Psychology of a Distressed Seller

Posted by urbandigs

Tue Feb 14th, 2006 01:23 PM

nyc real estate

A: I'm listing this under BUYER TIPS because as a buyer in a slowing housing market you can look for the signs of desperation that may lead to a great buying opportunity for you.

Its always sad to see a distressed homeowner put into a position where they have to sell their property fast and at a loss. However, this is how savvy real estate buyers make a great investment and build wealth for themselves even in a cooling housing market such as one we are in now.

To do this, lets do a make believe psychological analysis of a distressed seller whose life is being affected by the fact that he bought a property he couldn't afford (something that happens often as buyers let emotion take over financially sound decision making). Let the session begin!

Shrink: Why are you selling?

Seller: I bought way more property than I can afford and being a homeowner is actually draining my savings accounts. I have 3 months of savings left, when I used to have over a years worth.

Shrink: When did you buy and what did you buy?

Seller: I bought a condo, because I would never pass a co-op board, and I bought it a year and a half ago. I paid 600K for it and now there is a similar unit for sale in my building for 565K and its not selling.

Shrink: Is your job stable?

Seller: Yes, but I am currently spending about 50% of my monthly income on housing expenses. After taxes, living expenses, credit card payments and bills I am losing money each month!

Shrink: How are you holding up emotionally?

Seller: Im a Mess! I am worried all the time. I asked my parents if I can borrow some money but they have none to give me; now they are worried too. I fight with my girlfriend ALL the time. I have to sell this place before it tears my life apart!

Shrink: Your personal relationships have suffered because of this home purchase?

Seller: Unfortunately it has. If I bought something I can afford I wouldn't be in this position. It was a very costly mistake and one I'll never do again. I have to sell this place, even at a loss, and get my life back on track.

Shrink: Is this stressful environment affecting your work production?

Seller: No, thank god. Im still doing very well at work. It's almost as if I know that if I work harder and better, than I might be able to get a raise and stay here. But I know thats wishful thinking.

Shrink Diagnosis: While this bad investment is more a product of bad timing of the market, it was your fault that you purchased a property that you cannot afford. The fact that you are aware of this and at peace with it as a decision you made, is very important. Your personal life and your relationship with your family is the most important thing in your life, with your work relationship and production being a distant second. I would like you to sell your apartment immediately (obviously at a loss) and if that means pricing it lower than the other similar unit in your building, than so be it. We must do something now and end the downard financial spiral that has resulted from this ill-guided investment, and save your relationship with your family, significant other, and most importantly your perception of your own self. Can you do this?

Seller: Yes I think I can. I know there is some tax write off for a Capital loss so its not going to be that bad. I just want to get my life back.

Shrink: Then make it happen! Be happy there is no medical or mental illness at play here. This is strictly a result of your personal financial situation and is fixable.

While this is an exaggerated session, it is not unlikely! In fact, it is a circumstance that affects a lot of homeowners every year and is a direct result of people acting on emotion and buying something they WANT rather than something they can AFFORD! This distressed seller will have to sell and sell fast! Some signs that a buyer should look out for to pinpoint a distressed or needy seller could be:

1. Property first listed BELOW the last comp or similar unit currently ACTIVE in same building. In other words, the seller is NOT 'testing the market'!

2. Price reduction in first 30 days! Keep your eyes open for this. If a property reduces its asking price in the first month than chances are the seller needs to get rid of it fast!

3. Multiple OH's in 1 week period. If a seller holds 3 Open Houses in 1 week (Sunday, Monday, & Wednesday) chances are they are pushing the marketing limits for general showings and want to sell quickly.

4. Property on Market Forever. While the seller may not originally been in distress, if a property has been on the market for 8+ months and still has not sold, the seller must be frustrated and getting more ancy. They can easily become a distressed seller and accept an offer much lower than they originally had in mind!