Is it wise to limit a home search to distressed properties?

Real Estate Agent with 8z Real Estate and

Many prospective home buyers believe if they want to get the deal of a lifetime in this market they need to focus on distressed properties, such as foreclosures or short sales, in which the lender accepts less than the mortgage amount. By focusing on just distressed properties, these buyers are making mistakes, I will detail below. 

The number of distressed properies on the market has changed the makeup of the real estate inventory. It used to be when you would think about the selection of properties you were looking for, it would be either resales or new construction. Now, you have to go up one level. There are a number of choices within the resale market – the owner-occupied, bread-and butter, market-rate homes, or, you can go down the distressed property path.

There are a lot of choices for those shopping for a distressed property. But not all distressed properties are created equal. There are short sales, REOs (real estate owned or bank-owned foreclosures), and now we are seeing a lot of HUD properties. I’m seeing a huge increase in the volume of HUD contracts.

Buyer's shopping for distressed properties should have different expectations for the type of distressed property they are shopping for. If you are considering a short sale, the bank may respond to you very quickly, or it may respond very slowly. In some cases, it may not respond at all. We would counsel all buyers looking to buy a short sale regarding what a long process it can be. If you are in a hurry, you are probably going to be disappointed if you are set on buying a short sale.

Another common perception among many consumers is that they will always get a steal when they buy a distressed property. I think there is a common misperception that distressed properties are always screaming deals. Part of it is because there is so much in the media about  Sometimes they truly are screaming deals. But distressed properties in and of themselves are not always screaming deals. Buyers of distressed properties often want to get X percentage below the list price. The flaw of that strategy is the assumption that the list price is a valid starting point. Sometimes it’s a great deal at 100 percent or 102 percent of the listing price. It is very common for someone relocating from a bubble market like Las Vegas to expect buy at 65 percent of the list price. Guess what? If they try that strategy in a market like Boulder, they are never going to buy anything.

Other buyers are choosing to look solely at distressed properties in their home searches. Let’s say that distressed properties account for roughly a third of the inventory right now. If you decide you only want to look at distressed properties, you are limiting yourself to a third of the market. That means you are ignoring two thirds of the market. As owner-occupied homes have to compete against the distressed properties, it affects their property and price. What you should be saying is that I want a house that fits my budget, fulfills my lifestyle needs and is a good value. That way it doesn’t matter whether it is a so-called “distressed” home or a home sold by an individual owner.

If you are looking to buy a home, our 8z Real Estate team has agents that are experts in their market areas.  A market expert can take into account the real estate needs of your family and show you the homes in the condition, with the specifications you need, at the best possible value.  Just let the 8z team know if you need help buying or selling a Colorado home.

Carolyn Kolba
Serving Mentor, and all of Lake County, Ohio - Mentor, OH
Keller Williams Realty- Mentor, Ohio

I really don't think that it IS wise to limit one's search to only distressed properties.  There is always the possibility that doing that could cause you to miss out on something really great.  Just my thought.

Mar 22, 2011 06:58 PM
Maria Morton
Platinum Realty - Kansas City, MO
Kansas City Real Estate 816-560-3758

Smart buyers will call up their agent, tell them what they need, and let the agent find the best deals for them. Sometimes it's the REO; sometimes it's not.

Mar 22, 2011 06:59 PM
Jon Quist
Tucson's BUYERS ONLY Realtor since 1996

I think a lot depends on the mindset of the buyer. Hey, it's their money after all. My team leader gave us a really good acronym recently. It's "WAIT" or "Why Am I Talking?"

That could apply here. Buyer's money. I just love happy buyers.

Mar 22, 2011 07:01 PM
Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

I agree with Jon it does depend on the mindset of the buyer.

Mar 22, 2011 07:31 PM
MichelleCherie Carr Crowe .Just Call. 408-252-8900
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

Unfortunately in many cases, the only home options in the buyer's price range are distressed ones; I never limit the search by distressed, only by price unless absolutely instructed to do so by the buyer.

Mar 22, 2011 08:41 PM
Donald Reich
Madison Specs - New Rochelle, NY
Cost Segregation Specialist

I have found that 'distressed' properties are no bargain, and are more trouble than they are worth.

I think Maria summed it up well, and if the property suits the needs of the buyer, and is the right price, the fact that it is distressed or not is irrelavant

Mar 22, 2011 11:13 PM