Below Market Value Properties

I occasionally receive calls from folks who are looking for investment properties that they want to purchase at below market value.  Sometimes, the calls are made subsequent to the caller attending a real estate seminar where they’re told that there are a multitude of properties selling for pennies on the dollar.  Purchasing real estate, or anything else for that matter, at below market value is a great idea; if only it were easy.  So let me give you my thoughts on purchasing real estate at below market value.

For purposes of this discussion, I’ll categorize properties for sale into non-distressed listings and distressed listings.  The majority of properties for sale are non-distressed listings.  These are owned by sellers whose only driver is to maximize the proceeds from the sale.  An owner of a distressed listing also wants to maximize proceeds, but has additional factors driving the sale, such as financial or personal issues.

First let’s talk about the non-distress listings in good condition.  Typically, these homes are listed at or above market value.  The ones listed at market value will usually sell in an average amount of time based on current market conditions.  The ones listed above market value usually remain unsold until they are eventually reduced to market value.  Finding non-distressed listings that are below market value is very rare and may be the result of an inexperienced real estate agent under-pricing the home.  And when they do come on the market, they are put under contract very quickly as there are hundreds, if not thousands of investors perusing new listings each day hoping to discover this rare find.

Next, let’s talk about non-distressed listings in poor condition.  Sellers of these homes are eventually forced to reduce the listing price by the cost of the work needed to bring the home up to good condition.  So once the work has been completed and paid for, the buyer has paid market value for the home.  The opportunity in these “fixer-uppers” is usually in the buyer’s ability to fix up the house using his/her own labor.

Finally, let’s talk about the distressed listings in any condition.  These listings occasionally arise when a seller has to make a quick sale for financial or personal reasons.  One of the few levers for selling a home quickly is to discount the price or provide other incentives to a potential buyer.  Therein lies the opportunity for a buyer who has the financial ability to accommodate the seller’s need for a quick sale. 

Before I conclude, I should make a note about distressed listings where the seller is upside down on his/her mortgage, i.e. owes more than the expected proceeds from a sale. Be aware of the various stages that this home typically goes through.  Usually the home is listed, then it progresses to a pre-foreclosure stage (short sale), then a foreclosure action, and then likely back on the market by the highest bidder at the foreclosure sale (most often the lender).  Not all homes go through each step, but many do.  These homes can be sold at any of these stages.  While there is no guarantee that this type of listing results in an opportunity for a buyer, chances are that the lender is anxious to get out from under the loan.  While no one wants to profit from someone else’s misfortune, it should be pointed out that the buyers of foreclosures are one of the cogs that make our home lending system work.  Without these buyers, a lender’s collateral becomes worthless resulting in an end to the availability of affordable home loans to most people.

If you are interested in a below market value property, contact an experienced, full-time, local Realtor for assistance.  While it is often like finding the proverbial “needle in a haystack”, help from a Realtor will make the search much more productive.