Distressed Sale – All you need to know

Most professional investors in the real estate industry keep their eyes and ears open, constantly on the lookout for distressed sales. A distressed sale occurs when a person/organization tries to sell their properties and assets quickly, usually under the market value to pay off debts (during foreclosure)or for other time-constricted emergencies. 

Banks also try to sell off their acquired or repossessed properties under the market value to close off bad loans or mortgages as quickly as possible. In both cases, distressed sales are made under financial pressure and time constraints which means an excellent buy for property investors and a slight loss for the seller.

The Benefits And Drawbacks Of Distressed Assets

● Although it may appear as a loss for the seller, the main goal of distressed sales is quick cash. So they are sacrificing the value of the property for a time, as finding a buyer at market rates could take weeks or months. In the case of distressed selling, time is literally money. 

● Investors generally flock to buy properties under the market value whenever they can and however they can because, for them, these investments offer higher profit paired with a much lower risk compared to the usual steals they get around the market rates. 

● Distressed sales are like a drop of blood in the ocean; they will attract ruthless sharks that will try to get the lowest price possible, but as it is mainly time-constrained, the one who gets their first usually makes the profit. 

● In sales of this urgent nature, sellers rarely get a decent deal. So the best way to get a fair price is by listing it in an auction with a minimum price rather than just arranging a private sale or approaching a pawnbroker.

● Most of these distressed properties are found in bad condition, so they require a fair bit of maintenance and sometimes renovations before listing them for sale. But investors usually get properties like this for dirt cheap, so with a good clean-up crew/contractor, they still make a significant chunk of money even after all the high costs. 

● Location is everything in real estate; it can make or break a property’s value. With distressed assets, investors have fewer choices as they can spring up in a great neighborhood or the middle of nowhere. It’s up to the investor to decide whether the price, however low, is actually worth the effort of finding a buyer.

The Difference Between Short Sales, Foreclosures And REO Auctions

Short Sales

When a borrower cannot pay or misses quite a few mortgages/loan installments, the lender allows them to sell the property for less than the amount due. The primary purpose of the short sale is to pay off the debt; the borrower/previous owner does not get any money from the sale. To make a short sale, the bank/lender needs to approve it first (set a satisfying minimum price), which can take months, so only buy pre-approved properties because if the bank doesn’t agree, the deal is off. But a short sale is still much better than a foreclosure(for the borrower) as the latter impacts the credit score more severely. 

Foreclosures

When the property falls to sell during a short sale, the bank/lender forces a sale through a foreclosure auction to close the remaining mortgage/loan. The main difference between the two is that short sales are made through the homeowner(the borrower) while the bank or the lender conducts foreclosures. Some banks put the remaining mortgage as the minimum bid, which is just wishful thinking in most cases. 

REO Properties

When the property fails to sell through foreclosure, it moves on to the next phase and becomes a bank-owned property. This REO(Real Estate Owned) property basically becomes a liability for the bank; they are eager to get rid of it well under the market price. In most cases, they take care of outstanding taxes and try to sell such properties in bulk to save time and money. They are a great steal but keep in mind that REO properties require a bit of maintenance, and you will have some competition. But on the bright side, you can buy properties that are typically well out of your budget. 

Where To Look?  

Distress sales are a dime a dozen in the real estate market; they pop up every now and then if you know where to look and sell out just as fast. To get such sweet deals, you have to actively search for them instead of waiting like the majority, Always be ready with the capital, and try to make a deal before your competitors get there and make offers. Think of them as a once in a blue moon type offers on amazon; you need to have all the payment and delivery information saved beforehand to get the deal before the product is sold out.

The job of hunting these properties or assets becomes much easier once you know where to divert your attention.

Multiple Agents

Sellers that try to find buyers for their property through multiple agents are usually trying to get the best price fast. This is a good sign of a distressed sale, so try to approach the seller directly or through the agents and make an offer with cash in hand; you might get a great deal there. 

REO Auctions

Real estate-owned auctions are conducted by the lenders after the property fails to sell during foreclosure, so most of the time, properties owned by banks show up here in bulk at a discount. 

Property In Bad Conditions

Properties in a declining condition(broken windows, peeling paints, rust, termites, overgrown yard/lawn) go for less than the market rates depending on the area. These properties end up like this because of neglect or from financial difficulties of the owner(usually when the property becomes a liability). At times like this, most owners let go of the property at the sight of a decent offer.

Probate Property

 If a person dies without bequeathing their property to someone, the state/government takes over the land after due process in the court. Such probate properties are sold at a lower value than the market rate, but the process takes much longer than a standard buy(months); this is a longer-term gain type deal. 

Travelling Owners

Out-of-state owners are another great seller of distressed assets; better if they rarely spend time with their assets, most investors approach them directly for a deal.

Networking: Experienced Agents

The best way to get tips on such properties/assets is by working with experienced agents veterans who know exactly what goes on in the market. In the real estate business, those with connections tend to rise faster; it’s better to work through agents or beside them at the beginning, at least until you have a good understanding of the market.

Keep in mind that distress sales can include anything from houses and antiques to rare baseball cards. Congrats on making it to the end of the article; we hope the information you read here will help you with your future endeavors.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.