What exactly is a Distressed Sale?

The term “distressed sale” wasn’t even part of a real estate agent’s vocabulary until relatively recently, well certainly not in an Englishman’s vocabulary, and it is a term I am most reluctant to use even today.  It distresses me; pardon the pun, to see the term used incorrectly. It is being increasingly used simply to relate to a reduced priced property but as the term carries more impact it is hoped it will draw the attention of a prospective bargain hunter.  I suppose a realtor has got to use every tool he has at his disposal but using it incorrectly is painfully close to misdescription in my eyes. This term used to be only applied when relating to a mortgagee who could no longer pay for his mortgaged home and had to sell to pay off the mortgage. In fact the term was originally used in stocks and shares but it filtered its way into the real estate market. The more recent free dictionary meaning expresses it as “the sale of real property under circumstances creating great urgency on the part of the seller, such as impending foreclosure, divorce, relocation to another city, or any other such pressure”.  This seems fair enough and if that description applies, and the seller is happy for his agent to advertise that fact, then there is no reason why it cannot be sold as such.  It seems unlikely therefore that in Phuket, where there is rarely any debt whatsoever attached to the property and in 90% of cases they are second homes, there are many actual distressed sales although the owner might have serious concerns elsewhere and his preferred option is to realise the asset he doesn’t necessarily need.

Many people believe that a distressed sale must be by its very nature the cheapest way to buy but in many instances that simply isn’t true.  A distressed sale property has often been neglected or is less desirable hence the reason it has not sold whereas the sale of a property initiated by an owner who simply has no further use for it or wishes to realise the money from the sale for another purpose, maybe a more lucrative business venture, is likely to be in excellent condition.  Some of the best bargains I have been party to have often been sold by very wealthy owners who just can’t be bothered holding on for more money.  Remember there is a difference between a bargain and a cheap property and though this might appear obvious it often surprises me how many bargain hunters won’t look at properties within certain price parameters.  For instance they will often apply a maximum square metre figure to any property; maybe they won’t pay more than 70,000 baht per sqm, which is quite frankly ridiculous.  Condominiums might be sold for anything from under 50,000 baht per sqm to 400,000 baht per sqm so identifying the real price needs to be done before calculating whether it is a bargain or not.  That isn’t usually too difficult especially if the property lies within a condominium development for which there have been a number of sales made already.  One has to remember there is always a surplus of low end cheap property so finding a “bargain”, even in Phuket, might seem relatively easy but real bargains don’t fall into this category, the real bargains are in the mid to high end range where the air is more refined and thinner on the ground! The best way to locate a bargain is to consult your friendly local agent, providing you are sure he has no hidden agendas, as he will be aware of what is available.  One has to remember there aren’t too many properties in any one particular price bracket in a desirable area of Phuket so when a real bargain comes along it is surprising how quickly it sells.  We recently had the closest thing to a distressed sale we have seen on our books for a long time; the seller suddenly needed the money urgently, in a desirable location close to the beach.  The owner had drastically reduced the price from what was too high for that particular condominium, THB 22 million, to one that was ridiculously low, THB 14.9 million, and we sold it in less than a week.  I had advised him from the start to ask about THB 18 million and it would have sold but he was of the opinion it was worth much more and he eventually paid the price for that mistake. This is a rarity but unless you really are buying purely for investment remember to buy the property you want, if you don’t that bargain could indeed prove very expensive!


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