What to Know if You’re Considering Distressed Properties

While the number of distressed properties isn’t nearly as large as it used to be, areas with rising home costs and low inventory have many homebuyers seeking more affordable options for purchasing their dream home. In areas experiencing high growth, a distressed property could be a great alternative.

Distressed properties typically fall into three categories:

  1. Foreclosed homes
  2. Real estate owned (REO) properties
  3. Short-sales

A foreclosure generally occurs when a homeowner is no longer able to make the mortgage payments and the lender seizes the property. The lender requires the former owner to vacate the property before offering it for sale, usually at a discounted price. In some cases, the home is auctioned off to the highest bidder.

REO property:
A real estate owned property is one that has reverted to the mortgage lender after the home fails to sell in a foreclosure auction. Once the bank owns the property, it usually handles any necessary eviction, pays off tax liens and may possibly even do some repairs.

When a homeowner sells his or her property for less than the amount owed on their mortgage, it is known as a “short-sale.” The seller is “short” the cash needed to fully repay the mortgage lender. Typically, the bank or lender agrees to a short sale in order to recoup a portion of the mortgage loan owed to them.

Keep these things in mind if you’re considering this type of home:
1. Banks need to approve your offer, and it should be a serious one. Getting mortgage preapproval before you make an offer on a distressed house is an important first step.

  1. It’s likely you’ll be competing with investors, house flippers and larger property management companies. These folks often pay in cash. If you’re obtaining mortgage financing, you’ll have to prove you’re a solid buyer if you want the best shot at getting the bank to consider your bid.
  2. Distressed property sales can have a number of unique problems and pitfalls. They are typically sold “as-is”.
  3. When picking a real estate agent to represent you, find one who has experience handling distressed home sales. The right real estate professional can help guide you through the unique process of purchasing a distressed property.

If you’re ready to check out distressed properties in the Denver metro area, give Metrowest a shout! We specialize in these types of sales and would love to help you start the process!

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