A guide: 10 steps to selling a distressed property

There are many situations in which a homeowner must sell a home but may have difficulty doing so. Perhaps a house needs so many repairs that it scares buyers away. Maybe a house is so outdated that no one wants to invest the money to renovate it. Aging homeowners who need to move may not have the time or resources to make their home more marketable. And heirs may be faced with inheriting a home they don’t want.

Selling an undesirable home starts with understanding what you're working with. Legal hurdles and financial burdens can turn a potential asset into a liability — but with the right guidance, you can make informed decisions. Let Homes.com walk you through the process.

Homeowners can contact a real estate agent to run the numbers on the fair market value of the property and offer insight into its pros and cons.

Agents have detailed information on recent sales of comparable homes in the area. They also can access data on neighborhood characteristics that might affect a sale, such as the quality of the schools, the location itself and market trends. They are happy to talk to a potential client and even meet a homeowner at the property to discuss sales strategies.

Pro tip: You can look for an agent with a SFR certification from the National Association of Realtors. The certification stands for Short Sales and Foreclosure Resource. You could also look for an agent who has a Certified Distressed Property Expert designation from the Real Estate Advancement Institute.

It also helps to bring in a general contractor with a valid state license to assess the home’s condition. Even a “handyman special” might benefit from cosmetic upgrades such as paint or landscaping to boost curb appeal.

A contractor can provide a list of recommended repairs with cost estimates and timelines, helping you decide whether renovations are worth the investment.

Pro tip: Tarek El Moussa, the star and co-star of several hit HGTV shows, including "Flip or Flop," "Flipping 101," "The Flipping El Moussas" and "The Flip Off" and the founder of Tarek Buy’s Houses, said the distressed homes with the biggest return on investment are those that need only cosmetic updates to sell, not those with major structural issues.

"Most people don’t understand that the houses that only need $10,000 to $15,000 of work are the ones where you can get a bigger return through things like staging or painting," he said. "People spending $10,000 to $20,000 prepping are getting exponential returns."

Questions to ask:

• What’s the current fair-market value, and how much faster could the home sell if it were priced below it?
• Which repairs or upgrades could accelerate the sale — and what are their costs and timeframes?
• What are the pros and cons of marketing the home "as is"?

More on this topic:

These three home renovation projects pay off the most at resale

Once you’ve assessed the property, it’s time to decide how to move forward. Selling an undesirable home doesn’t have to be a one-size-fits-all process. Consider the pros and cons of each path to find what fits your timeline, budget and tolerance for hassle.

Listing with a real estate agent is the most conventional route. It may take time and involve upfront costs — like repairs, staging and commissions, which are a percentage of the sale — but it often yields the highest sale price. Agents can help market the property and negotiate with buyers, but patience is key.

Questions to ask:

• Is the commission paid to an agent worth your investment?
• How long are comparable homes in your market taking to sell?

If speed is your priority, consider:

• Home flippers or wholesalers: They buy homes as-is, often for cash, and close quickly
• iBuyers: Tech-driven companies that make instant offers and streamline the sale process

These options can attract lowball offers and scammers. Always vet buyers and consult a lawyer before signing anything.

• Real estate auctions: Auctioning a distressed property can be one of the quickest ways to sell — but it comes with trade-offs. While you may lose some control over the final sale price, auctions can attract cash buyers and eliminate lengthy negotiations.

An auction house handles the marketing, sets up the bidding process and facilitates the sale — often on the spot. Many bidders are investors or flippers who pay in cash, which can speed up closing and reduce complications. Auction houses typically charge 5% to 10% for their services, and you lose some control over the pricing. Disclosing to the public that your home is getting auctioned may be undesirable since many people associate it with foreclosure.
Questions to ask:

• How do agent commission and auction costs compare?
• How long am I willing to hold onto the property?

Leasing is an option if the monthly income outweighs the monthly expense. But the property may need repairs to make it habitable and marketable. Homeowners also must ask whether they want to be landlords, which means finding tenants, being on call 24/7 for repairs and dealing with eviction, if necessary.

You could also hire a property manager, but you need to factor that into your expenses to determine whether renting out the home is still economically feasible.

Pro tip: Management companies typically charge 10% of the property’s monthly rent.

Heirs are not required to accept an inheritance, but they must take legal steps to disclaim it. Most states require the filing of a specific disclaimer, usually within nine months to a year.

“A casual email or letter usually won’t suffice,” said William London, a partner at Kimura London & White LLP in Irvine, California.

A property then skips to the next heir in line. Disclaimers are usually irreversible and must be filed before the heir has gained any benefit from the property.

Questions to ask:

• What are the state or local laws on disclaiming property?
• What is the specific form to disclaim and where do I submit it?
• How much time do I have to submit the form?

Listing a property with a real estate agent is perhaps the most traditional method of parting with real estate. But agents charge commissions, and buyers are usually responsible for paying them.

If you hire an agent, look for one who is familiar with your local market, including neighborhood trends and pricing. Experience and referrals are other factors to consider. What kind of commission are they looking for? How do they market the home on social media and elsewhere?

It once was a typical, but not required, practice for sellers to pay their agent and the buyer's agent, but recent litigation has led to changes and clarifications.

Now, sellers must be informed that they are not required to pay the buyer's agent. If they want to pay the buyer's agent, they can; they just can't say that in the listing description on the Multiple Listing Service. Real estate online marketplaces pull from the MLS feed.

Commissions are not set by law; they are negotiable. They have typically hovered between 5% and 6%, split in some way between the buyer's and seller's agents.

Pro tip: Negotiate the price you’ll pay for the agent's services and shop around.

You can try selling the home yourself, but that can set you up for legal issues and frustration. Only about 7% of sellers chose to list their property on their own, according to the NAR’s 2024 survey.

Also, homes sold with the help of an agent tend to sell for more. The typical for-sale-by-owner home sold for $380,000 compared to $435,000 for agent-assisted transactions, the survey indicated.

More on this topic:

• 12 questions sellers can ask prospective agents
• How to negotiate real estate agent commissions
• Search real estate agents
  

Whether you're tackling a minor fix or a full-scale renovation, home projects can quickly go off track. Choosing the right contractor is essential to protect your investment and avoid costly mistakes.

Real estate agents often have a network of trusted contractors and can connect you with professionals who specialize in distressed property rehabilitations. You can also ask your neighbors and coworkers, and write an ISO, or "in search of," post on your community’s social media pages.

If you see a renovation underway in your neighborhood, check for contractor signs posted at the site. These usually include contact info and can give you a sense of the contractor’s style and professionalism. Knock on the door and ask your neighbors whether they would recommend that contractor again.

Licensed professionals: Always hire contractors who are licensed by your state to perform the specific type of work required. Licensing ensures they meet minimum standards for safety and quality.

Bonded contractors: They have a third-party guarantee backing their work. If they fail to complete the job or meet contractual obligations, the bond can help cover your losses.

Insured contractors: Hiring a contractor with coverage can protect you from liability in on-site accidents.

Questions to ask:

• How much do specific repairs cost?
• How long will it take to complete them?
• What is the payment timeline?
• How does the contractor communicate with clients?
• Can the contractor provide at least five references?
• What provisions does the contractor take to keep the site clean and from keeping dust from spreading to the rest of the home?

Pro tip: Managing a renovation project is difficult for homeowners with no prior experience. Ask yourself how much time and effort you can and will put into the effort.

Pro tip: What could go wrong? The project may hit a snag (you never know when trouble is lurking until you dig in), so set aside 10% to 20% of the total budget as a contingency fund.

Get an early start on decluttering your house before you sell. Consider donating your discards to nonprofit organizations. Some even offer pickup services.

Be sure to understand what kind of items can be donated, what condition they need to be in and how, when and where to leave them out for pickup. Make sure to get a receipt because you may be able to deduct the value of your donation from your taxable income.

Yard sales and leaving items with a "free" sign at the end of your driveway are other alternatives: Your trash can be someone else’s treasure.

Many communities operate dumps or have contracts for disposal services for items too big to leave by your curb. Check with local authorities about the costs and what items aren’t accepted, such as environmentally hazardous materials. If the local dump isn’t an option, contact companies that will haul away your items.

Organize what’s left, packing up what you won't need right away — family photos, out-of-season things, rarely used items like extra linens — and tackle storage areas such as the basement, garage, attic and closets.

You can buy boxes and other supplies from a shipping store like FedEx or UPS or, not surprisingly, at big-box stores. Posting on social media is another way to get boxes and packing materials — for free — from followers who recently moved and are in the process of discarding them.

Here are tips for helping your home look its best from professional stager Gabrielle Hamill of New York City-based Urban Staging:

• Remove personal mementos so buyers will have an easier time imagining that it’s their house.
• New towels, bedding, bathmats and even fresh flowers can make a home stand out.
• Make sure all lightbulbs emit warm light and match in color temperature.
• Set up little vignettes in threes, like two books with a vase of flowers on top, to highlight side tables and bookshelves.
• Make sure any food you have in your kitchen and refrigerator is fresh.
• Tuck away small appliances.

Make sure your home is show-quality for compelling listing photos by a professional photographer. Consider having a 3-D video taken of your home by Matterport, a free service offered to agents on Homes.com. Virtual tours can help a prospective buyer engage with your home. When you sell, you customarily leave behind anything attached to the structure. If you have a wall-mounted TV, you may be expected to leave the bracket because it is considered a fixture of the home. If you want to keep the living room drapes, you'll have to put in an exclusion, so you aren't forced to convey those.
Pro tip: The more you discard, the less you'll have to pay to move.

Questions to ask:

• Is anything in the home a trip hazard?
• Does the home have a smell that needs to be mitigated?

Setting the right price is one of the most important steps in selling a distressed property. Price too high, and the home may sit on the market. Price too low, and you risk leaving money on the table. The goal is to strike a balance between speed and value.

An experienced real estate agent or licensed appraiser can help determine a competitive price by analyzing recent comparable sales in the area and making adjustments for condition, square footage, lot size, etc. They will also consider local market trends and buyer expectations.

This data-driven approach helps ensure your home is priced to move — without underselling its potential.

If you choose to work with an auction house, they’ll recommend a minimum bid — the lowest amount required to trigger a sale. While this may be below your ideal price, flexibility is key in distressed sales.

Auctions can attract cash buyers and speed up the process, but you’ll have less control over the final sale price.

Remember that homes may sell at a breakneck pace in one part of the country but slowly in others.

A search on Homes.com can show you current asking prices and recent sales, down to a specific neighborhood. Your agent will use listing and sales information of other properties in your area within the past six months to do comparisons, or "comps," and come to the right asking price for your property.

You'll also have to determine what kind of seller contingencies you want to place on any offer.

Question to ask:

• How much am I willing to drop the price to sell?

More on this topic:

What to do when you and your agent disagree on your home’s list price

It may be hard to imagine that a certain group of buyers will want a dilapidated or ugly home. But think outside the box.

Home flippers and iBuyers actively look for distressed properties that they can buy at a discount, rehab and sell at a profit. First-time homebuyers may be willing to trade their sweat equity for a low price that enables them to get into the housing market.

Finding the right buyer can take some creativity. Search for “home flippers” on Google or even look for “Sell Your House” signs on streets and at intersections. Contact a local school district or public safety department to see if there are any employees who want to live in the area but can’t afford a freshly renovated house.

Pro tip: Keep an eye out for home-sale signs on the road.

Hawaii-based agent Evan Harlow told Homes.com of a client who had inherited a property that was vacant for more than 10 years. It had no plumbing, a collapsed roof and a lot that was like a mini jungle.

“Traditional buyers weren’t even walking past the front porch. Most lenders wouldn’t touch it,” said Harlow, of Maui Elite Property, a Coldwell Banker affiliate.

Harlow decided to market the property as a financial opportunity. He got quotes for the renovation costs, targeted local home flippers with the home’s before-and-after value, strategically priced the property and had five offers in two weeks.

“The key is to stop trying to sell it as a home for today and market it as the blank canvas it truly is,” he said.

Questions to ask:

• Does my school district have any programs to incentivize teachers living in the community? Will they let me market to them?
• Are there any local real estate investment clubs where flippers congregate?

More on this topic:

Staging: Tips to make your home look its best

Disclose all known problems with the property, even if selling as-is. It’s not just ethical. Concealing a known defect can result in litigation. An as-is clause may hold up in court, but it won’t stop an aggressive attorney from filing a case and dragging it out for a settlement.

A real estate attorney can usually tell you in one meeting what risks you are up against and how you can protect yourself.

A home inspection may be a good investment for not just the home, but for yourself. A trained, certified inspector will be able to find issues a layperson can't, such as outdated electrical wiring and improper renovation work.

Buyers will want to know that you pulled permits on that patio extension several years ago and didn’t build over the neighbor’s property line. Be sure to check with your municipality to ensure there are no outstanding issues, and if you belong to one, your homeowner's association.

Shoppers also want to know who installed the furnace and whether you can furnish service contracts and/or warranties.

Prepare to document the age of your home's major systems — electrical, HVAC, plumbing, etc. A furnace, for example, typically lasts 15 to 20 years, according to HVAC manufacturer Lennox.

Questions to ask:

• How much is a home inspection?
• What is my legal liability for undiscovered defects?

More on this topic:

Understanding seller disclosures

Almost everything is negotiable in real estate, not just the price. Perhaps a buyer is unable to move until the end of the school year. First-time home buyers may need help with closing costs. Throwing in a few simple repairs at no charge can entice buyers. A real estate agent can help you negotiate a contract that works for both parties.

Consider alternative financing for buyers who don’t qualify for traditional loans. In a land contract, for example, the seller extends a loan to the buyer, who pays the seller instead of a bank. An assumable mortgage lets the buyer step in the shoes of a seller and pay the mortgage.

Sellers may want to consider price reductions or other concessions if an inspection turns up major work that must be performed. Waiting for repairs can complicate the tight space between moving out and closing dates.

Questions to ask:

• If there is a mortgage on the property, does it allow for someone other than the seller to pay off the loan?
• Is it feasible to finance the purchase for the buyer?

More on this topic:

• How you can handle multiple offers
• What closing costs does a home seller pay?

Buying a home is the largest purchase some people will make in their lives. It’s a risky transaction, even for properties sold at a discount. Keep that in mind as you wait.

Sales of homes usually peak between February and May, as households plan to settle into a house ahead of the school year. Consider holding off until those months to sell the property.

A 2024 study by real estate analytics firm ATTOM found that homeowners selling in May sold for 9.5% above the property’s market value.

Questions to ask:

• How long am I willing to hold on to the property?
• What steps can I take if it doesn’t sell within my timeline?

Pro tip: Ask these questions before you start dealing with the property, so you don't get burned when you finish.

Selling a house many people would consider a piece of junk isn't as hard as it sounds. And if it's done right, you could walk away with a nice chunk of cash.