How to Deal with a Distressed Home
- Author:by Neil Dempsey
Category: Home Improvement
Owning a home is a hallmark of the American Dream, but when you own a distressed property, it may seem more like a nightmare. Your home can become a financial burden, rather than a source of stability and security. It may even pose risks to the people living in it.
If this sounds familiar, then you could be the owner of a distressed property. You will need to deal with it properly before it can cause any more harm to your financial situation and become a major liability.
However, selling a distressed property is easier said than done. Because of the numerous issues it faces, not many buyers will want to make an offer. And if you do get offers, they may be below the fair market price.
Here are a few tips to help you sell your home, no matter the condition and appearance.
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Table of Contents:
1. Know what’s wrong with your property.
Before listing your home, you will need to know every detail of the property, from the most significant damages (like a failing roofing system) to the least (a chipping paint job). Knowing the total physical condition of your home is important in helping you determine how much it might sell for.
You may not expect to get much at closing, but don’t make the mistake of assuming the worst. An expert can help you determine your home’s value based on its current state.
Pay for an inspection, hire a professional home appraiser, or look to a real estate agent who can perform a comparative market analysis. Their assessments will help you avoid selling the home for too little.
2. Decide whether to undergo foreclosure.
If you owe more on your mortgage than the actual value of your home, you have an underwater mortgage. This often happens during a downturn in the housing market, when property prices fall at significant rates.
If you don’t have enough equity to qualify for a refinance, you risk having the bank foreclose on your home.
Foreclosure, though, should be your last resort. Not only will you lose money, but your credit score will go down significantly.
You may be able to prevent foreclosure through a short sale (selling for less than you owe on the mortgage) or by enrolling in a debt relief program that reduces the interest you owe.
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3. Decide what repairs you can handle.
The more you are able to repair, the higher the potential sale price for your home. But repairs take time and money, and for many people with distressed properties, the cost of rehabilitating the property could be too much of a financial burden.
You may also want to consider whether you have the skills to perform any repairs yourself. While plumbing and electrical work must be done by professionals, you may be able to tackle other jobs, such as patching holes, repainting, or replacing damaged flooring.
Keep in mind that when you attempt repairs, there is always the risk of discovering underlying problems (such as a termite infestation or a faulty foundation), which could bump up repair costs further.
If your home is beyond saving due to the number of repairs it requires, you might want to sell the property as-is. There are numerous options to consider if this is the road you are taking.
4. Sell to investors or home-buying companies.
No home is too unsightly for real estate investors looking to expand their portfolios. These professionals will purchase a distressed property, spend for the repairs, and resell it for a profit.
Some investors prefer to buy a home and hold it until it reaches a certain market value. However, buy-and-hold investors usually prefer homes that require minimal repairs. For your distressed property, consider selling to people or companies that have no problem buying homes in poor condition.
If you want to sell a house for cash without going through the traditional process of selling real estate, consider reaching out to a company that buys homes as-is. These companies may be able to evaluate your home and come up with the best possible offer within days.
Apart from the speed at which your home could sell, this approach also lets you avoid spending time and money on repairs and improvements. If you need to sell fast and don’t have the cash or equity to rehabilitate the home, consider a house-buying company that can help you unload your burden.
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5. Sell your home by yourself.
Putting your home under for-sale-by-owner (or “FSBO”) status could be your best option if you don’t mind waiting until the right buyer comes along. Under this arrangement, you have total control over the transaction, especially when it comes to negotiating the closing price with a motivated buyer.
In addition, you get to save the money you would have paid toward a real estate professional’s commission. That could save you about 6% of the final price.
Despite these advantages, there are several downsides to selling your home by yourself. For one, your home could spend too long on the market because it doesn’t get the exposure it needs to become visible to eager buyers. Agents tap into their networks and use their resources to market their listings.
If you need to sell your distressed property quickly, selling your home through an agent might be the better option.
6. Verify every buyer that comes along.
Whether you are selling to a home-buying company or an investor, you still need to do your due diligence before accepting any offer that comes your way.
If you list your home on Craigslist or Facebook Marketplace, expect to receive proposals from people who claim to have the money. To be certain, consider running a background check on the buyer.
You can also make sure the buyer is prequalified for a mortgage, which shows they are ready to finance the purchase. You may also want to ask them to make an earnest money deposit. And whether you’re working alone or with an agent, you will need a purchase contract that protects your interests.
Owning a distressed home is not a dead end. There are ways to sell your home no matter what shape it is in. The path you take will depend on how much money and time you can spend. With the right approach, you can sell your property and finally have peace of mind.
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