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What Should I Do With My Distressed Property?

Potato, potahto; others call your San Diego foreclosure property “distressed,” where you see profit potential. They say the home for sale should be listed as distressed property but you want to describe it as a “handyman special.” How you position your distressed San Diego area home in today’s housing market can mean the difference between a quick sale and an albatross.

What is a Distressed Property?

This term means different things to different interested parties:

  1. A bank sees it as a home facing foreclosure.
  2. A real estate broker considers a property with liens attached to be distressed.
  3. A health inspector or fire marshal flags it for code issues.
  4. The San Diego tax collector sees it as a property behind on its real estate taxes.
  5. You see it as a property in need of TLC and some sensible investment in renovations.

Keep in mind “distressed” does not necessarily mean physically neglected or vandalized. In the San Diego real estate market you need to view your property from all angles and see who will benefit from moving the property:

  • A lender
  • A buyer
  • A government agency

Each interested party will put a different value on the property. The lender wants to recover as much of its money as possible. A buyer sees a bargain. A government agency wants to alleviate an eyesore or tax delinquency with a minimum of fuss and bother.

As the seller, you will clearly benefit directly from moving the property from “For Sale” to “Sold,” but you have to be realistic about other hands in that transaction. For you, selling the property and clearing it of past financial obligations may be enough, without also gaining a large profit.

What is the Value of a distressed property?

Having a very sharp and detailed picture of the distressed property’s true value is a great place to begin. Physical damage reduces value. Yet the spectrum of damage is wide:

  1. Deliberate, widespread vandalism
  2. Theft of copper piping
  3. Squatting or homeless housing
  4. Foreclosed owner anger
  5. Foundation problems
  6. Nature’s reclamation
  7. Neglect and/or Deffered Maintenace

Be honest with potential buyers in your Multiple Listing Service that the home needs work. Be specific about the damage, so San Diego buyers know what they are facing:

  • Extensive drywall, plumbing, or electrical repair bills
  • Major landscaping
  • Mold removal
  • Interior or exterior painting
  • Window replacement
  • Disinfecting, odor remediation, dehumidifying

If the property is distressed due to financial issues, make that specific, too:

  • Liens to be lifted
  • Back taxes to be paid
  • Bank foreclosure fees to be cleared

For every fault, though, also emphasize the potential to a buyer. One person’s distressed property is another’s dream home:

  • Easy renovation
  • Flip this house
  • Modernize
  • Unlimited possibilities
  • Sweat equity
  • Blank slate

In a real estate market as hot and competitive as San Diego, your distressed property will be a jewel in someone’s eye, if you can help them see it.

Finding The Right Buyer

Speculative buyers have to hold the financial resources to assume the risk of the distressed property on their own, while lenders will be reluctant to offer loans for distressed properties.

Young but eager buyers may be assuming — incorrectly — that a bank or mortgage broker shares their enthusiasm for a bargain. Part of your job (or the job of a great real estate agent) is to be a gatekeeper of sorts, helping potential buyers to understand what they are getting into with a distressed property. You will make more productive use of your time if you can focus only on buyers with ready funds.

Many investors in the San Diego area deliberately seek out distressed properties, knowing a modest investment for them will transform the ugly duckling into a princess of a property. These investors have the private capital (or their own network of lenders) ready. They will not be prepared to go through several rounds of negotiations, however, which is why you and your real estate agent need to know precisely what the home's value is, and what you can accept. 

How A Real Estate Agent Can Help

If you hold a distressed property, picking the best selling strategy often hinges on picking the best real estate agent. A good agent, such as Steele San Diego Homes, already has a wide network of investors with sharp eyes for bargains.

These money-wise investors know the costs to fix up and flip a distressed home in any condition. If you are sincere, and are willing to avoid time-consuming negotiations that interfere with an efficient sale, you can move your distressed property quickly. 

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