Many houses on the market right now are distressed properties. Distressed properties include those whose owners have defaulted or are about to default on their mortgages. In many cases, distressed properties can be less expensive that comparable homes for sale.
There are a number of different types of distressed properties:
- Short Sale. In a short sale, the homeowner can't afford to maintain the mortgage. Rather than foreclosing on the home, the lender agrees to the sale of the property for less than the balance of the loan. Short sales give both lenders and homeowners an option other than foreclosure.
- Foreclosure Auction. Banks and other lenders will auction off properties that have been repossessed from homeowners who have defaulted on their mortgage loans. Foreclosure auctions are usually held at public facilities such as courthouses. The auctions are generally best left to investors with cash available to spend. All bids have to be backed up with the money for the entire sale price up front. Also, houses usually purchased at an auction are purchased site unseen.
- REO (real estate owned) Foreclosure. When people describe a distressed property as a “foreclosure,” they are usually referring to an REO foreclosure. These are bank or lender owned properties that you purchase directly from the lender in a process that is similar to a typical home sale.
The advantages of purchasing a distressed property:
A distressed home will sometimes be priced significantly lower than it would be sold for if it were not a distressed property. That doesn’t mean all distressed homes will be cheaper than all other homes that aren’t distressed, however. If there are a lot of foreclosures in an area, prices of non-distressed homes tend to be lower, too. In some cases of distressed properties, you can offer to purchase the home for less than the asking price. There is little to no emotion involved with a seller on distressed properties since you’ll be dealing with the lender instead.
The disadvantages of purchasing a distressed property:
Distressed homes take more time and effort to purchase. They require a lot of paperwork, and you might end up waiting a long time just to have your offer rejected. Depending on the property, it may need many major repairs. Many distressed properties have been vacant for a while with no continuous maintenance. Lenders generally sell distressed homes as-is. There is often a lot of competition when purchasing distressed properties with other buyers and investors. More competition leads to higher prices.
If you have any questions about purchasing a distressed property, contact us today. We can guide you through the home buying process and help you determine if buying a distressed property is right for you.