Apart from being an American dream, owning a home offers many benefits, including comfortability, community involvement, a sense of belonging, and so on. However, sometimes, life may happen (just as it did during the COVID-19 crises when many Americans lost their jobs), and you may not be able to keep up with paying up rent, mortgage, and other financial responsibilities.
So, instead of defaulting and letting the bank foreclose your property or making it fall into disrepair because of your incapability to perform your financial obligation, you prefer to put it up for sale. The question now is: How do you sell your distressed property? You should know that selling a distressed property comes with unique challenges.
In this article, we’ll talk about the tips you should implement to eliminate the hassle that may come with selling distressed property and how to sell the property fast to meet your financial obligation and eventually avoid foreclosure. But before going to the tips for selling distressed properties, what is a distressed property? Read on to know more!
Related: Home Selling Process: 8 Steps You Can’t Skip
What is a Distressed Property?
A distressed property is any real estate in which the owner cannot continue to meet financial obligations (like mortgage, property tax, and so on). Therefore, the property is about to be foreclosed or repossessed. Based on the definition, ‘distressed’ in this concept means that the property owner is financially troubled and needs to sell the property fast to avoid the bank taking over.
In other cases, a property may also be distressed if it fell into disrepair because of vandalism or the owner’s negligence. Moreover, a distressed property could also be a construction project halted because the owner lacks funding. In this case, distressed means that the property is in disrepair, and the buyer wants to sell as-is, which can be challenging.
Since you understand what we mean by distressed property, let’s discuss how to sell a distressed property without hassle.
Tips to Selling a Distressed Property
Selling distressed properties can be a hassle. You either need to sell fast to avoid foreclosure or find a motivated cash buyer to take the property off your hands. If you don’t know how to get this done, here are some tips that can help eliminate the hassle.
1- Know the Value of the Property
Selling distressed property is the same as the standard home selling process. The only difference is that you need to find a motivated buyer that’s willing to close fast. So, just like in the conventional home selling process, you need to know the value of the property you want to sell. That lets you avoid being taken advantage of. Here are different ways to know your property’s value.
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Perform a Comparative Analysis
Comparative analysis is comparing your property to similar properties in your vicinity to determine the property’s market value. Although this method of determining a property’s estimated value is frequent among real estate agents, you can also use it. All you need to do is compare your property to those with similar features (like the number of bathrooms, bedrooms, size, design, and so on) in your area.
However, if you don’t want to go through the stress of asking around, you can also compare your homes to properties on listing websites like Zillow, Mashvisor, Trulia, and so on. One thing to note is that the value you get in comparative analysis is an estimated value and not what your property will cost.
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Use an Online Valuation Tool
Technically known as Automated Valuation Model (AVM), an online valuation tool uses available public records (like tax assessment, property transfer, and deed of ownership) along with some algorithm to determine an estimated value of a property. This AI tool predicts your home value based on the listing prices and recent sales of properties in the area. These online valuation tools can be found on the lenders’ websites or listing sites (like Zillow, Redfin, Mashvisor, Trulia, and so on).
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Hire an Appraiser
Another way to know your property’s value is by carrying out a home appraisal. An appraiser determines the value of a property by carrying out market research and visiting the property to examine its condition. Unlike the other two previously mentioned, a certified appraiser provides a reliable number, which you can use as a base for determining your home’s average selling price. Furthermore, you need to know that hiring an appraiser comes with a fee.
Related: Real Estate Market Analysis vs. Home Appraisal
2- Do You Want to Repair or Sell As-is?
Now that you know the property’s value, it’s time to determine how you plan to sell the distressed property. If you’re selling because of your financial woes, your property is likely still of a high standard. But if you’re selling a property that’s distressed because of negligence or vandalism, you should determine the distressed property sale strategy. Do you want to repair the distressed property before selling it? Or do you want to sell as-is? Let’s check out some factors you should consider to make an informed decision.
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How Fast Do You Need to Sell?
How urgently do you want to get rid of your property? The reason behind your action will help you answer that question. If you’re selling because you can’t keep up with your financial obligation and foreclosure is fast approaching, you could decide to sell as-is. But if you have no financial woes and there is no foreclosure in view, you may want to fix the problem with the property and sell it at a fair market value.
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Carry out a Full Property Inspection
Another way to determine if you want to sell as-is or repair the property is through property inspection. A property inspection will uncover any problem that goes beyond the physical. It can help you determine issues with the roof, flooring, foundation, or other structural defects.
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Check out the Estimated Repair Value
Now that you’ve decided the urgency required to get rid of the property and the things you need to fix up, it’s time to determine if fixing up the property would eventually be worth it. What’s the After Repair Value(ARV) of the property? And what’s the estimated cost of repair recommended by the property inspector? Comparing the repair cost to the property’s ARV makes it easier to determine the profitability of the distressed property if you decide to repair it before selling.
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Who Do You Want to Sell To?
The buyer also has a determining factor in how you choose to get rid of the property. Do you want to sell to a fix-and-flip investor or an ibuyer? Or do you plan to sell to a buy-and-hold investor? While neither of the buyers is petty, understanding who you sell to determine your profit.
Selling to a fix-and-flip investor or an ibuyer requires no repair, but you’d be trading below the property’s market value (probably about 30% lower than the property’s market value). Alternatively, a buy-and-hold investor can pay the property’s market value, but you would need to fix up any problem with the property.
3- Sell to a Cash Buyer
Another thing to note about a distressed property is that mortgage buyers aren’t the best option. Whether you want to avoid foreclosure or get rid of a property in disrepair, you should always seek to sell to a cash buyer. Why?
A financially troubled homeowner on the verge of foreclosure needs to get rid of their property fast (probably like a month), but the home-buying process takes at least three months. Also, property in disrepair cannot qualify for a traditional mortgage unless you fix the problems. That means finding a buyer that would fit your requirements when selling distressed property would be a hassle.
However, the only solution to this problem is to sell the property to a cash buyer. A cash buyer can afford to buy the property without applying for a mortgage, so you don’t have to follow the stringent process required by the mortgage lenders. Also, the time taken to complete the sale is shorter than conventional. If you want to know how to find a cash buyer, here are some tips on that.
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Investor-Friendly Agents
The most common way to find a cash buyer when selling distressed property is by talking to investor-friendly agents. Apart from having access to MLS like other agents, investor-friendly agents are usually closer to property investors that are ready, willing, and able to pay in cash. They do have a hotlist of motivated buyers who don’t need a mortgage to finance a property.
Moreover, investor-friendly agents’ clients usually look beyond the cosmetic appearance of the property, so it’s easier for you to sell your distressed property as-is.
Related: 10 Benefits of Hiring a Real Estate Agent
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Through Public Record and Auction
Since most real estate transactions are public and available online, you can also find cash buyers by checking the online public records. You only need to visit the county record or clerk’s office and sift through the recent changes in property title with no mortgage lien. Put a call through to the buyers and see if they are also willing to buy your property.
Furthermore, the real estate auction is also another place to find motivated cash buyers. So, if you want to find a cash buyer here, network with other investors and tell them about your property. And since investors dealing with you won’t have to pay the hefty auction fee, they’d likely be interested in buying your property.
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List Your Property on the Mashvisor Property Marketplace
Listing the property in an online marketplace is another way to find motivated cash buyers. Although there are a lot of property listing websites, most of them list properties directly from the MLS. So it’s likely impossible to get your distressed property on these listing sites.
If you wish to list your home on an online real estate marketplace but have encountered some trouble finding one, Mashvisor can accommodate your needs. The Mashvisor Property Marketplace enables you to list your distressed property as an off-market property. And owing to the fact that the marketplace is an investor-focused platform with a wide reach, you will easily find motivated cash buyers who would look beyond the cosmetic appearance.
4- Verify the Buyer’s Financial Capacity
Congratulations! You’ve found a motivated cash buyer. So, what’s next in the process of selling distressed property? One thing to note is that since you’re not selling to a mortgage buyer, you need to verify the prospective buyer’s financial capacity. Verifying the buyer’s finances will save you from unnecessary stress, and it’ll also prevent you from dealing with an untrustworthy person. So if you need to verify the buyer, here are ways to go about it.
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Ask for Proof of Fund
In a real estate deal, it’s not advisable to assume the buyer has the financial capacity to pay for the transaction. You should know that some investors serve like agents. They assign their interest in a contract deal to another investor for a fee. Although this is not illegal, you must be aware.
So verifying the investor’s fund, ask for a recent bank statement (printed not later than one month). Moreover, you should also verify if the name written on the bank statement is the same as the name on the contract.
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Check the Local Deed’s Record Office
You can also verify the investors’ identity and financial capacity using the county’s record of deeds. All you need to do is visit the county’s deed record’s website and conduct research using the investors’ name or company’s name. And once you can see the buyer’s name on several deeds, that means they have the financial capability and reputation for the deal to work.
5- Disclose Any Issue With the Property
No matter who you’re dealing with or the situation of your property, you should always disclose any property’s issue to the buyer when selling distressed property. Letting the prospective buyer know what’s going on with the property beforehand would save you any stress from future lawsuits. Also, the buyer eventually knowing about the issue later on, before closing, can lead to bargaining, which, eventually, leads to the buyer backing out of the deal.
6- Be Professional
Either you’re working with an agent, a cash buyer, or a friend who is an investor, you should be professional with the deal. Documenting everything about the home purchase process is good and can save you from unnecessary stress. So, ensure to write everything that relates to the transaction. The paperwork must also be complete, and the entire process must be legal.
Are You Ready to Sell Your Distressed Property?
Selling distressed property looks tedious. However, if you know how to go about it, the process is much easier than you think. Following the tips above will help you navigate the process in an efficient and stress-free manner.
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