Distressed Property Sales: Reviewing the Types and How They Could Expand Your Business

Distressed property sales have always been a consistent, albeit small, segment of the overall home sales market. Many real estate brokers and agents either specialize in or dedicate a portion of their practice to handling these sales.

There are three main types of distressed property sales:

1. Pre-Foreclosure Sales: These involve homeowners who are behind on their mortgage or in the early stages of foreclosure. Some of these are “short sales,” where the sale proceeds are less than the mortgage owed, but the lender agrees to forgive the remaining balance. Others are traditional sales, where the seller has enough equity to retire the delinquent debt and make a profit.

2. Foreclosure Sales: These are typically conducted through courthouse auctions or sheriff’s sales.

3. Bank-Owned Properties (REOs): These are properties repossessed by lenders after failing to sell at auction, which are then listed on the MLS. The real estate industry has traditionally focused on REOs, with brokers and agents building relationships with lenders, mortgage servicers and property asset managers for multiple listings. However, the current market dynamics have drastically reduced the availability of REO properties.

As detailed in the following pages, foreclosure activity is at historic lows, a stark contrast to the millions of foreclosures during the Great Recession. Yet, there are indications that foreclosures may be returning to normal levels as consumer finances come under increasing pressure. Despite the low numbers, there are still hundreds of thousands of opportunities for agents to expand their business by selling distressed properties. However, capitalizing on these opportunities requires a new approach, different from past practices. The potential benefits make it a strategy worth considering.