Distress Sales: Opportunities and Risks for Buyers.

What are Distress Sales?

Distress sales occur when a seller is forced to sell their property or asset below market price, often due to financial difficulties, or emergencies.? For example, a one-bedroom apartment worth ?50 million might be sold for ?30 million due to the seller's emergency.

Causes of distress sales

Distress sales can occur due to various factors not limited to the ones listed here.?

- Health crises

- Business failures

- Economic hardship

- Financial difficulties?

- Divorce or family disputes

- Debt or loan repayment issues

- Government acquisitions or demolitions

How does Distress sales work?

Here's how it typically works:

1. Motivation: Distress sales comes from the motivation to sell quickly, usually due to financial constraints, loan repayment, or other causes. No one wants to sell their property at a low cost but when faced with challenges and difficulties, it becomes acceptable. Anything on the table can go.

2. Reduced Price: Distress sales benefit both buyer and the seller because the property is sold at a lower price than its market value and the seller can use the money to settle their challenges. The price is used to attract buyers and facilitate a quick sale.

3. As-Is Sale: The property is often sold "as-is," meaning the buyer assumes responsibility for any repairs or renovations.

?4. Fast Closing:? Unlike other sales, distress sales are typically closed quickly, sometimes within weeks or months, to meet the seller's urgent needs.

5. Buyer’s Opportunity: Distress sales present opportunities for buyers to purchase properties at discounted prices, but they should exercise caution and conduct thorough due diligence.

Opportunities for Buyers

1. Buying Below Market Price: The advantage of a distress sale is that you can purchase a property at a significantly lower price than its market value.
2. Quick Closings: Sellers may be motivated to close the deal quickly because they are distressed and need the money urgently.
3. Renovation Opportunities: Properties may need repairs, allowing buyers to renovate and increase value.
4. Negotiation Process: Knowing the seller's motivation can help you negotiate a better price. If the seller urgently needs money, they may be willing to sell at a more lower cost.

Risks for Buyers:

Buyers should be aware of the potential risks and challenges associated with distress sales, such as:

1. Hidden Costs: Properties may have underlying issues, leading to unexpected expenses.

2. Emotional Sellers: Sellers may be emotional, making negotiations challenging.

However, these risks involved can be checked. You need to:

1. Verify Property Ownership: Ensure the property doesn't belong to the government or have any legal issues.

2. Understand the Seller's Motivation: Find out why the seller is selling at a low price. Is it due to financial difficulties or other reasons?

3. Conduct Thorough Research: This is crucial especially in areas like the Orchid neighborhood in Lagos State, where some buildings are being demolished because residents built their properties on top of canals, causing flooding in the surrounding areas. It's essential to investigate the property's history, location, and potential for renovation to avoid buying a building that may be torn down. Owners of such properties are often in distress and willing to sell at a lower price, but it's vital to inspect the property carefully and consult with relevant authorities to ensure it's not slated for demolition, thereby saving yourself from potential losses and stress.

4. Work with a Professional: Partner with an experienced real estate broker to enable you negotiate a fair price and conduct due diligence.

Conclusion:

Distress sales can offer great opportunities for buyers, but it's essential to understand the risks involved. By being informed and working with a professional, you can navigate the process successfully.?

Remember, a distress sale is not inherently bad, but it's essential to be cautious and thorough in your approach, a distress sale can be a win-win for both parties – the seller gets a quick sale, and the buyer gets a great deal.