Distressed properties can be a money pit

Distressed properties can cause more stress than success if agents aren’t aware of all of the ramifications, according to real estate expert and columnist Bernice Ross.

“There are many pitfalls that agents aren’t aware of,” said Ross, CEO of RealEstateCoach.com. “For example, once you turn on the utilities for an REO, you’re engaging in property management, which requires a separate errors and omissions insurance policy. Without a separate property management policy, both the brokerage and the individual can be liable.”

Ross will present “Distressed Properties: Profit Center or Money Pit?” at Triple Play 2010 on Wednesday, December 8.  The course will highlight how to: help distressed property owners achieve the best results, close more distressed property transactions, implement traditional and social media marketing plans, be more effective at negotiating list and sale prices on distressed properties and limit liability on short sales and REOs.

“Agents have to do their research on these properties to ensure there are no IRS tax liens, find out the amount owed and if there is any private mortgage insurance (PMI),” Ross explained.

She predicts a second wave of foreclosures will hit the market. “The short sale/foreclosure problem is hitting the luxury market,” she said. “Homes that originally sold for $750,000 are now being sold for $500,000.” Depending upon their tax situation, the difference of $250,000 could be treated as imputed income which is taxed as the same rates as regular income.

Before anyone sells a property, they need to know what the tax ramifications are and should consult a certified public accountant or a tax attorney. “This can be very sticky. Owners need to talk to someone who understands real estate law.  Otherwise, they could end up owing thousands of dollars as a result of the sale,” Ross cautioned.

Ross said that short sales are often delayed while lenders gather additional information from mortgage insurance companies, associations and utility companies. Another source of delay results when the lenders demand that the owners sign a new note for the balance of the short sale amount to be paid after the property closes. If there is more than one lender, the second lender often won’t agree to a short sale and tries to delay the process as long as possible.

To increase the potential for a smooth distressed property sale, Ross suggests REALTORS®:

• Target their efforts to where they’re going to get the best response. Have all information collected and ready when lenders ask for it.
• Have an attorney or loss mitigation specialist contact the bank.
• Be prepared – the best defense is a good offense.
• Outline a digital marketing plan.
• Decide what you need to get your listing sold in this market
• Make sure you’re getting the right inspections, especially in vacant homes.

“It’s a tough environment for agents and it can be a money pit,” Ross said. “It’s important to really be aware of what’s going on to protect your clients and yourself.”