Properties that are in distress are attractive to property investors. These properties can usually be purchased at a discount, below market value. Here are seven reasons a seller could be motivated to sell their property quickly and allow you to get a deal on the property.
7 Times You Can Purchase Property Below Market Value
- Separation or Divorce
- If a couple who owns a property together separates, the home is often put up for sale as a way to divide their assets. Since both parties are motivated to get rid of the property quickly for emotional and/or financial reasons, these types of properties are often priced to sell quickly rather than to get top dollar for the property.
- Death in the Family
- Property With Two Owners:
- If a property is owned by two individuals and one passes away, the remaining person may not be able to fulfill the mortgage commitment on their own. They may put the property up for sale at a discounted price in the hope of getting it sold quickly before they default on their mortgage. Even if they can afford the mortgage, they may want to sell the property because it holds too many memories or because they want to downsize.
- Property With One Owner-Estate Sale:
- If a property has a single owner and he or she passes away, the property is usually put up for sale in something known as an estate sale. Again the intent here is not always to get the highest price possible, but often to unload the property quickly and divide the money up among the remaining kin.
- Job Relocation
- Property owners who have to move quickly due to a job relocation are motivated to sell their current residence quickly so they are not paying two mortgages. This often leads to a willingness to accept a lower offer than they would have otherwise entertained.
- A distressed property often arises due to some sort of financial difficulty. The owner can no longer afford to pay their mortgage, taxes or utilities on the property. Situations that cause financial difficulty include:
A Job Loss,
- Pay Cut,
- Medical Condition
- The owner may be eager to sell before they miss a mortgage payment, so they are willing to accept a discounted price for their property to avoid doing so.
- Another scenario is that they may have already missed payments and are working to get their bank to accept a short sale because it will damage their credit less than if the property goes into foreclosure.
- Property Condition
- The condition of the property often warrants a reduced sale price. Some common property conditions that can lead to discounts in price are:
Properties That Need Updating: Properties that are dated or otherwise in poor condition will have a more limited buyer base. Buyers who are willing to take on these fixer-uppers can often purchase the property at a reduced price.
- Properties That Need Extensive Renovation: Some properties need layout changes, additions, plumbing and electrical work, a new roof, changes to the foundation or even a gut renovation. Properties that need more than a few simple updates are often steeply discounted because the pool of interested buyers is that much smaller.
- Property Renovations in Mid-Construction: These are properties with renovations that were started, but not finished. For example, a developer buys a property, starts renovating, but runs out of money and is unable to complete the renovation. The developer then puts the property up for sale to attempt to recover some money from it or cut their losses. In these properties, work often needs to be completed before the property is habitable.
- Partnership Dispute
- A distressed property can be the result of a dispute or falling out between two parties who own a property in a joint venture agreement. They may have to unexpectedly sell the property once their relationship goes south, so an interested buyer can benefit from their necessity to sell.
- Bank Owned (REO)
- Properties that have been foreclosed on and are now owned by the bank can often be purchased at large discounts. The lender just wants to unload the property at this point. Be aware that many of these properties need extensive renovations as they have been abandoned for a long period of time.
Remember that this is not an exhaustive list of distressed properties, but it should give you a good working knowledge of situations to look for that can allow you to get a good deal on a property. Look for problem properties and then find a way to solve the problem.