For some people, selling a house with these conditions is a daunting or impossible task. If the house is not in near perfect condition, it may be very difficult to sell the traditional way. The most common problems are that the property owner may not have the time, the money - or both to make necessary repairs and wait for a willing buyer. In other cases, there are family issues that make renovations and delays difficult or impossible. These properties are typically called distressed.
What is a distressed property?
Due to the recent downturn in real estate, most people have heard of - or have some experience with - the common type of distressed properties: those under foreclosure, short sale, or REO (or bank owned) properties. In the case of foreclosure or short sale, the property owner has lost control of their house. The lender steps in and forces a sale.
There are other types of distressed property. There are cases where the owner or owners are too old to take care of the property. Sometimes the owners are experiencing a personal tragedy such as divorce, poor health or death of a loved one. In other cases, an individual or family may inherit a house that they do not want and do not have the resources to prepare the property for traditional sale. Sometimes a person relocates for their job and does not have company assistance to prepare for the sale and move.
For anyone who is not aware of these terms or property types, let’s take a quick look.
A foreclosure happens when the homeowner cannot pay their mortgage or note. These payments include a portion of principal – what the house costs – and interest on the loan. In many cases, the borrower(s) missed several months of payments and the bank or note holder is no longer willing to wait for payment and back payments.
Foreclosure has serious consequences for the borrower. It means that they have not cooperated with the lender to find a solution to their financial obligations and the debt. The FICO credit score and the ability to borrow again in the future are severely damaged.
A short sale is a sale of real estate in which the sale price for the property will fall short of the balance of debts, or is less than the amount owed on the property. It is a form of debt forgiveness. The bank or note holder agrees to forgive the difference between the sale price and what the borrower(s) owe. Typically the borrower(s) will have to pay taxes on the deficiency and their credit score and ability to borrow in the future are also affected.
Once the lender has repossessed the property as a foreclosure, it is known as Real Estate Owned, or REO. It is usually resold as soon as possible. It typically has a price that is much lower than its fair market value and undergoes a distress sale. Distress sale is the act of selling the property as soon as possible even with the price that is below its cost or current market value. There is a desire to sell the asset quickly although there may be a loss. The lender is willing to do this because they do not want to manage the property, or have the property deteriorate while they wait for a traditional sale to take place. In addition, having a property ties up assets (money) the lender would rather lend for profit.
Following the real estate market crash, there were many people in financial trouble because they owed more money than their houses were worth. The term “under water” was commonly used. A lot of these people went through the foreclosure and short sale process.
Now there is a new category of distressed home seller. These property owners have seen the value of their house increase to the point where they owe as much as the house is worth. Some of these property owners would like to sell their houses the traditional way using a realtor but cannot. They do not have enough equity to pay for the realtor’s commission, or any necessary repairs. Their best option to sell in a non-traditional way.
With the recent down turn in the economy, some individuals or families who lost jobs were forced to relocate in order to replace lost income. Without any support from a former employer, people are left to sell their house as quickly as possible in order to move to the new employment opportunity. Many people faced the unpleasant scenario of not being able to sell their old house before they needed to move. Perhaps the house needed repairs that were beyond the means of an owner with reduced or no income, or the real estate market in that area was slow, or the owners just didn’t have the time before their move. These property owners still have options to cash in quickly on their houses.
Loss of Income
Most people depend on their salary to pay for their house loan and maintenance. Reasons other than job loss can be a factor for a property becoming distressed. Sometimes a change in jobs means that a person has sacrifices income for other advantages, such as better hours, a more desirable work location or more interesting work. This may make it difficult to maintain the house in the long run, especially if an unexpected major repair surfaces. If a solution to financial stress cannot be found, often a quick sale of a property needing repair may be a good solution.
When a couple or family is going through a divorce, sometimes the assets need to be separated. If it is not an amicable divorce, it may be very difficult to agree on how to prepare the house for sale. The added pressure of renovations and the time required to actually sell the house may be too difficult for the already unpleasant situation. It may help the couple to move on with their lives if the house is sold “as is.”
Advanced Age or Illness
There may come a time when the property owner is dealing with advanced age or health issues that make selling a house the traditional way undesirable. A severe illness may mean that the owner is no longer able to work, or that medical expenses become priority. In some cases, they may not have enough income or funding to include the cost of unexpected major repairs. Retired people may become too frail to keep up with the responsibilities. If a person is no longer able to manage the day to day responsibilities of owning a house, or must move to a facility where care is provided, sometimes the house must be sold as quickly as possible to cash out and or relieve the owner of the burden.
The tragic death of a spouse may mean that the survivor left on their own and is not capable of managing the house. Often the property deteriorates with the diminished care and becomes fraught with problems that the widow or widower cannot manage on their own. If the house falls into a state of disrepair, it would be difficult to sell the house in a traditional fashion. It is also possible that the remaining person may just wish to get away and have a fresh start away from painful memories as soon as possible. If the remaining owner is not able to prepare the house for a traditional sale, a quick sale may be the best solution.
If an individual or family is fortunate enough to be remembered in a will after the loss of a loved one, they may inherit a house that is not even in their city or state. Such an unexpected windfall can still cause friction within a family. If it is left to more than one person, it is often difficult to share responsibility for the management and maintenance of a distant property. In some cases, the original owner may have been keeping an excess of belongings in the house. It is not uncommon to inherit what is called a “hoarder house” that is so filled with possessions that it is difficult to walk from room to room. In such cases, emptying the house and conducting repairs or renovations for a traditional sale may be a monumental task. A better option might be to sell in a non-traditional way.
These are just some of the reasons a traditional sale may not be the right option. As a homeowner, you could have one or many reasons that require you to sell your house fast. In Arizona, many homeowners are turning to private, ready-to-buy individuals to relieve them of their property problems. In the current market, the conventional route of selling your property could take a VERY long time. This process can take months, even a year or two. Most direct distressed sale deals involve problem properties with special conditions like the ones listed above. There are options to sell the property quickly, without repairs and close on the day that is convenient for the property owner.
No matter the reason, you can quickly sell your property without the complications and time-consuming process required for a normal sale.
Next week we will take a look at the quick sale and who benefits from the process.
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