Selling Distressed Property – 3 Mistakes To Avoid

selling distressed property - mistakes to avoid

Many homeowners find themselves in a difficult situation when it comes time to selling a distressed property. Whether the property is in foreclosure or has gone through the foreclosure process, selling distressed property is never an easy task. From deciding to sell in as-is condition to figuring out the home’s value and who your buyer is, there are many uncertainties around selling a distressed property. Check out the 3 mistakes to avoid when selling a distressed property that will help get your home sold quickly and for a fair price.


MAIN TAKEAWAYS…

  • Sell a distressed property with urgency to avoid fines and potential squatters or loiterers.
  • Consult an expert when evaluating your distressed property to determine the best way to sell.
  • Verify your buyer can close on the property by asking for proof of funds and a substantial EMD.


What is Distressed Property?


A distressed property is a house in a dilapidated state needing major repairs and renovations. Typically the owner was unable to keep up with mortgage payments making him/her at risk of losing the house through foreclosure or repossession. Distressed property can also classify as a construction project that was stopped before completion due to lack of funds resulting in the shell of a home.

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What To Avoid When Selling Distressed Property

1. Delaying the Home Sale

selling distressed property - avoid delaying the sale

Once a homeowner defaults on their mortgage, the countdown begins towards bank foreclosure. In order to avoid additional hassles such as lawsuits from not monitoring the property for safety hazards or code violations from the city or county, creating a plan to sell the house should be done as soon as possible. Unaddressed fines can add up to thousands of dollars, and if the owner lives out of state or too far to manage the property, the condition will worsen.

Vacant homes attract squatters and loiterers, which can leave you with bigger headaches from broken windows to stolen pipes and other damage (the last thing you want is someone moving into the property unwarranted). Listing on the open market is viable for houses in great condition, but with a distressed property, a different strategy (such as a cash home buyer) might be necessary as an agent may not want to list a house in poor condition. Further, many retail buyers will not be able to get a loan on the home due to lender required repairs.

2. Incorrect Property Valuation

sell distressed property

There are more factors to account for when determining the value of a distressed property compared to an average “market ready” home. Beyond the typical appraisal factors of location, square footage, layout, and lot size, a distressed property seller needs to factor in the cost of repairs to renovate the home. Depending on the amount of damage and demand in your market, the home will need to be priced well under market value.

Other factors to keep in mind include the inconveniences associated with distressed properties. Homes with non-cooperative tenants cannot be shown to prospective buyers due to refusal of access or risk of physical safety– this significantly reduces your pool of buyers as most won’t buy a property sight unseen.

Should I Sell My Home to an Investor?

If you find comparable distressed homes that sold on the MLS in your area pay attention to DOM (days on market) and the final sale price. Evaluate whether the timeline to sell a distressed property works with your schedule. Typically selling direct to an investor will speed up the sale going from months to weeks and garner a higher net sale of a distressed property as you can skip the realtor commission.

3. Unqualified Home Buyer

distressed property sale
Find buyers with experience rehabbing homes.

Many distressed properties cannot qualify for Conventional, VA, or FHA loans due to the lender required repairs on the home. This decreases the amount of available buyers to purchase the distressed property. A cash buyer is often the only solution and can be hard to find on the MLS.

Are Companies that Buy Houses For Cash Legit?

Distressed properties can be sold to real estate investors who will either flip the home themselves or have a network of house flippers they can sell the property to. However, make sure to verify the legitimacy of the cash buyer by asking for proof of funds to ensure they are the ones actually purchasing the home.

Major repairs or frustrating tenants often accompany distressed properties and can cause buyers to cancel their contract upon realization of the amount of work required. A substantial EMD (Earnest Money Deposit) from a cash buyer can help make sure they are serious about purchasing your home and not just wasting your time. If the buyer backs out, the EMD can be released to the distressed property owner.

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How To Market A Distressed Property


Marketing a distressed home is very different from marketing a pristine home with an eye catching kitchen faucet and newly installed hardwood floors. To get the most amount of money out of a distressed property, the MLS is a good place to market. You can pay a fee to list it yourself on the MLS or work with a realtor who has experience listing distressed properties (not all realtors are willing to list distressed homes).

Selling a Home by Owner

How Do You Market A Distressed Property
Market the distressed property online.

If you want to sell by owner, you can list the property FSBO on Craigslist, Facebook Marketplace, or other real estate marketplaces such as Zillow. This will require more work as you should include an informational description detailing the major repairs needed along with several photos to attract worthwhile interest in the property. Be prepared to talk with potential buyers and negotiate the price.

Selling Your Property to an Investor

If a hassle free and quick solution is preferred, a “We buy houses” company is typically the most straightforward option. You can find a local cash buyer who will buy your property as-is for cash through a Google search. There is commonly a cash offer form to submit or a phone number to call to discuss the details of your distressed property and selling timeline.

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Final Thoughts: Selling Distressed Property – 3 Mistakes To Avoid


If you find yourself in the situation of needing to sell a distressed property, it’s better to handle the sale sooner rather than later. Real estate investors have experience buying and selling properties that are going through foreclosure or have an eviction process underway. Selling a distressed property may feel overwhelming, but there are buyers looking for houses to flip. As long as you understand the value of your home, don’t sit on the property, and understand who your qualified buyers are, you will be able to navigate selling your distressed property with success.

Andy Kolodgie

Andy Kolodgie is an experienced real estate investor in the Washington DC Metro area. As owner of The House Guys, Andy's goal is to provide home sellers with creative real estate options beyond the typical cash offer. He's been featured on multiple publications including Yahoo Finance, MSN, HomeLight, Credit.com, Apartment Therapy, Business.com, LegalZoom, Zolo, and Creditcards.com.

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