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Selling Distressed Property
Numerous homeowners face financial challenges stemming from factors such as unemployment, medical expenses, and unforeseen crises. Consequently, their priorities often shift, with home maintenance no longer occupying a prominent position on their agenda. The deterioration of properties doesn’t occur suddenly; rather, it is a gradual process. Nevertheless, the expeditious sale of a distressed property largely depends on the chosen method of sale.
If you find yourself in possession of a distressed property and are considering your selling options, there are three primary routes to explore: engaging a real estate agent, pursuing an independent sale, or seeking a cash offer. Of these choices, the most straightforward and convenient path is selling to a cash buyer. Opting for this route means you won’t be burdened with repair costs or fees, providing a streamlined and hassle-free selling experience. Furthermore, the transaction is expedited, as it eliminates the need to wait for approval from a mortgage lender.
Selling a distressed property doesn’t have to be difficult. With the right strategy, you’ll be able to land a potential buyer and get yourself out of financial trouble. Continue reading this blog to learn more!
What is a Distressed Property?
While many individuals tend to associate distressed properties with dilapidated fixer-uppers or condemned structures, the reality is that they encompass a broader range of real estate, including those teetering on the brink of foreclosure or heading to auction.
To put it differently, when a homeowner falls short in meeting their financial obligations tied to the property, such as monthly mortgage payments and taxes, their dwelling is categorized as distressed.
For a more comprehensive understanding, let’s delve into the four primary categories of distressed homes.
A House in Foreclosure
As previously noted, when a homeowner falls behind on three consecutive months of mortgage payments for a property, their residence enters the realm of potential foreclosure.
In essence, if the homeowner cannot resolve the accumulated missed mortgage payments and associated penalties, they may ultimately face eviction, leading to the lender assuming legal ownership of the property.
Typically, in such situations, the mortgage lender opts to sell the house through an auction to recover their financial losses, especially if the homeowner did not manage to sell the property prior to the scheduled auction date.
An REO Property
Real Estate Owned (REO) properties are foreclosed homes that weren’t sold during the initial auction.
These REO properties are tagged as distressed because their legal owners (lenders, banks, or investors) are still burdened by owning them. That means continued maintenance and repair.
A House Approved for Short Sale
When a property finds itself in an underwater situation, its market value falls short of the total accumulated monthly mortgage payments owed by the owner. In simpler terms, even upon selling the house, the owner would remain responsible for covering the remaining deficit in the mortgage.
Distressed properties in this predicament, whether sold through a short sale or at a foreclosure auction, are classified as distressed. These properties pose challenges for both the lender and the homeowner, as they typically sell at a reduced price, exacerbating the financial strain on both parties.
A Fixer Upper
A fixer-upper is often categorized as a distressed property, typically afflicted by issues like structural damage, fire damage, water damage, or mold infestations. Many fixer-upper homes are priced below the fair market value since they demand a range of repairs, spanning from cosmetic improvements to comprehensive renovations.
In essence, a fixer-upper embodies the quintessential example of a distressed property. For most traditional retail buyers, acquiring such a property through a lender can be challenging due to lender-mandated repair conditions. Nevertheless, cash buyers, unburdened by the need for a loan, can step in to purchase these distressed properties.
Can You Sell a Distressed Property?
Certainly, selling a distressed property offers a couple of avenues, either by navigating the local real estate market or engaging with a cash home buyer. However, it’s crucial to emphasize that homeowners possess the authority to sell their property only under specific circumstances. This includes situations where they are confronting foreclosure, possess a fixer-upper, or have received approval for a short sale.
In contrast, if a property has already gone through the foreclosure process, and the lender or bank legally owns it as a Real Estate Owned (REO) property, the former homeowner forfeits any claim to ownership and the ability to oversee its sale.
Considerations When Selling a Distressed Property
Before settling on a method for selling your distressed property, it’s crucial to conduct a thorough evaluation of various aspects involved in the home sale process. Given that distressed properties are typically targeted for expedited sales, three key considerations should be at the forefront of your planning.
It’s important to recognize that prospective buyers may attempt to capitalize on the distressed nature of your property. To counteract this, requesting a Comparative Market Analysis (CMA) is advisable. This analysis determines your property’s value by assessing similar properties (comparables) within your local area. While enlisting the help of a real estate agent for this task is an option, you can also undertake it independently.
For a more precise understanding of your property’s market value, you may consider investing in a professional home appraisal, especially if your budget allows for it. An appraisal provides a highly accurate valuation of your property.
Furthermore, when setting your expectations, take into account not only the offered monetary value but also additional advantages such as an all-cash offer, buyer-covered closing costs and repairs, freedom from fees, a rapid transaction timeline, and other potential benefits based on the condition of your distressed property.
When dealing with a distressed property that falls into the fixer-upper category, it’s essential to assess whether the potential return on investment justifies making repairs or renovations before listing it for sale. This evaluation can guide your decision on whether to sell the property as-is or pursue improvements.
On the other hand, if the property’s distress arises from foreclosure, you are often faced with a stringent timeline for the sale. In such cases, even minor repairs might consume too much time. This situation may leave you with no alternative but to entertain a cash offer as your primary option.
Your choice of a selling approach should also align with your specific timeline. When dealing with a distressed property categorized as a fixer-upper, you have the flexibility to set the sale time frame according to your convenience.
However, if the property is facing foreclosure, time is of the essence. It’s imperative to act swiftly to secure the sale before the scheduled auction date.
In such time-sensitive situations, selling through a real estate agent or opting for a For Sale By Owner (FSBO) approach might not be your optimal course of action. Both options often necessitate property repairs and marketing efforts, potentially elongating the distressed property sale process.
How to Sell Distressed Properties
Now that we’ve explored the various types of distressed properties and the factors to consider during the sale, let’s shift our attention to the diverse selling alternatives at your disposal. The choice you make among these options can significantly influence the outcome of your distressed property sale.
Sell to Cash Buyers, House Flippers, or Buy and Hold Investors
The quickest and most straightforward method for selling your distressed property involves requesting a cash offer. Cash buyers, including real estate investors and house flippers, can provide immediate offers without the need to await lender or bank approvals, as they possess readily available funds.
Sell Distressed Property As-Is
This approach enables them to swiftly acquire your property, providing a lifeline to prevent foreclosure and circumvent the expenses associated with extensive house repairs.
Furthermore, if your property is distressed due to substantial structural issues or being in an underwater financial situation, house flippers won’t burden you with repair costs that could exacerbate your financial challenges.
They are more than willing to purchase your distressed property as-is. Consequently, you save on maintenance and repair expenditures and receive cash upon closing.
Selling a distressed property to a cash home buyer or house flipper is a relatively straightforward process. Simply visit their website or give them a call to request an offer. A cash buyer will then conduct an on-site inspection to assess your property’s condition and provide a more accurate offer.
If you find their offer satisfactory, they will send you an electronic contract for your review and signature to formalize the transaction. This step marks the official agreement, signaling the imminent closing of the sale.
Sell with a Real Estate Agent
Utilizing the services of a real estate agent presents an alternative option for selling your distressed property, especially when you have greater flexibility regarding the sale timeline. However, if you find yourself on the brink of foreclosure, this conventional route may not align with your urgent needs.
It’s important to note that selling through an agent and listing on the traditional housing market entails several steps. This includes property appraisal, necessary repairs, home staging, property listing and marketing, as well as arranging showings and open houses. Additionally, the negotiation process can extend over several weeks.
Opting for a real estate agent to sell a short-sale property may not be advantageous, as you typically begin with a financial deficit. Agent fees and commissions would further burden your finances in this scenario.
We recommend considering the services of a real estate agent primarily when dealing with a cosmetic fixer-upper or if you are willing to invest in repairs to enhance your property’s appeal and value. Real estate agents offer valuable expertise that can help you secure higher offers for renovated homes, but it’s essential to be aware of the associated costs involved in this approach.
4 Mistakes to Avoid When Selling Distressed Properties
A lot of distressed home sales are unsuccessful because sellers are new to selling real estate. To ensure that you’ll be able to sell your distressed property, here are some common mistakes you should avoid.
1. Setting a High Asking Price
While attaining a satisfactory financial outcome is a primary objective when selling a distressed property, it’s essential to exercise caution when determining the asking price on the traditional real estate market. Setting an excessively high price can deter potential distressed property buyers.
Once you’ve conducted a thorough assessment of comparable properties and established a reasonable estimate of your home’s fair market value, it’s advisable to align your property’s pricing accordingly. In some cases, you might even consider pricing your property slightly below the market value if your goal is to expedite the sale.
On the other hand, if you prefer not to grapple with the intricacies of setting an unrealistically high value for your property, selling to a cash buyer can be a viable alternative. Cash buyers typically handle the pricing of your property, alleviating this concern from your shoulders.
2. Waiting Too Long To Sell
Distressed properties facing foreclosure should be sold immediately to motivated buyers. If not, the mortgage lender will take its rightful ownership.
On another note, if you delay the sale even with the help of real estate agents, the interest rate of your monthly mortgage payments can shift upwards, burying you in much more debt. This can also affect the purchasing power of the buyer. They may not qualify for a loan due to high-interest rates.
3. Not Verifying Buyer Credentials
Selling a distressed property can indeed be a complex endeavor, laden with numerous financial considerations. The challenge escalates when you encounter potential fraudulent buyers.
To safeguard your interests, it is prudent to conduct thorough research to ascertain that your buyer possesses the necessary financial resources to complete the purchase, thus preventing any unwelcome surprises when you reach the closing stage.
For an even more secure transaction, consider selling your investment property to a well-established and reputable cash buyer.
4. Not Disclosing Issues to the Buyer
If your property is facing foreclosure or requires substantial repairs, it’s crucial to openly communicate these factors to prospective buyers. Avoid leaving them to discover these issues independently, as it could jeopardize the success of the sale.
Many property owners harbor concerns that disclosing such issues may deter potential buyers, but in most instances, buyers genuinely value transparency and honesty. While discussing the necessary repairs or legal matters pertaining to your property, be sure to highlight its positive attributes as well. This balanced approach fosters trust and a more informed decision-making process for both parties involved.
Final Thoughts: Selling Distressed Property
The approach to selling a distressed property varies from case to case, contingent upon the specific nature of the distressed property in question.
Nonetheless, in the majority of instances, a successful home sale remains attainable. For homeowners with a pressing need for speed, focusing on cash buyers and real estate investors, known for their swift transaction processing, is a prudent choice.
At Academy Home Buyers, we specialize in purchasing distressed properties, regardless of their condition. We extend fair cash offers and expedite the process, alleviating the burden of owning a distressed property.