The Holy Grail of property investment is a ‘distressed seller’ – someone who is under severe pressure to dispose of a property and prepared to reduce the asking price to sell it quickly.

Desperate people will do desperate things – but very few will admit to it when potential buyer meets potential seller for the first time around the negotiating table.

So how do you spot a distressed seller at the outset and save yourself from submitting too high an offer upfront?

It may seem callous and perhaps even underhand to take advantage of someone else’s difficult financial situation, but that’s business – and don’t be under any illusions – a property investor is in business to make money. It’s how the commercial sector operates.

The fact that a seller might think he or she is operating in a purely cosy residential market, where potential buyers have ‘charity’ stamped on their foreheads, is an illusion and not something that should cross your mind while negotiating.

Means to an end

It’s a tough world – and everyone involved in property investment, whether as owner-occupiers or as businessmen, should recognise the fact by now.

Consider negotiating as a means to an end. A way of achieving a financial goal.

The winner is the person that succeeds in achieving the best price for the property – and if that isn’t you, it will be the next investor standing in line to buy it or it will be the seller.

Emotions aside, the distressed seller offers investors an opportunity akin to playing a game of football where the opposing team is a man short. The odds might be stacked in your favour, but winning is still not a certainty. Success depends on the level of negotiating ability and timing.

Identifying a distressed seller is just the starting point to scoring that winning goal and ultimately acquiring a property at below market value (BMV).

These are a few tactical advantages to get you ahead of the game:

Joint Agents

A property that is being sold through two or more agents is a sure-fire sign that the owner is keen to sell quickly.

While it may not be a certainty of someone in financial difficulties, it does suggest a potential buyer would be prepared to negotiate downward to secure a fast sale.

Twin for-sale boards outside the property obviously signal joint-agency marketing, but sometimes there will be just one board because the primary agent has retained their right to this marketing element.

Check estate agency websites and local press advertisements to see if the same property appears under different agencies and ask agents outright whether they are operating with sole-agency status on behalf of the seller.

Change of Agent

The owner of a property that has been on the market for a long time will often choose to switch estate agents when the former has exhausted a marketing and viewing strategy and little or no interest has been shown by potential buyers.

Changing agents is often a sign of frustration by the owner or that he is under severe pressure to dispose of the dwelling.

While the circumstances could simply be that he is buying something else and needs to sort the sale of his own property before he can secure his alternative home – it may equally be the case that a lender is applying pressure and threatening repossession.

In any event, he is likely to be a distressed seller and keen to secure a deal, even at below market value.

Unless you live in the area and have good observation skills, you might not notice that a property is now being sold through a different agent. However, if the change has only taken place recently, there is every chance the old estate agent’s board is still lying flat in the front garden somewhere or has been propped-up against a wall ready for collection.

Occasionally, the actual board might have been taken down, but the posts left in-situ.

Websites are also a good way of finding properties for sale where the agent has changed. Many estate agents take an inordinate amount of time to update their sites, which means the same property may appear on two agents’ websites even though only one of them is currently employed to sell it.

Out-Of-Date Marketing

A property that has been on the market for a long time – resulting in the potential of the owner being a distressed seller or at the very least someone who is probably keen to sell quickly – may have marketing material that is considerably out-of-date.

Tell-tale signs are usually contained in property photographs displayed in the agent’s window, in press adverts, property brochures or on website pages.

While agents are able to update the text of property brochures and adverts rather easily, it is more costly and takes more effort to produce a new photograph. As a result, many agents fail to do it. Look for obvious signs that the photo was taken many months ago, such as snow or frost on the ground despite the fact it is now mid-summer; or a different coloured or type of front door or some other change that suggests the passage of time.

Being Upfront With Estate Agents

The direct approach is sometimes the easiest way of finding a distressed seller and there is usually nothing to lose by applying this method, in my experience.

The motivation of estate agents is often to sell at whatever price they can achieve, thereby gaining their commission and a few thousand pounds below the asking price is not going to upset them or significantly alter their commission rate.

In any event, they will probably be as keen as the owner to dispose of a property that has been on their books for some months – and by this stage any offer will probably be welcomed, even if it isn’t necessarily what either would have originally wanted.

By explaining to an estate agent that you are only interested in viewing properties where an owner is keen to sell quickly and prepared to reduce the price substantially, you will be certain of finding at least one distressed seller – even though the agent may not be blunt or honest enough to coldly, clearly or obviously confirm this fact.

A Dishevelled Property

While you might think the more eager someone is to sell a property, the more effort they would put into keeping it looking neat and tidy and well maintained – quite often the reverse is true.

People in financial difficulties tend to lose interest in their home, allowing it to become shabby and fall into disrepair. This may have something to do with the fact they perceive the property as a millstone around their neck, rather than the asset it once was.

Properties that are advertised as having been heavily reduced, where a photograph seems to show ‘better times’ or dwellings that are clearly now being neglected are all signs of a (potential) distressed seller. An investigative conversation with the agent and/or the owner themselves should help clarify the situation.

Auctions

When sellers are unable to dispose of properties by traditional routes, they will often resort to putting them up for auction as the fastest resolve.

While this may very will disclose a lot owned by a distressed seller, potential buyers are up against other investors keen to buy a property at BMV, so the outcome is less certain and the potential for success is prone to backfiring.

Although this method can be fruitful, it is perhaps the least likely to succeed as much depends on the volume of investors attending the auction and the way bids run on the day.

This is certainly not a method for the fainthearted or anyone unfamiliar with property auctions. Check out Property Secrets’ wealth of articles and guides on this subject.

Inspecting Public Records

A distressed seller will be someone in financial trouble. The question is, how much trouble are they in and how will it affect their willingness to substantially reduce the asking price of their property?

While all the aforementioned methods are useful but tentative ways of identifying a distressed seller, an inspection of public records will confirm the real situation in black and white.

The necessity for clandestine investigations of an individual’s personal data went out the window once we all acquired access to public records and registers via the Internet.

Armed with nothing more than a suspicion that someone might be a distressed seller, you can follow this up by checking whether they have CCJ’s (county court judgements) and other debt indicators registered on various easy-to-access documents.

Landlord investors will be familiar with credit searching protocol. This task involves following the same kind of investigation, which might be conducted when checking out a prospective tenant. You will need a name, an address and a few more minor facts that can easily be obtained by talking to the suspect’s estate-agent – or even the man that runs the corner shop, if local gossip is as good in your neighbourhood as it seems to be in mine.

Next, search public records to see if the individual is in serious debt. Most reference and public record search agencies offer this type of service at a nominal fee.

For example, Registry Trust charge £8 for a single search – a small price to pay to have your suspicions confirmed, potentially giving you the upper-hand when it comes to submitting offers and which in the end could save you tens of thousands at the negotiating table.

As a footnote to this article, investors might be interested to learn the reference company Experian has just awarded one particular neighbourhood the somewhat dubious status of being the ‘distressed seller location of the UK’.

Frederick Street in Sunderland is apparently the most mortgaged street in Britain, with loans on each property amounting to an average of over £107,600 – despite the fact the properties themselves are actually only valued at £1,000 more.

The typical owner along this street has borrowed 99 per cent of the value of their home and a drop of 1 per cent would almost certainly place each and every one of them in negative equity…

…a very good place to start your search of for-sale boards then, perhaps.

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Daniel Peacock

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