In some markets today, as many as half of all homes for sale qualify as “distressed.” Distressed properties are those that have gone through foreclosure or which are being marketed as “short sales.” A short sale occurs when a homeowner can no longer afford his or her mortgage payments. Instead of the lender foreclosing on the property, the company agrees to allow the homeowner to sell it for less than the balance remaining on the loan.
Properties in a distressed state generally sell for less than market value, but they include a wide range of extra paperwork, a longer transaction process, and sometimes other frustrations. It can be helpful in these purchases to work with a broker or agent who is experienced in distressed sales and can assist the buyer in working through these complicated administrative affairs.
Sellers of distressed properties are highly motivated to make a sale, and generally willing to negotiate. Often, these sellers have little or no emotional connection to the property, which can simplify the bid process.
Although distressed properties generally sell below market value, they are becoming more and more competitive as buyers reenter the market. Foreclosure proceedings can also take more time than traditional sales. Additionally, some foreclosed properties are in rough condition, as they may have sat idle for a long time without routine maintenance.
Because both sellers and buyers in distressed sales have rights, all parties should consult a lawyer to protect their interests and ensure that the process proceeds as smoothly as possible.
About the author: Michael Quiel has more than 20 years of experience in the financial industry, and has advised clients on a wide range of financial considerations, including the purchase and sale of distressed homes.