How to Sell a Property in Distress & What Is a Distressed Home
Looking at how you can sell a house in distress
If you are in ownership of a distressed property, it can be easy to feel overwhelmed. With the mounting pressure to sell, you can find yourself unsure of how to sell.
In this blog post we will look at what a property in distress is, your distressed home selling options, and how we can help you sell your home in as little as 7 days without the fees!
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What is a distressed property?
A distressed property is a property that is either already owned by the bank or is on the brink of foreclosure. Due to the nature of these properties, lenders will often sell the property for a discount, making them very popular with investors. Typically, there are three reasons why your property may be classed as distressed:
One of the most common reasons why a property may be involved in a distress sale is because it is the result of foreclosure. Foreclosure occurs when a homeowner fails to keep up with their monthly mortgage payments and the bank takes control of the home. Sometimes, the lender for the property may accept a deed in lieu of foreclosure in order to assume ownership.
If a homeowner is facing foreclosure by the bank, they may be willing to undergo a short sale. If a homeowner owes more than their property is worth then they may agree to sell their property this way. A short sale occurs when a seller puts their home on the market for less than what they owe on the mortgage. This way they can avoid foreclosure and and can occasionally get a good deal out of it.
If you have a property that has failed to sell at auction, it is often classed as real estate-owned property or REO property for short. These properties can be classed as distressed houses as lenders do not want the responsibility of maintaining or repairing these properties and they may be willing to sell them at a discount.
However, there are other reasons as to why you may find yourself in possession of distressed homes. These are some other common reasons why you may end up with a property in distress:
Rising Interest rates:
In the age of skyrocketing interest rates, more and more people are finding that once the lender's Standard Variable Rate (SVR) ends, their mortgage becomes unaffordable. If you have little to no equity, then you may find it difficult to swap to a more competitive rate, so they may be more likely to sell.
If you are in the unfortunate position of being made redundant, then you may end up falling behind on your mortgage payments and getting into debt. This can cause a property to be classed as distressed.
Secured Loan Covenant Breaches
This is an issue that mostly applies to commercial property. They occur when covenants within the finance contract that set out parameters are not allowed to be breached. These loans could state that the property is required to be leased in a certain way and if the property value falls under a certain level during a market downturn, then the lender can call in the loan.
You may also become a distressed seller if you inherit a property that you can no longer afford to keep.
What is the difference between distressed and foreclosure?
Whilst distressed and foreclosed properties are fairly similar, there is a difference between the two. Essentially a foreclosed property is a subgenre of distressed houses. If a property is on the brink of foreclosure then it is distressed, and if it is already owned by the bank then it is distressed. If a property has been foreclosed then it is distressed, but not all distressed properties are foreclosed.
Can I avoid a distressed home sale?
If you have a property in distress then you may be looking for a way where you can avoid a sale and keep your home. Below are a few avenues you may want to look into when dealing with a distressed property sale:
Speak to your lender
The first step you will want to take is to get in touch with your lender. By keeping in regular contact, you are able to face the situation head-on and keep things ticking over a lot smoother than if you ignore the issue.
The majority of mortgage lenders will work with you in order to create a payment plan or modify your loan. If talks are successful and this is an option you are able to explore, then be sure to get your new modification in writing and keep up with your new financial obligations that have been set.
Furthermore, repossession of your property should be taken as a last resort by your lender, as they are bound by a set of strict 'pre-action protocols'. This means that they are unable to start the process of repossessing your property without first approaching you to discuss potential solutions.
Borrow the money
Another avenue that you may wish to explore is borrowing the money necessary to get back on your feet from family and friends. As a rule of thumb, you should avoid credit card debt and payday loan companies.
You may wish to check how much equity you have in your property as if you generally have anything above 30% (70% loan to value) then you may be able to remortgage the property to a better pay rate. Should this be a route you decide to explore you may be able to do with either your current lender or a new one.
What to consider before a distress sale
Before you put your home onto the market to sell, there are a few things you will need to consider. As your home will hopefully sell faster due to it being a distress sale, there are three main factors that you will need to consider:
Property Market Value
One of the main factors you will need to consider is the market value of the property. In order to make sure you understand the full value, you should do a comparative market analysis. This will help you to calculate the value of your property based on that of other properties in the local area. You can ask an estate agent to perform this for you, but you are also able to perform one on your own.
Depending on your b budget, you may be able to also pay for a home appraisal. This is the most accurate way that you will be able to understand your market value.
If your property has fallen into a state of disrepair, then you should look into whether the repairs you make would boost the value of your property before you put it onto the market or whether it should go on as it is.
If you are seeking an urgent sale that even minor repairs would take too long, then a cash buyer may be your best option for a sale, as they will purchase any house, in any location and in any condition.
When it comes to deciding how to sell your distressed property, you should consider how quickly you will need to sell. If you need to sell ASAP, you should look into cash buyers, who will be able to purchase your property in a timeframe to suit you.
How to sell a distressed property
If you have a distressed home or are at risk of becoming a distressed seller, then there are a couple of avenues that you may wish to explore. You can try and sell through either a property auction or a cash buyer. As with any selling option, there are pros and cons to each of these selling options, so below we take a closer look at them:
A property auction is a popular route for those with a property that can be classed as distressed. This is because investors looking to buy a distressed property are able to find a new property so there is no shortage of interested parties. Another reason why property auctions are popular for those with distressed properties is due to the nature of the sale. As any winning bids become legally binding once the hammer falls, very few sales fall through once they have gone through at auction.
However, it is worth bearing in mind that whilst all winning bids on a property are legally binding, there is no guarantee that your property will sell. You may also find that the property auction experience means a lot of waiting around, which is time you may not have if you are looking to sell your distressed property. It also costs to sell your property at auction, as you will need to pay a commission in return for the auction house marketing and selling your home.
A cash buyer is a person or a company who is able to purchase your property without the need for a loan or mortgage. They are ideal for those with a distressed property as they are able to purchase your property in a timeframe that suits you. Because they have the cash readily available, many will be able to purchase your home within two weeks, although some like ourselves have been known to purchase even quicker.
Although you will not receive full market value when you sell through a cash buyer, the speed in which they are able to purchase can make up for this fact. When looking for a cash buyer it is also a good idea to shop around, have a look at a variety of reviews as well as checking to ensure they are a member of at least one regulatory board.
Where can you sell a distressed property?
If you have distressed houses for sale and are looking to sell, there are plenty of sales options for you to explore. Aside from property auction sites, Rightmove, and Zoopla, there are plenty of independent channels you can look into, however, it is important to do your research and look at different reviews for each company and familiarise yourself with the process before committing to it.
You may wish to look at independent selling sites where you will be able to list your property for sale. These sites can include forums such as Mumsnet or online sales sites such as GumTree or eBay.
Or, if you are looking for a fast, free, and hassle-free sale, you could sell to us.
If you are in possession of distressed houses for sale, then an option that you may want to consider is selling to a cash buyer such as ourselves. Here at The Property Buying Company, we pride ourselves on buying any house, in any location, and in any condition, even property in distress.
We are a genuine cash buyer, who specialises in fast house sale to a time scale that suits you. This means whether you want to sell in as little as 7 days or as far away as 6 months time, we can buy your home as soon as you are ready to sell.
We are also proud members of the regulatory boards of The Property Ombudsman and The National Association of Property Buyers, as well as having an excellent rating on Trustpilot.
Plus we will cover all of the legal fees that you would typically associate with selling your home, it's just one of the ways we take the stress out of selling.
If you are ready to sell your property in distress then get in touch today by filling in one of our free, no-obligation valuations to receive your CASH offer, which we could have sitting in your bank in as little as 7 days...