3 Options for Selling Your Distressed Property
Distressed properties can be a major headache for those who own them. If you have a mortgage you can no longer afford, selling the home can provide relief. If you’ve inherited a home in bad condition and don’t want to spend time and money renovating it, selling “as is” gives you the opportunity to trade the house for cash. This guide will offer insight into how distressed properties differ from others and explain three options you have for selling a distressed property, no matter what the situation.
What is a Distressed Property?
First, let’s define what a distressed property is. These homes aren’t always easily identifiable just by looking at them, but the one thing that all distressed properties have in common is that they’re being discounted or sold below market value. There are several reasons a home can become distressed. Here are five of the most common:
The house is in bad condition. The condition of a house can impact the sale price. If the property needs extensive work, such as new plumbing, electrical work, or structural enhancements, especially if the house hasn’t been well-maintained, it will need to be significantly discounted. If an older home has been well-maintained but hasn’t been updated in decades, it will also be difficult to sell at market value.
A job relocation needs to happen quickly. If you have to move suddenly due to a job assignment, you may not have time to wait for a sale via the open market. If you can’t afford two mortgages, you may opt to sell at a discount.
A divorce is driving a sale. If you’re going through a divorce, you may not want to go through the additional hassle of marketing the house. Financially, you may not have the luxury of waiting for a traditional sale.
A death in the family has created financial strain. If two people have been putting money towards a mortgage and one of them passes away, the cost of the mortgage may be more than the remaining partner can handle. Additionally, if a parent passes away, a home that’s in bad condition can create stress on children who’ve inherited the property.
Income has dropped. Many life events can cause your income to drop. An illness, job layoff, and unanticipated responsibilities can all wreak havoc on a budget. If you’re no longer able to pay the mortgage, you may want to quickly sell the house before you get caught in the foreclosure process.
Why Listing a Distressed Property on the Open Market Isn’t Advised
While it’s always an option to list your distressed property on the open market, it’s usually not a good idea — these houses just don’t sell when listed traditionally. This is true for many reasons.
Houses that are in poor condition don’t often attract the attention of traditional buyers. Most buyers are looking for a home that, if not move-in ready, will require very little work before the move. People are busy, and most aren’t interested in dealing with major renovations at an already-stressful time.
Marketing and selling traditionally takes time. In order to sell a home successfully on the open market, you’ll need to prepare the home by freshening the paint, adding curb appeal, and staging the home. Then you’ll need to work with your realtor (or do the work yourself) to craft an attractive description of the house and have professional photos made that will entice prospective buyers. Once you have a few interested prospects, you’ll need to schedule showings. You’ll then need to wait on the sometimes-slow-moving wheels of financing arrangements and legalities. After all this, the sale could always fall through, or the home may not appraise for the asking price, and you’ll have to go through the same process all over again.
You may not be able to afford the expense of a traditional sale. Even if you try to sell your home as-is to avoid the cost of upgrades, you may not be able to pay for an appraisal, listing expenses, and closing costs.
3 Options for Selling a Distressed Property
Listing on the open market is only one way to sell a property. You can also choose from auctioning the home, selling it yourself by word-of-mouth, or selling it to a cash buyer. Let’s explore each of these alternatives and look at the advantages and disadvantages of each.
1. AuctioningYou may be familiar with auctions, but they aren’t always as lucrative as what you see on TV — particularly when it comes to property auctions.
Benefits of Auctioning
With an auction, you don’t have to schedule showings for potential buyers. There’s typically one opportunity for buyers to look at the property, saving you the hassle of managing a showing schedule. Buyers are bidding at their own risk, so you can sell the home as-is without spending time or money on repairs. There are no contingencies allowed, and sales are completed fairly quickly, within 30-45 days.
Drawbacks of Auctioning
Auctioning does have several significant disadvantages. First is cost. Auctioneers often charge 10% of the final purchase price to the buyer. Because buyers know they’ll have to pay this additional fee, they bid less than what they would otherwise pay. Some auction companies will charge this fee to the seller. Secondly, you’re dependent upon the auctioneer’s marketing ability. If the auctioneer fails to get enough people (or the right people) at the auction, your home could sell for significantly less than it should. Finally, In an auction situation, your home is up against other properties being sold by the auctioneer that day, which can impact the final sale price.
2. For Sale By Owner (FSBO)
If you decide to market and sell the home yourself, you’re in control. You’re not subjecting yourself to factors that could undermine the sale price, like you are in an auction situation. However, there are a few caveats you should know about.
Benefits of FSBO
The main benefit of selling your home yourself is that, if you know what you’re doing, it can be the best way to make the highest profit from the sale. The key is that you must know what you’re doing — including in the areas of marketing and legal protocol.
Drawbacks of FSBO
If you’re inexperienced with marketing and legal issues, selling your own home could, at best, result in a sale price significantly below what it could have been and, at worst, result in a legal snafu that traps you into a bad deal you can’t get out of.
3. Selling to a Professional Cash Buyer
Just like auctioning and FSBO, selling to a professional cash buyer has advantages and disadvantages. Here’s what you should consider.
Benefits of Selling Your Distressed Home to a Professional Cash Buyer
Cash sales typically close within a couple of weeks, resulting in near-instant cash in your pocket. When you sell to a professional buyer, the sale is as-is, with no contingencies. You don’t have to spend time fixing up or marketing the home. Nor do you have to pay for closing costs, since most cash buyers pay all closing costs.
With a cash sale, you’ll have all the benefits that you would if you were to sell at auction, without the risk of not knowing what your sale price will be. You also don’t need to worry about neglecting some important element of the sale that results in legal headaches, as with a For Sale By Owner.
Drawbacks of Selling to a Professional Cash Buyer
You do need to know that, because cash buyers are taking on risk that conventional buyers aren’t, they typically will only offer between 70%-85% of a home’s appraisal value. And you should do your homework. Not all professional cash buyers are created equal. Unscrupulous buyers will try to take advantage, especially if you’re in a difficult financial situation or up against a deadline.
No matter which option you choose for selling your distressed property, you should do some research before you make the final call. By educating yourself, you’ll have confidence that you’re making a smart decision.
Selling a home in the Greenville, SC area? We’ll present an offer within 24 hours and pay all closing costs. Want to learn more about how we work with sellers or talk with us about your specific situation? Give us a call at (864) 568-0435 or request an offer.