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In this marketplace, it’s hard to know what value to place on a home that is being sold by a traditional owner versus one that is “distressed”. And as a Buyer, you ARE establishing value by what you offer and what you eventually choose to pay, regardless of the condition; Sellers can ask whatever they want, but if a Buyer doesn’t see the value, it will remain just a listing, not a sale.
As such, it is important to define the main differences (albeit not ALL the differences) that affect the value of one type of property relative to another.
Every transaction, be it a car, a television or Real Estate, translates to three basic issues: Terms, Condition & Price.
Terms: Every trainer I’ve asked has told me: “I’d pay a million dollars for any home if I could have the terms of $1 per year until it was paid off.” Terms, such as whether the Seller is looking for only cash offers or willing to conform to the requirements of the Federal Housing Administration (FHA) dramatically affect who will be able to make an offer. There are only so many people who have access to cash; The pool of FHA Buyers is ever expanding with changes in acceptable credit scores, income sources and increased loan limits. Many distressed properties have issues that make them fundamentally unfit to meet the appraisal / condition standards of FHA, unless the Buyer is using a fix up mortgage that can take months longer to process. Many of these Sellers do not have or wish to use the luxury of time to divest of the property.
Conversely, the terms may require the Buyer to wait in limbo to even know if their offer will pass muster with a “third party”. Lenders who have final say on whether a Short Sale offer will be accepted keep Buyers waiting weeks, even months. These Buyers are left wondering if they will even get to buy the property, as Lenders often change the terms or reject offers based on internal standards undisclosed to outsiders.
Additionally, the deeds offered on much of the Distressed inventory are not “Warranty” deeds, which keeps a Seller standing in the wings to support a new Buyer should an unexpected lien crop up after closing. They can be harder to insure, sometimes impossible.
Condition: Condition is never guaranteed to be perfect, even with a Traditional Seller. But, having a Seller who can tell you the age of the roof & whether there has ever been water in the basement is a far cry from one who won’t tell you and demands an agreement to accept the property “AS IS”. You might also consider the following:
With Distressed Property sales, underlying factors often cause the previous owner to defer maintenance. Occasionally, they even cause damage when anger boils over.
Abandoned properties are what the insurance industry calls “attractive nuisances”, ripe for vandalism & theft.
While appliances are never guaranteed to be left with a property, most distressed sales have all appliances removed, including those usually considered built-in.
Lastly, especially in our harsh northern weather fluctuations, even a winterized property can experience damage from extreme temperatures. Pipes freeze, plaster buckles, condensation feeds mold blooms.
Price: Price cures everything. Price not only reflects the “pride of ownership”, location and choice finishes, it compensates for peace of mind, quality information, relationships and availability. Move-In Ready has value, especially when a Buyer can afford to buy with the financing that fits her life.
