10 tips for buying distressed properties

10 tips for buying distressed properties A distressed property is a mortgage defaulted property. In the late 2000s, distressed home sales were very common. From 2008 to 2011, a third of property sales were distressed. Of course, the number of distressed properties on the market varies by market. In New York where property prices have fallen, have more distressed homes, whereas locations with more steady sales have fewer.

Get a Mortgage Preapproval When seeking to acquire a distressed property, keep in mind that the bankers who must accept your offer want only serious proposals. Before making an offer on a distressed property, get preapproved for a mortgage. First, you'll face up against investors. Investors are profiting from historically low home sales, from "house flippers" who repair damaged properties to larger property management corporations. They normally pay in cash, so you'll need to demonstrate your reliability to the bank.

Find a Distressed Sales Agent Distressed property sales have their own set of issues. Find a real estate agent who has dealt with these situations before. Agents who have completed

continuing education courses in distressed property sales can earn multiple certifications. This programme was created by the National Association of Realtors in 2009. Realtors must complete several hours of training and study federal and state rules regarding foreclosures and short sales. The Distressed Property Institute also offers a Certified Distressed Property Expert certification. Regardless of certification, be sure your agent has closed on distressed property sales before. A dozen or so short sales or foreclosures shows the agent has enough experience to take you through the process.

Avoid Distressed Neighbourhoods Purchase a distressed property in a nice area. You can buy a house in New York for a lot less than you think and generate equity as it improves in value. But not every cheap distressed house is a bargain. Avoid hunting for homes in dismal areas. Look elsewhere if every house on the block is in foreclosure or every unit in the high rise is vacant. It's impossible to predict when or if a market like that would ever recover. Stay in a deserted area and watch your inexpensive house get even cheaper. In the worst case scenario, you'll be in the same boat as the seller: owing more on your mortgage than the house is worth.

Hire a Home Inspector Anytime you buy a house, you should have it inspected thoroughly. If you're considering a short sale or foreclosure, your inspection is even more critical.

Unlike in normal home sales, the seller of a distressed property won't be responsible for damages. Instead, once the sale contract is signed, the buyer is responsible for any needed repairs. Because distressed property listing prices are already lower than similar sales, banks rarely provide price reductions to account for repairs. The inspection will show you how much money you will need to spend to get the house ready to move in. Consider having specialised inspections as well. Meld, vermin, and septic systems are examined in further depth by specialty inspectors. If an owner or lender refuses to allow an examination, walk away.

Prepare to Repair Foreclosed homeowners are routinely driven out of their homes, so they intentionally damage them. During the late 2000s housing crisis, several foreclosed homeowners stole appliances, water and lighting fixtures, both out of rage and to generate money. Of course, an abandoned house might attract

squatters and vandals who can cause damage and filth. And criminals are known to rip apart walls to get to copper wire and pipes to sell for scrap.

Patience Buying a distressed home involves many delays, disappointments, and red tape. The lender must approve the final sales agreement, unlike in a regular sale where the homeowner is the primary contact. That can take a long time when dealing with a huge institution's bureaucracy, not just an individual seller. Waiting weeks or months for a bank to respond. The government may be able to help you speed up the procedure. Check if the house qualifies for the HFA programme (HAFA). So long as it's within 30 days.

Knowing State Foreclosure Laws Buying a foreclosed home can be difficult depending on your state. In other places, lenders must go through a lengthy legal process to foreclose. This process can take up to a year or more in jurisdictions like New York [source: Fulmer]. In the real estate world, "judicial states" are defined as such. Other states have laxer foreclosure laws. Non-judicial states allow lenders to foreclose more swiftly. For example, in Texas, a lender can petition for foreclosure in 60 days. When you locate a home you like, ask your agent how far along the foreclosure process is. You may have to wait in line.

Have Cash Money can't buy happiness, but it can help you get a fantastic deal on your dream home, especially if it's in distress. Having a lot of money will help the process in many ways. A greater down payment will entice a lender to consider your offer. Paying 20% to 25% of the asking price is enough to reassure the bank.

To sum up, buying a bank-owned property places a lot of the expense of a sale on the buyer. Before the sale can close, you must pay closing expenses, real estate transfer taxes, and any liens on the property.

Prepare a (serious) Offer Making an offer on a distressed home isn't always easy. You can't just make a lowball offer and expect the desperate homeowner and lender to accept it.

Banks are willing to take a small financial hit to get the house off their books [source: Re/Max]. Even in a bad market, the listing price of a foreclosed home is usually close to the bank's estimate. The asking price will be based on nearby

sales, similar to non-distressed house listings. Make sure your lower offer is supported by comparable sales. You don't want to belittle the lender. Banks don't have time for several counteroffers, so start high. For better prices, they will gladly reject you after two, three, or even one offer.

Utilize Your Lender's Appraisal Buying a foreclosed home isn't all headaches. As a buyer, you have some negotiation power with the lender. That's especially true if the distressed property is in bad shape. Then, if the bank refuses to make any price concessions for a property in need of repair, ask for a comprehensive appraisal. In order to assess the amount you can borrow, lenders employ an appraisal. A lower offer may be acceptable if the appraisal comes in below the asking price.

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