What is a "Distressed Property"?

The simple definition of Distressed property is a property that is in poor physical or Financial condition.

This is a general term used for any property in poor repair, is currently or on the verge of default, is owned by someone who is currently experiencing financial difficulty, or is a property where the total dollar amount of liens owed against it exceeds its current market value.

Buying or Selling Distressed Properties

Many of the homes for sale today fall under the category of "distressed properties." These are homes that have either gone through foreclosure or are being marketed as "short sales."

In a short sale, typically, the homeowner can't afford to maintain the mortgage, but the lender - rather than foreclosing - agrees to the sale of the property for less than the balance of the loan.

These types of sales have different dynamics than traditional sales - with more paperwork, a much longer transaction process and, more frustration. For these reasons, many buyers shy away from foreclosures or short sales.

However, if you understand the potential pitfalls of purchasing a distressed property - and work with an agent who has a thorough knowledge of this market - you can get a great home at a great price.

What does the term "REO" mean?

The term REO means Real Estate Owned. This means that the property is owned by a lender, most often a bank. After a failed attempt at selling the property at a foreclosure auction, it is returned to the bank that held the original mortgage. These are great houses to buy for investments, they have a clean title and you can inspect the house before purchasing, unlike when they are being sold at the foreclosure auction. They usually need repair work, ranging from cosmetic items like paint and carpet, to full rehab down to the studs. This is where the expertise of a Professional Realtor will help you make the right decision based on the current market, the cost of repairs and the return on your investment.