Buying a distressed property through a short sell or foreclosure can be a great way to buy a property at a discount and potentially build equity from day one. However, these types of properties carry special circumstances you’ll want to consider before you make your best offer. Additionally, the conditions of such properties may require more work than you initially see. Our tips can help you determine if a distressed property is best for you.
For most homebuyers, price is the main advantage of buying a distressed property. Often, these homes sell below market value for a variety of reasons. Let’s consider each:
Fixer-Upper
Many times, these homes are in need of repairs in order to become marketable. In some cases, these repairs go far beyond the cosmetics and in many cases, the home is missing key components: perhaps the heating is inoperable, plumbing is non-operational, the kitchen has been dismantled or the roof has fallen in. Whatever the case, a lender will require these repairs to be made before a typical loan can be approved. This means that the buyer must have enough cash to make the repairs or obtain the home through some type of renovation loan program. Make sure you are pre-qualified for this type of purchase as there are many conditions that apply.
Foreclosure
A foreclosure occurs when the bank has taken ownership of a property. In this case, the property is part of the bank’s portfolio and there may be a desire to sell the property quickly. These homes may require repairs but can often be bought below market value. Since the bank is the Seller, and these homes are sought after properties, there is often heavy competition. Sometimes, inexperienced Buyers may even escalate the pricing beyond market value so it’s important to understand what the current market conditions are for the property. If you work with an experienced agent, they can help navigate you through this process.
Short Sale
A short-sale occurs when the current homeowner owes more to the bank than what the house can reasonably sell for. In this scenario, a Buyer can make an offer to the homeowner but the current bank lender must review and approve the offer in order for it to be accepted. This process can take months and often with little or no communication from the current bank lender. This presents an often challenging process for the prospective Buyer. If you’re in a hurry to buy a home, this is not the type of purchase you want to consider.
The Donnelly Group has expertise in a wide variety of these types of transactions and is devoted to taking a solutions-oriented proactive approach when challenges arise. Contact us today about assisting you in finding the right home!