Distressed properties are homes in bad shape because of neglect, foreclosed, in pre-foreclosure, or controlled by a lender or bank from a short sale. These properties present unique challenges for sellers.
When selling a distressed home, there are a few key things to remember. You’ll need to:
- understand the legal issues involved with selling a property that’s in foreclosure or pre-foreclosure
- assess the condition of the property and make sure it’s up to code before listing it on the market
- find interested buyers who are willing to purchase a distressed property at an attractive price point
In this blog, we’ll discuss what you need to know about home sales involving a distressed property, different types of distressed property, and how to sell distressed property.
What You Need to Know About Selling a Distressed Property
When selling a distressed property, homeowners face several challenges, such as:
- finding potential buyers who are willing to purchase the home in its current condition
- navigating legal issues such as liens, late mortgage payments, or foreclosures
- dealing with repair costs
Given its current condition and marketability, it may not be easy for a property owner to price the home accurately.
Preparing for Selling a Distressed Property
Before selling a distressed property, homeowners should increase its value and desirable marketability, including the following:
- making necessary repairs
- addressing any legal issues
- staging the home for potential buyers
You’ll need to research comparable homes in the area to price your home accurately.
Strategies for Finding Potential Buyers
When looking for potential buyers for your distressed property, target those who are likely interested in buying it in its current condition:
- Investors who specialize in purchasing fixer-uppers
- Those looking for rental properties with long-term tenants already in place
- Cash buyers who make instant offers on properties without needing financing approval from banks or other lenders
Common Pitfalls To Avoid When Selling A Distressed Property
When selling a distressed property, several common pitfalls include:
- overpricing your home relative to comparable homes in the area
- failing to address liens or foreclosures
- not making necessary repairs before listing
- not staging the home properly
What Is A Distressed Property?
A distressed property is one that has been neglected or is in need of repairs, and is usually on the brink of foreclosure or already owned by the bank. These properties can be attractive to investors because they are often sold at a discounted price.
Different Types of Distressed Properties
Distressed properties have several signs to identify them. These include:
- Homes that have been left vacant for an extended time
- Evidence of damage or neglect that could be costly to repair
- Unpaid balances on mortgages or other loans associated with the property
- Foreclosure notices posted on the door or windows
- Auction dates set by lenders for selling off the property
Distressed properties come with certain risks. The most common risk is that they may require significant repairs or legal issues associated with it.
Bad roofing is any roof that has been damaged or is in disrepair. Common causes of lousy roofing include:
- extreme weather conditions
- poor maintenance
- low-quality materials
- improper installation
Common signs of bad roofing include:
- water damage, cracks
- missing shingles
- uneven surfaces
If you notice these signs on your roof, immediately contact a professional for an inspection.
Septic Tank Issues
Septic tanks are an integral part of any home’s plumbing system, and when they are not functioning correctly, it can lead to various problems. Your septic tank may be facing troubles if you notice the following:
- slow draining sinks and toilets
- gurgling noises coming from drains
- foul odors coming from the drains or yard
Septic tank issues range from clogs in the pipes to a malfunctioning pump or even a broken pipe. If left unchecked, these issues seriously affect the environment and the health and safety of those living on the property.
Wastewater backup in your home contaminates drinking water sources and causes flooding in your basement. Untreated wastewater also pollutes nearby streams and rivers, devastatingly affecting local wildlife.
Bad windows are not functioning properly or have damage, including:
- cracked glass
- broken seals
- warped frames.
Poorly sealed windows allow drafts into the home, making it too hot or cold depending on the season. You’ll need more energy to heat or cool your home, leading to higher utility bills each month.
Bad windows cause moisture buildup inside the home, which leads to mold growth and other health issues for those living there.
Having bad windows lowers the overall value of your property since potential buyers will not want to invest in a house with outdated or damaged features.
Infestations cause significant damage to residential properties in terms of physical harm and emotional distress.
Visually, infestations are often easy to spot. Common signs include:
The physical damage caused by infestations is extensive. Pests such as termites cause severe structural damage to a home, leading to costly repairs or even complete replacement of building parts. Other problems, like rodents, chew through electrical wiring and insulation, creating a fire hazard.
Infestations can also cause emotional distress. Pests’ presence leads to anxiety or even fear within the home, making it difficult for people to feel comfortable in their own space.
Foundation issues are a common problem for distressed properties, as they can lead to the following:
- structural instability
- decreased property value
- safety risks
- associated health hazards
The most common cause of foundation issues is soil movement due to changes in moisture content. Movement happens when there is excessive water around the foundation due to poor drainage systems or plumbing leaks.
Structural damage caused by foundation issues decreases a home’s value significantly, as buyers may be wary of purchasing a home with such problems. If left unaddressed, these problems lead to safety risks such as walls cracking or collapsing due to weakened structural support.
Moisture trapped in the walls due to poor drainage systems leads to mold growth which causes respiratory illnesses in occupants.
Can Distressed Properties Be Sold
Yes, distressed properties can be sold. You should understand the key factors determining the viability of selling such distressed properties.
Key Factors That Determine Selling Viability
Several key factors determine a successful distressed property sale. These include:
- Location: Buyers will want to know if the property is in an area with good schools, amenities, and public transportation options.
- Condition: If the property suffers from neglect or improper maintenance, selling won’t be easy.
- Price: The price of a distressed property should reflect its condition and location. It should be a reasonable price.
- Legal Implications: There may be specific legal implications associated with selling a distressed property, such as unpaid taxes or liens against the property.
How to Sell a Distressed Property
When selling a distressed property, there are three main options:
- using a real estate agent
- For Sale By Owner (FSBO)
- selling to a real estate investor
Real estate agents are an option for distressed sales. Realtors have the resources and networks to get the market value for your home. Agents advise how to prepare your home for sale and negotiate with potential buyers. Remember that agents charge commission fees ranging from 5-7% of the sale price.
For Sale By Owner (FSBO) is an option for selling a distressed house. FSBO involves listing and marketing your home without the help of an agent. While this could save you money on commission fees, it requires more work and knowledge of local real estate laws and regulations.
Real estate investors are another option for your distressed real estate These are typically buyers involved in real estate investing, house flippers, or a buy and hold investor. If you need to close quickly, they make cash offers and close quickly without any contingencies, repairs, or agent fees required.
When negotiating with potential buyers, regardless of which route you choose, it’s crucial to get a competitive market analysis and home appraisal to set an accurate asking price.
Selling a distressed property is challenging. The location, condition, and price of your home affect the sale. Other factors include the local housing market and the value of your home. Typically, you’ll sell with a real estate agent, FSBO, or a cash buyer.
Cash buyers reduce the risk of closing delays as they don’t rely on financing from banks or other lenders. They cover closing costs and other fees associated with the sale, making it easier for sellers to move on without worrying about additional expenses. These buyers offer a quicker selling process than traditional methods, allowing sellers to close the deal and receive their money much faster.
Selling a distressed property may be a hassle, but opting for a cash buyer is an excellent option to consider when looking for a fast closing. They offer numerous benefits, such as reduced closing costs, a quicker selling process, no home inspection, and assurances that the sale will close without any issues or delays.