So you think you want a distressed property… it can seem like an amazing deal, but is it really? Our team is selling a listing that is a bank-owned property {also known as an REO property}, so I thought it was the perfect time to talk about this type of sale.

The house we are selling is listed at $739,000, it’s pretty big at about 6,500sf, and was built in 2006. And even though it hasn’t been especially well cared for over the past decade, it’s not in extreme {or obvious} disrepair, and it’s not an old house where you’re looking at huge projects like upgrading all of the electrical or plumbing, and there’s no re-working layouts or doing additions.

A non-distressed house similar to this {in better shape of course} would sell for much closer to a million dollars, hence why everyone is going mad over it.

After the first weekend on the market we ended up with twelve offers on this one house. Twelve offers. It’s crazy town.

There can be a real appeal to a distressed property. Generally it’s a property that can be purchased for less than market value, sometimes a lot less, so it seems like a great deal. And in some ways it is, but it’s not always that simple.

The Catch {#1} ~ The Waiting Game

On the one hand you get a house for less than market value, which sounds great, but what’s the catch? Distressed properties are typically either a short sale, which is still owned by the person with the mortgage, but the bank is involved because they seller owes more on the mortgage than what the house is worth on the market, or an REO, where the house has been foreclosed on, and the bank owns the property and is selling it to try to recoup as much as they can on the debt that’s still outstanding. Typically they are not in great condition and need work. Sometimes more, sometimes less, it just depends on the property. {And it’s not always obvious what’s wrong with them}

They typically take longer than a regular sale to close. Because you have to go through the approval process within a corporate structure, an approval or negotiation that would typically take several days with an individual seller can take weeks. Sometimes you can close in 90 days, other times we’ve been under contract for much longer. I think my longest so far has been a year and a half… not to freak anyone out but the moral of this story is that you have literally no control over the timeline, and you just have to get okay with it. If you close reasonably quickly {that would be somewhere between 90-120 days for a distressed sale}, then that’s fantastic, and if not, you just wait on the bank and close when they are {finally} ready. {but you’re getting that amazing deal ~ remember?!}

Catch #2 ~ The AS-IS Sale

Distressed properties are all sold as-is. That means you get what you see, period. There isn’t a lot of information about the condition, upkeep, or what work the space may need. You’re on your own to figure it out once you own the property. The bank will not warrant anything, and although you are allowed to have an inspection, you can’t make any requests of the seller. No requests for information {because they don’t have any}, and no requests for repairs or credits {because the answer will be no, or else they wouldn’t be selling it as-is!}… well, you can make requests, but you most likely won’t get anywhere so just be prepared for that.

The Catch {#3} ~ Get Ready for the Work

Should you decide to go ahead and buy a distressed property, once you close it’s time to get to work! There is no such thing as a foreclosure or short sale that is in great condition, where you get that amazing deal and just move in and enjoy. They all need work. So whether it was your intention or not, you’ve got yourself a fixer-upper {!!!}. Depending on the scale of work that might need to happen, you may or may not need professional drawings and permits, and you may or may not be able to live in the house while the projects are happening. It’s so important to have an understanding of the scale of work that you are looking at {even if you don’t know everything, you should have a sense}, and be able to plan accordingly ~ and be flexible for when the unknown finally makes it’s debut {because it will!!}. And lastly, have a great team of people to bring your vision to life and help you along the way!

Ultimately I think these types of properties are a great opportunity for the right person, and there are so many buildings just waiting to be brought back to life! But it’s important to understand what you’re getting into, and if it’s a project you really want to undertake.  Personally, I can’t wait for our fixer upper, I’m all about the project house… would you buy this type of house, or are you more of a new ~ move in and enjoy right away kind of person? ;)