A few days ago, we made an offer on a 2 bedroom 2 bath, ground floor condo. According to recent “comps” (i.e., comparisons of recently sold similar properties in the area), the market value is $199,900. It was listed for less than market value at $145,000. “Wow!, you say to yourself, “What a deal!” Well, there is always a reason when a property is listed below market value, and for this condo, the reason was a “distressed” seller.
According to the Seller’s Real Estate Agent, the Seller had just “emerged” from bankruptcy, and the bankruptcy court gave her 3 months to sell the property. After 3 months, if the property is not sold, the bank has the right to begin foreclosure. Again, this was told to our Real Estate Agent by the Seller’s Real Estate Agent. We were also told that the Seller’s son lives in the property. Our first visit revealed a layer of dirt covering everything! We had never seen so much dirt and thick dust. Everything was filthy, especially the bathrooms! The wall-to-wall carpeting and kitchen flooring were old, dirty, and worn out. BUT, we had to remind ourselves that these were cosmetic improvements. The ceiling had some old water/leak damage. The HVAC appeared to be the original, but at least it was working. There was another old water/leak stain outside on the balcony above the unit.
We have read many real estate books and attended numerous real estate seminars over the years about “finding a motivated seller.” We felt like we hit the jackpot because we knew the Seller had to sell, however the condo was in such deplorable condition that we took our time. We waited a whole month before going back for a second look. We were hoping the Seller would reduce the price after the condo had been on the market for a month, but she didn’t. We went back for a second look a few days ago, and to our delight, discovered that she had a cleaning service come in and do a light cleaning. The carpeting and kitchen/bathroom flooring was still very dirty, but we could see the potential of the property. We could see past the dirt and water stains on the ceiling. Since the HVAC unit appeared to be the original unit, we assumed we would have to spend $5,000 to replace it. We also calculated $1,000 to paint the whole interior of the condo, $1,000 for a thorough cleaning, $600 for a new refrigerator, and $2,000 for new carpeting and kitchen flooring.
Since we knew the Seller was “motivated,” we decided to offer $130,000 for the condo. We met with our Real Estate Agent the next evening and signed the paperwork for the offer. Fortunately, our Agent is very experienced. We’ve been working with him for about 20 years. He was concerned about the Seller’s ability to deliver clear title to the condo, and have enough money in equity to “make” settlement. In other words, would their be liens on the property, or worse yet, the beginning of foreclosure proceedings by the bank holding the mortgage? Does the Seller have enough equity in the property to pay her share of the closing costs? Our Real Estate Agent suggested we contact our Attorney to see if he could check the state’s bankruptcy database for information on the status of the Seller’s bankruptcy. Again, the Seller’s Real Estate Agent told our Real Estate Agent that the Seller had just “emerged” from bankruptcy, and had 3 months to sell the property before the bank would begin foreclosure.
The next morning, we emailed our Attorney about our offer on the property and the Seller’s circumstances. He said he would check the bankruptcy database and get back to us. A few hours later, he emailed us with surprising news: the bank had already started foreclosure proceedings! Any offer we made on the property would have to be negotiated with the bank, which could be a lengthy process. Our money could be tied up for months! Not good. This was our first exposure to a short sale. We have heard that this is a good opportunity for real estate investors. However, we like quick purchases and sales because a big chunk of our money is tied up in the real estate transaction. And as the old saying goes, “time is money!”
When we notified our Real Estate Agent about our Attorney’s findings, our Real Estate Agent told us he never submitted the offer. He was waiting to hear what we learned from our Attorney. Whew! That was a relief because we didn’t have to worry about forfeiting our earnest money deposit or officially withdrawing the offer. That’s the advantage of working with an experienced Real Estate Agent. Our Real Estate Agent’s experience saved us time, money, and frustration. This experience reinforced what we already knew: Have an excellent team of Real Estate Professionals in your network, such as Real Estate Agent, Title Attorney, Accountant, Mortgage Broker, Home Inspector. For beginner real estate investors, it is especially important to work with trusted advisors. For details on how to find a really good Real Estate Agent, click here.
The opinions expressed herein are solely those of the Author/WebMaster. Before taking any action, please consult your real estate, financial, and legal advisors.