Distressed Properties = Patience Equity

For Buyers wanting a ‘good deal’

Most buyers want to make sure they get a ‘good deal’ when they purchase something, and purchasers of real estate are no different.

That is why many decide to buy a distressed property (a foreclosure or a short sale).

The National Association of Realtors (NAR) recently reported foreclosures, on average, sell at a 22% discount and short sales at a 17% discount. It sounds like a pretty good decision to buy a property at these levels of discount.

Hidden obstacles

However, purchasers need to realize that there are added obstacles in these type of transactions. Many foreclosures are left in less than pristine condition by the previous owner, and some have title issues that must be corrected before they can change hands. Many short sales have multiple loans that must be negotiated before an offer is accepted by all parties to the transaction. This can take months in many cases.

Patience Equity

Does that mean that you shouldn’t consider a distressed property? Not necessarily.

Just understand that there is an additional cost to purchasing a foreclosure or a short sale: the cost of time. For some, the 17 or 22 percent discount is well worth the extra time they must spend on the transaction. We like to call that savings your ‘patience equity’. Patience equity will require you to be patient. Realize going into the deal that there will be obstacles to overcome… which will take time.

Taken from the KCM Blog, March 25, 2011

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