Selling Distressed Property (Complete Guide)
Dealing with a distressed property can be tough, but don't worry, there are ways to handle it.
Whether you've inherited a place, fallen behind on mortgage payments, or hit some financial bumps, understanding what choices you have can help make the selling process smoother.
In this post, I’ll break down everything you need to know about selling distressed property.
Plus, I’ll go over some of the most common mistakes you should avoid!
How To Sell A Distressed Property
There are three main options for selling a distressed property - selling to a cash buyer, listing on the open market with a real estate agent, or selling at an auction.
Each one has its own pros and cons. Let me walk you through them:
Selling To A Cash Buyer
Cash buyers are investors or companies that buy distressed properties for cash.
One of the biggest advantages of cash buyers is the speed and convenience they offer.
Since they don't need to secure traditional financing, the process can move much faster than a traditional sale. They can often close the deal in a matter of days or weeks!
This can be a lifesaver if you're facing foreclosure, bankruptcy, or dealing with a tight deadline and need to sell your property as soon as possible.
However, all this often comes at a cost.
Cash buyers usually offer lower prices than you might get on the open market.
They're looking for properties they can purchase at a discount, make any necessary repairs or renovations, and then resell for a profit.
So before accepting an offer from a cash buyer, do your research and understand the true value of your property.
Selling With A Real Estate Agent
If you have the time and flexibility, working with a real estate agent is the BEST option.
The agent will market your property really well and reach a wider pool of potential buyers.
They can list your property on multiple listing services, host open houses, and leverage their professional networks to generate interest and potentially drive up the sale price.
Look for agents who have a proven track record of successful sales in your area and who can provide references from satisfied clients.
And he should have experience in handling distressed properties.
The biggest downside of real estate agents is that they charge a commission, which is usually around 5% to 6% of the sale price.
This can add up to a significant amount, especially for higher-priced properties.
Selling At An Auction
Your third option is to sell the distressed house at an auction.
Auctions can be a good choice if you need to sell your property quickly and don't have the time to go through a traditional sale process.
They can also work well if your property has a lot of legal issues, like liens.
Auctions can provide a quick and straightforward sale process, but it can also get you potentially lower sale prices.
And remember, auctions can be kind of unpredictable.
You might end up selling your property for way less than it's worth. And there's a chance it won't sell at all if the bids don't meet the minimum price you've set.
Plus, there are a lot of fees too.
For more detailed info, read: Selling Distressed Homes At Auctions
Tips For Selling a Distressed Property
If you decide to sell with a agent or at an auction, here are some tips and strategies that can help make the sale go more smoothly:
Price It Right
Getting the price right for your distressed property is super important.
If you set it too high, you might have a hard time finding buyers interested in it. But if you go too low, you're basically leaving money on the table.
The best thing to do is work closely with a real estate pro who can look at similar properties that have sold recently and analyze the current market
Then figure out a fair and competitive asking price based on the condition of your house.
For more detailed info, read: Pricing distressed properties
Repair Or Sell As-is
Depending on the condition of your distressed property, you'll need to decide whether to make repairs or sell it as-is.
In some cases, making minor repairs to update, clean and stage the property can give you a higher selling price that offsets the repair costs.
But if we're talking about major renovations, that might not be worth the money and effort.
So get some opinions from professionals, crunch the numbers, and see if the potential increase in sale price justifies the costs of the repairs.
For more detailed info, read: Should I Repair My Distressed Home?
Marketing Strategies
Getting the word out there is also important.
Sure, you can go the traditional route – list it online, put up a sign, host some open houses. But don't stop there!
Social media can be a huge help for getting more eyeballs on your listing. Targeted online ads can put it in front of the right audience.
And don't forget to post on real estate Facebook groups!
For more detailed info, read: Marketing Strategies For Distressed Homes
Timing the Sale
When you decide to put your distressed property on the market can also play a big role.
The current state of the market, what time of year it is, how the local economy is doing – all of that impacts buyer demand and how much you could potentially get for your place.
Whatever you do - avoid listing right before holidays or winter months!
Nevertheless, have a chat with your real estate pro about the best timing based on all those factors, and be ready to adjust your strategy as needed.
For more detailed info, read: Worst Time To Sell A Distressed House
Legal Considerations
Navigating all the legal and financial complexities that come with selling a distressed property can be a total headache.
Depending on your exact situation, you might be dealing with liens on the property, unpaid mortgage balances, complicated tax stuff – you name it.
This is one area where you absolutely don't want to wing it.
Get an experienced real estate attorney or other qualified legal professional involved from the start to make sure you're crossing every T and dotting every I according to the laws and regulations.
Mistakes To Avoid When Selling Distressed Properties
Let me now go over some of the common pitfalls to be aware of, and mistakes to avoid:
High Asking Prices
Do NOT set the asking price way too high!
Sure, you might be hoping for a miracle buyer who'll pay over market value, but that's highly unlikely to happen.
Instead, what you'll end up with is a bunch of turned-off potential buyers and a property that just sits on the market forever.
Be realistic about the condition of your property and the local market, and work with a professional to determine a fair and competitive price.
Not Verifying Buyer Credentials
If you're dealing with cash buyers or investors, you MUST verify their credentials thoroughly.
Don't just take their word for it.
This might seem obvious, but you'd be surprised how many people get lured in by smooth-talking buyers only to later find out they don't have the funds or backing they claimed.
Before getting too deep into negotiations, ask for proof of funds, referrals from previous deals, whatever you need to feel confident this buyer is legit.
Run the necessary background checks. Get everything in writing.
Not Disclosing Issues
Trying to hide or downplay any known issues or defects is just asking for a world of trouble.
Maybe you figure the buyer will never find out about that sketchy foundation or leaky roof. Or you convince yourself it's just a tiny thing, no need to disclose it.
That kind of thing is exactly what leads to messy legal disputes and you potentially being on the hook for big damages down the line.
The smart move is to just lay it all out there from the beginning.
Be transparent about every nook and cranny of your property's condition, good and bad.
Sure, it might scare off some prospects - but would you really want to sell to someone under false pretenses anyway?
Do the right thing!
Waiting Too Long to Sell
The last mistake is waiting too long to sell.
Delaying just tends to make a bad situation worse in pretty much every way.
Think about it: the longer that distressed property sits, the more you're racking up in expenses for taxes, mortgages, utilities, maintenance, and so on.
Not to mention potential compounding legal issues like liens or code violations if you let things slide too far.
With each passing month, you could be losing out on thousands of dollars.
The sooner you sell, the sooner you can cut your losses, settle up, and move forward.