices and even accuses some companies of encouraging investors to commit mortgage fraud.
However, genuine BMV deals can be profitable - if grotty - if you know what to look out for, and some investors specialise in them. One is Frazer Fearnhead, founder of property investment company The House Crowd. He identifies six common problems and offers his tips:
Is it really a bargain?
"Property is not necessarily a bargain just because it has been repossessed. It is crucial to carry out a site visit. Repossessions tend to be in appalling condition, so you will need to calculate the amount needed to bring the property up to standard. Many estate agents will not tell you this over the phone, even if you ask them, as they like to secure as many viewings as possible.
A more unusual problem - but one that is becoming increasingly common - is Japanese Knotweed. We recently had to walk away from two properties that were riddled with knotweed, which is notoriously invasive, because the seller would not reduce the price accordingly."
Japanese knotweed is becoming an increasing problem.
Public notice
"It is the duty of the bank in possession to obtain the highest price possible, so they will never agree to take a property off the market. This means that, even if they accept your offer, you can be gazumped at any time up to the exchange of contracts, losing survey fees, structural engineer fees, search fees and legal fees. This is especially expensive if you are dealing at the low end of the market. Since you may well be competing against potential owner-occupiers who are likely to be prepared to pay more, expect to be gazumped frequently. The only way to manage this problem is speed. Emphasise to the seller (if true) that you are a cash buyer and will pull the stops out to complete quickly. Make sure you use a solicitor who will proactively push things forward as quickly as possible."
Vandalism
"People are never happy about being evicted from their home, so it is common to find properties vandalised, including theft. The House Crowd has experienced theft of bathroom fittings, boilers and copper piping. Previous occupants have also sabotaged copper wiring (costing £1,200 to replace) and even the water tank. This last case meant that the newly re-plastered walls took over two months to dry, massively delaying what should have been a four-week refurbishment. A survey won't necessarily reveal all the potential damage, so build a generous contingency fund into your budget."
Utilities
"Gas and electricity bills are typically left unpaid, so the supply will usually have been cut off. It may even have been disconnected from the main street power source. The seller will have no information about who the suppliers are, so you will need to set aside a good few hours to indulge in Kafkaesque dealings with utility companies."
Block management Issues
"Apartment blocks sold at the top of the market to buy-to-let investors are both an opportunity and a minefield for BMV buyers. The owners typically defaulted on service charges as well as mortgage payments, causing management companies to stop maintaining the communal areas. Mortgage companies will not finance the purchase of flats in these situations, creating an excellent opportunity for cash investors.
But it can be complex to establish whether the purchaser is responsible for unpaid service charges, and it can even be hard to define who has the right to receive that service charge. It is essential to have a very good and experienced lawyer. It may well be the difference between getting the deal done or not - and ensuring you are not liable for thousands of pounds of charges."
