According to Business Insider, around 18 million Americans are behind on their mortgage or rent. Those who own their home face the risk of defaulting on their loan. Although the prospects might seem grim, there are other ways to deal with a house that is on the verge of foreclosure.
Whether due to financial reasons or safety issues, selling distressed property requires a bit of tact. This guide will tell you everything you need to know about how to sell a distressed house.
What Is a Distressed Property?
A distressed property is any dwelling in which the owner is unable to keep up with their financial responsibilities. This could mean they have defaulted on a loan or can no longer afford the mortgage and taxes.
A distressed property can also refer to the structure itself. Homes that have fallen into disrepair, been neglected, or vandalized exist under the umbrella of a distressed property.
What You Should Know About Selling Distressed Property
You might be worried about how to get rid of a distressed property. But before you jump into a bad decision, there are a few things to keep in mind.
1. Know the Value of Your Home
To avoid getting taken advantage of, you must get an idea of the true value of your home. There are a few different methods you can use to determine value before selling distressed property.
One of the easiest and cheapest ways is through a Comparative Market Analysis (CMA). This method calculates the value of your home by looking at other comparable properties in your area. You can perform your own CMA by looking up property listings online or requesting one from a real estate agent.
If you can’t find very many comparable properties, you might have to spend a bit of money on an official home appraisal. Appraisals look at everything your house has to offer as well as places for improvement. They are performed by a trained professional, who provides their opinion on a fair market price.
You can also use a free home value estimator to find out what you might get from an iBuyer or other cash-in-hand option. This usually involves filling out a short survey on their website.
2. Should You Repair or Sell As Is?
If you’re dealing with a distressed house due to lack of upkeep, then you need to consider the return on investment before doing any major renovations. The question is: are you going to make back on the sale what you’re spending on the repairs?
Repair completion time is also a factor when deciding whether to sell “as is.” If you are also working against a foreclosure deadline, then dealing with major construction and delays might not be feasible. These are some of the most common issues seen in distressed homes and an idea of what you might be looking at in repairs.
Foundation and Flooring Problems
Foundation issues can have a significant impact on the value of your home. The average cost of foundation repair is around $4,000, with more serious work being upwards of $10,000. If major excavation is required then you might be looking at a repair time of several weeks, even months.
Sometimes the foundation isn’t the issue. Broken, moldy, or crumbling flooring might be all the house needs to be considered sound. Lucky for you, there are a lot of cheaper flooring options that can enhance the look of your property without breaking the bank.
A leaking roof can lead to a whole assortment of additional problems, including rotting, warping, and structural damage. Be careful in assuming water spots and mold indicate roof issues. Oftentimes these are actually the result of faulty pipes or leaking windows.
Roof repair costs vary depending on the extent of damage, roofing material, and home location. If you are determined to repair your roof before selling a distressed property, then be sure to do a bit of shopping around before settling on a repair company.
If your property has issues with dampness, it could be the result of odd windows. These jobs can be quite extensive, especially when mold has entered the picture. A simple window replacement on a three-bedroom house will run around $3,000 to $10,000.
Septic Tank Problems
No one likes dealing with sewage. But if you plan on selling distressed property with a septic tank, you’ll need to make sure it’s working. Septic tanks can have both simple and complex problems.
A septic tank that needs to be emptied won’t set you back too far. Major fixes, such as a complete overhaul, will require major construction and money. Again this won’t matter when selling to a company that buys “as is.”
Termites and Rodents
No one wants to move into a home that is infested with bugs or rodents. Unless you plan to sell to an iBuyer or other cash-in-hand company, this is something you will have to address before your home hits the market.
Although the price of treating a termite infestation can be relatively low, the repairs could cost you a pretty penny. Termites can cause serious structural damage to your property. You might be looking at having to replace major support beams, flooring, rafters, and foundational features.
If you are planning on selling distressed property to an iBuyer or other cash-in-hand business, then a renovation might not be the best route for you. Countless things can go wrong during the repair, including the discovery of additional issues, such as lead and asbestos.
According to Home Advisor, you can expect to pay more than $10,000 for lead removal. This price tag is even higher for extensive asbestos removal.
With any distressed home, if you find yourself thinking, “My house needs so much work,” then cash in hand situation is often the best option.
3. Don’t Delay
Even when your home is in mint condition, traditional home sales can take months, even years. If your home is distressed due to a default on your mortgage, then you don’t have time to waste. You should immediately start looking at alternatives to foreclosure, such as iBuyers or house flippers who will give you cash-in-hand.
4. Verify the Buyer
One important thing to remember when selling distressed property is that it cannot qualify for a mortgage. That means anyone who buys the property, even though a private transaction or real estate agent, has to be able to pay cash.
You will want to look at a buyer’s track record. If you are selling to a company, such as a buy and hold investor or iBuyer, you need to consider their reputation. You can do this by reading through testimonials or directly contacting the buyer.
Don’t be afraid to ask buyers for proof of funds. Keep in mind, selling distressed property to someone who has their cash tied up in investments, could lead to delays. If they have trouble selling off stocks or getting money out of their investments, you could find yourself waiting for payment.
5. Complete Disclosure
Regardless of who you are selling to, you need to make sure that you disclose everything before the sale. This covers all your bases and prevents you from having to deal with a nasty lawsuit a few months down the road. Remember, it doesn’t matter if you are selling to a cash buyer or through a real estate agent, you must disclose all information relevant to the property.
6. Get It In Writing
If you are working with an agent or a cash buyer, then you can sit back and let them handle all the paperwork. When you sell independently you will have to do the dirty work yourself.
You alone are responsible for making sure all forms are completed with the correct information. Failure to submit the proper paperwork could lead to delays and even the loss of a buyer.
How to Sell a Distressed House
Depending on time constraints, you have a range of different options at your disposal when selling distressed property.
These are typically bigger organizations such as We Buy Ugly Houses. They offer you cash in hand and accept your property as is, no renovations necessary. You can receive an offer on your home in as little as a few days.
There is, of course, a catch. House flippers rarely pay you a fair market value on your home. Their offers are rarely negotiable and can take over a month to close, which means you still have to wait to get your money.
Buy and Hold Investors
If your distressed home doesn’t require a lot of repairs or renovations and you’re looking to close in as little as two to four weeks, this might be an option for you. These companies purchase homes to rent out to others. Since they place a higher value on the property, they will often pay closer to the market value of the home.
Their high standards make them picky about which properties they chose to purchase. Buy and hold investors tend to gravitate towards move-in-ready homes in nice neighborhoods.
iBuyers are the newest and quickest of all the cash buyers on the market. You can receive an instant offer on your home and close within as little as 14 days. iBuyers pay quite close to the market value of your distressed property.
They take properties “as is,” which means you don’t need to put money into any repairs, renovations, or property clean-up. Some companies do have stipulations on age, location, and property size. iBuyers are definitely the best option if speed and home value are your biggest concerns.
If you are in no rush to get rid of your distressed home, then you could always sell it yourself. You should start with a home inspection, which will give you a clear outline of mandatory repairs and renovations. If the inspection reveals your home requires tens of thousands of dollars in repair costs, this might not be the best means of selling.
You’ll save money on agent fees with this method, but you will also have to do all the leg work. This means advertising, hosting open houses, negotiating with potential buyers, and filing paperwork.
Real Estate Companies
Going the more traditional route will probably get you a slightly higher offer on your home. When you sell with an agent your home will have to pass safety inspections and regulations. This means you will have to spend enough money on renovations to get it out of its distressed state.
There is also a chance you could get caught in an escrow limbo, and be waiting for months to close. In addition to escrow fees, you will end up paying your agent a percentage of the sale. For most realtors, this fee comes with some negotiability.
Which Route Is Right for You?
The best way to sell a distressed property depends on your unique situation. If you are looking at an impending foreclosure, need money quickly, or just don’t want to have to deal with the hassle of renovation, then a cash-in-hand buyer is your best bet.
Perhaps you’ve inherited a property that is distressed due to lack of care, vandalism, or hoarding. In this scenario maybe you are in no rush to sell and are willing to invest the time and finances required to get the property up to code.
Either way, it never hurts to explore different options. You might find that you can get more for your distressed property than you expected.
How Much Is Your Distressed Property Worth?
Selling distressed property can be a long and drawn-out process, especially if you do it through conventional channels.
Selling privately or with an agent requires time and money to pass inspections. Those who elect for a house flipper might get money faster, but nothing near the market value. Buy and hold investors will pay you close to what it’s worth but your home will need to be move-in-ready.
iBuyers are the perfect solution if you need a quick sale, or don’t want the hassle of extensive renovations. Click here to find out which iBuyers are purchasing property in your area and get cash for your home today.