Myth: Most distressed properties have a legal dispute
Some are and some aren't. Either way, potential buyers have ample opportunity to determine a property's history and condition before the auction. If a buyer reads the bid document carefully to understand the status of unpaid dues or other liabilities, they would be fully aware of what they are getting in to before buying a distressed property. The key aim should be to create a win–win for the bank and the original owner so that there is a limited scope for a legal challenge. Also, a buyer must focus on understanding the history of the property under discussion and also get any historical papers for title due diligence. Ideally, always seek a second opinion from an expert before you plan to buy a property through bank auction. Take the advice of a property consultant with expertise in the field of distressed assets.
Myth: If buying a distressed property, you could inherit the misfortune of its owner
FACT: While citing the example of several companies that have been on the brink of disaster only to be brought back to life under new leadership, in a similar manner a distressed property could turn around the boat of fortunes for many. The real misfortune, however, would be to lose out on a good deal while holding on to irrational beliefs.
Moreover, if you are planning to do extensive renovations such as new paint, kitchen, flooring or dramatically changing the house, then it's possible you can bring new energy to the house and change the vibe that existed earlier.
Myth: Buying a distressed property is a cumbersome task
FACT: The importance of due diligence escalates when you are buying a distressed property. However, a less cumbersome and surer route to acquire foreclosed property is to hire the services of a property consultant who is an expert on distressed properties. Just like a need for a property consultant is there for purchase of any property, the assistance and guidance of a property consultant with specialization in distressed property will be very helpful. They work with the motto of bridging the divide between the investor and the property.
Distressed Property: Myths Debunked
Distressed properties – foreclosures and short sales residences alike – represent potentially great value for prospective buyers. Ideally, there are two ways one can buy a distressed property—via a bank auction or directly from the seller.
However, a few common myths involved with buying such properties may keep many from inquiring further into this market.
Myth: Distressed properties are always cheap
FACT: The price generally depends on the bid made at the time of auction. However, it is the condition of the property that often warrants a reduced sale price, including properties that need updating, properties that need extensive renovation and property renovations in mid-construction.
Generally, if a distressed property is being auctioned by a bank, the valuation the bank sets on the property depends on the age of the distressed loan. In the case of old loans, since they have already recovered part of the loan, banks will aim to recover the difference due to them and even make a small profit but are not willing to do so at the cost of risking the entire sale. Hence, they will value the property below its market price to recover their outstanding dues as quickly as possible.