Distressed property sales require extra knowledge

National foreclosure numbers continue to decline but handling distressed properties can be a challenge.

“Foreclosures, short sales and bank-owned properties are all specialized areas. Their contracts are different and as Realtors®, we need to be aware of these nuances for our clients,” said real estate instructor Chandra Hall.

Inspections are just one example of the different issues faced in buying or selling distressed properties. “I had buyers who wanted out of purchasing a property after the inspection was complete,” she said. “Some banks don’t let the house go under contract until you get an inspection but the results of the inspection were a deal-breaker for my clients, even though the property had been advertised ‘as is’. You should ask what the bank’s policy is when handling a short sale or bank-owned property.”

When working with a short sale, Hall advises interviewing the listing agent. “If you’re representing the buyer, you should interview the listing agent to determine their level of expertise with short sales. There’s a lot at stake in the sales and sometimes agents who don’t have expertise agree to handle the sale not realizing how challenging it can be. Ultimately, Realtors® have to look out for the best interests of their clients.”

Hall said recently a Realtor® in the business for 15 years may lose her license over a short sale. “The Realtor® allegedly didn’t read the documents carefully and neither did her sellers,” Hall explained. “The sellers didn’t know they were responsible for paying a $50,000 promissory note to the bank when the house was sold.”

Understanding the financing options for distressed properties is critical for Realtors® working with buyers. “There’s a deferred maintenance loan, Title 1 loan through HUD (U.S. Department Housing and Urban Development), Fannie Mae Homestyle, etc.,” she said. “If you work in this specialized area, it’s important to know the types of loan products that are available. I’ve created a document that lists the categories of loans. It’s a powerful tool to use when you talk with buyers.”

Creating systems, tools and checklists helps a Realtor® reduce their risk. “You create a better situation for both the buyer and the seller when you educate them up front about the differences in distressed property sales,” Hall added. “I think because we’re in the early stages of the economic recovery, we may not fully see some of the issues with the sales until all the dust settles.”

Hall will present four programs at Triple Play Realtors® Convention and Trade Expo in Atlantic City, December 8-11. Her courses include: “Foreclosures & Short Sales,” “Bulletproof the Deal: Understanding Lending and Credit,” “Critical Rules, Reforms & New Realities,” and “Working with Investors: The Good, the Bad and the Taxable.”