How To Buy A Distressed Property (Short Sale or Foreclosure)
by Steve Dean, REALTOR, AHWD, CRS, GRI, SFR
Distressed property is any property facing a pending foreclosure or already foreclosed.
1) Have Money Before You Shop: Have cash for your purchase or a mortgage approval before you begin shopping for a distressed property. Many owners who are facing foreclosure do not have the time to see if a buyer can be approved for a mortgage. A purchaser with proof of financial ability to purchase has an advantage in negotiating.
2) Be Mentally Prepared to Wait and to Encounter Red Tape: Buying a distressed property is full of delays and possible ways for the transaction to fall apart. It will likely be the most frustrating real estate transaction ever. That’s just one reason that the price is as low as it is.
3) Limit Your Contingencies: Contingencies in a sales contract for distressed property will often cause the offer to be rejected. Consult with your agent to determine which contingencies you can do without.
4) Purchase the Property in As-is Condition: Most foreclosures will be sold in as-is condition. With short sales, many Sellers have not been able to properly maintain the property. There is often deferred maintenance. Be prepared to accept the property in its current condition. If you’re going to do a home inspection, do it quickly and get beyond it fast.
5) Be Ready to Act! Once you locate a property you like, write the offer right away! You want to make your offer before their is competition. Also, bare in mind that every day that passes on a short sale is one day closer to the property entering foreclosure.
6) Evaluate Your Motivations: A purchaser’s motivations need to become conscious and verbalized. A purchaser may want to find a great value in move-in condition with a quick settlement. If that’s the case, a short sale or a foreclosure is not the property to buy.
7) Bottom of the Market: Many people looking to purchase a short sale or foreclosure want to buy at the bottom of the market. The bottom of the market is a historical point, and it’s never known until it has passed.
8) Quick Settlement: A seller of a short sale will want a quick settlement. Typically, the settlement needs to occur within 30 days of the approval of the short sale. A foreclosed property will typically want to settle in 14 – 30 days after the sale is approved. After a long wait full of delays, the purchaser will be expected to act quickly when the time comes.
9) Inspections: It is always advisable to have a distressed property fully inspected by an experienced inspector. Purchasers will want to budget for repairs and upgrades once they own the home.
10) Examination of Title: A title search by a competent settlement attorney is advisable to any purchaser of a distressed property. Don’t expect the Seller to make repairs.