Making Offers In Distressed Property

One of the first question many clients ; “Do you have any foreclosures?” It always takes me back a bit. I ask if they are looking for a deal; they smile and say yes. I then ask is they are looking for a project? Most say “not a lot of work a little cosmetic”. I ask are you looking for investment property or a home to live in. The reason that is so important is because an investor and a homeowner have separate goals.

A homeowner is looking for a home- someplace to raise their family; a long term investment into their future. Investors are calculating their investment what is my return. So in turn each will approach an offer in different way.

Deals can be found in foreclosures and short sales. but most people are not in the habit of leaving money on the table. I say this so that we enter into this with our eyes wide open . If we find a property that is 4 bedrooms 3 baths in a nice neighborhood, where the homes range in price from $150 – $170 and the list price is $120 that’s a deal “Right! $30- $50,000 in equity going in. Who wouldn’t want that. But there is a catch we view the property and it is in need of repairs about $30- $40,000 depending on the quality of the upgrades.

Before you place an offer on any distress property here are a few things that you should consider.

Cash offers – A homeowner looking for a fixer upper should consider how much cash they have available. Purchasing the house is one thing, the next is restoring it back to value. You also have to plan for unexpected repairs. Pulling up dirty carpet may reveal rotten floor boards, or replacing a dishwasher may reveal a water leak. These unexpected repairs can cut deeply into your cash reserve. If you invested your money into a home that required less repairs but cost a little more your would have more money in your pocket.

Mortgage – A homeowner looking for a fixer upper but also obtaining a mortgage needs to know the terms and type of mortgage they are getting. The house has to match the money. Many FHA and conventional loans require the home to be in move in ready condition. When looking at property and you decide on the house with the hole in the walls, or no flooring your loan may not support that. Talk to your lender and your agent to determine the type of property that would be best for you and your loan type,

Time – Many homeowners need to be in their new home in 30-45 days. Distress properties may take longer to close. A short sale can take 60-120 days to close and requires 3rd party written approval that includes approval on the offer price, which can be countered over the list price. REO properties many times fall into multiple offer situations, if your offer wins there is a small chance that the deal will not close due to tittle issues. If the tittle is not clear and the bank does not own the property outright they may not be able to sell.

So before you place an offer on a distressed property; you and your agent should consider these qualifying questions.

1- Do you have 60-120 days to wait to close? If the the answer is “NO” then you should look elsewhere.

2- Will my loan support an “As-Is” property? Will this property pass inspection? If the the answer is “NO” then you should look elsewhere.