Are Repossessed Homes Cheaper at Auction?

Everyone who goes to auctions hopes to come away with something special, something that they couldn't get if they bought a property conventionally.

Perhaps it’s a specific property that is only available at this specific auction. Perhaps it’s a new build that the developer won’t sell on the open market. There are plenty of reasons but one of the most common is to get a bargain.

It is well-known that you can bag yourself a property at a huge discount if you attend a property auction, not least because it has been shown so many times on various property television shows. But is it just those properties that have been repossessed and are now up for auction that go cheaply?

What are repossessed houses?

Repossessed houses are houses that have been taken from the homeowner by a lender because the homeowner has not kept up with his or her mortgage payments. The lender instructs a surveyor and, sometimes, a bailiff to go round to the property, change the locks and evict the inhabitants.

It is often a devastating experience for the homeowner and many banks claim they do not like having to repossess properties at all. But it is the final consequence when a borrower does not keep up with payments.

Why are repossessions on the increase?

At the moment repossessions are on the increase because more and more borrowers are facing financial difficulty. The credit crunch has meant lenders have tightened their criteria and it is difficult to get an affordable mortgage.

Those people who had fixed rate mortgages were in for a payment shock when the mortgage came to the end of its fixed term. Many struggled to meet the new payments and ended up losing their homes. And with the economy still in a terrible state it looks as though there will be more repossessions this year than ever before.

Why do repossessed homes sell for cheaper prices?

The fact is all properties at auction could technically be sold at a discount. This is because properties bought at auction demand a quick sale completion. Indeed the buyer must complete the sale within 28 days. This is desirable for anyone wanting to get rid of their property quickly and often they are willing to sell it at a discount as long as they can get it done quick enough.

For lenders with repossessed houses however there is even more urgency. Lenders do not want to keep repossessed houses. It is not part of their business plan to own the houses. They want the money for them quickly. This is why lenders will often offer a large discount on repossessed houses in the hope of selling them quickly and easily.

The reserve price - the price the bids must reach before a sale can take place - on repossessed houses is usually low so that the lender can ensure a quick sale.

Property auctions are a great place to go if you’re looking for a bargain, but don’t be blinded. Remember to work out what is affordable to you, whether or not the price seems like a bargain to everyone else.