When Buying Distressed Homes, Prepare for a Marathon, Not a Sprint
The headlines proclaim on a daily basis that the presence of short sales and foreclosures continues to comprise a substantial portion of the real estate market. That is certainly the case in the Hampton Roads area of Virginia where distressed sales make up just under one third of all real estate sales. For the week of April 18 -24 2011, 26.3% of the ratified contracts were for bank-owned homes, and 4.7% were for homes being sold as a short sale.
These homes are seen as a "deal" by most home buyers. It is true that these homes do list at prices below those of non-distressed homes in a particular area. However, if you are considering targetting distressed homes in your home search, be aware that the process can require more time and resources than a "normal", non-distressed home purchase.
There is increased competition for distressed homes and you likely will be making a purchase offer along with several other buyers. You may be asked to submit your "highest and best" offer and the buyer offering the most money will be awarded the purchase, This competitive environment reduces the amount of the discount for the distressed home.- Banks are notorious for taking an incredibly long time to determine whether or not they will accept your short sale offer. Or they may foreclose on the property. If you have a specific timeframe for moving to your next home, a short sale is not a good option due to the uncertainty of bank acceptance.
- Foreclosed properties, and some short sales, frequently exhibit signs of neglect or even damage from the previous owners or banks that do not properly maintain them. These homes could require substantial sums in order to bring them up to suitable living standards.
- If the properties are not in good condition, they may not qualify for VA or FHA financing unless repairs are made. Distressed homes are typically sold in "as-is" condition and the seller will not take financial responsibility for making these repairs. I have frequently been able to get banks to do some repairs on the REO properties, however, this is not guaranteed.
- Bank-owned homes that represent a particularly good value can disappear from the market very quickly. Therefore, your agent should be closely monitoring new entrants on the market so that if the right property does emerge, you can act quickly.
Distressed sales can be a good option, given the right set of circumstances. However, be prepared that you may need to write several purchase offers before succeeding in your pursuit of a real deal in real estate.
Comments(5)