What is Disposition in Real Estate?
Disposition in real estate is a term that you’re going to hear a lot throughout your career. It’s the kind of phrase that’s thrown around frequently in relation to transactions, investments, and property management. But what is disposition in real estate?
We’ve put together this blog to define disposition in real estate, so you can feel more confident working as an agent, investor, buyer, or seller. By understanding the right of disposition in real estate, you’ll have a better window into the ways it can shape your strategies, as well as the outcomes of various transactions.
What is Disposition in Real Estate?
So what does disposition mean in real estate? Disposition refers to the process of selling or otherwise transferring the ownership of a property. It’s a fairly broad term that encompasses many different types of property sales, including traditional sales, foreclosure sales, short sales, and auction sales.
The disposition process facilitates the transfer of a property from one party to another, regardless of how it takes place. Disposition is a vital element in proper property management and investment strategies, impacting the liquidity of assets and the potential for return on investment.
In short, disposition is the word used whenever a property changes hands, however that may be.
Types of Real Estate Disposition
Real estate disposition can take various forms, each of which has its own unique procedures, legal requirements, benefits, and drawbacks for all the parties involved. We’ve broken down the four most common forms of disposition in real estate, so you can feel confident, regardless of how you plan on getting involved.
1. Traditional Sales
Traditional sales are the most common form of real estate disposition in the industry, with every traditional involving a property owner selling their property to a buyer in a straightforward transaction. Generally, traditional sales will be facilitated by agents, brokers, or wholesalers, while some sellers decide to take the selling into their own hands.
2. Foreclosure Real Estate Sales
Foreclosure sales take place when homeowners fail to make their mortgage or loan payments, allowing the lender to reclaim the property and sell it in an effort to recover the loan amount. Foreclosure sales are often unique opportunities for buyers to purchase properties for less than the market price, as the seller is simply set on getting the property gone.
While foreclosures can sometimes be bought with no down payments, it’s important to be careful when considering making the purchase. Foreclosure homes often come with baggage, such as repair costs and legal complications.
3. Short Sales
Real estate short sales are a form of disposition in which a homeowner sells their property for less than the remaining amount on their mortgage. These sales can only go ahead with the lender’s approval, as it will mean that they’re technically agreeing to accept less than what they’re owed.
Short sales only really come around in the wake of an impending foreclosure, seen by all involved parties as a way to avoid the long, often rather costly process of foreclosing on a home. They’re also a great way for buyers to get a good deal!
4. Auction Sales
Real estate auction sales are much like all auction sales—properties are shown to audiences of interested parties and sold to the highest bidder. Auctions are one of the fastest ways to sell a property, especially due to the fact that they often attract cash buyers willing to buy homes outright.
Auctions will generally occur during foreclosure situations, but there are many other reasons that a seller might choose to auction off their property rather than selling it traditionally.
The Disposition Process
The real estate disposition process involves several steps, with there being some differences between the varying forms described above. We’ve broken down what the process is likely to look like in a traditional sale, the most common form of disposition.
The first step in the process is the seller or their real estate agent conducting a meticulous analysis of the property, along with taking a careful look at the state of the local market. This is when a suitable asking price can be decided upon.
Next up is getting the property out there. This means getting it listed on the market and making efforts to attract potential buyers, such as open houses, traditional advertising, and other lead generation techniques.
Once a potential buyer makes an offer on the property, negotiation can occur. Now the buyer and seller go back and forth until they’ve reached a compromise on the price and terms that they can both agree on.
Inspection and Appraisal:
After the offer has been accepted on both sides, the buyer has to arrange for a property inspection to take place, ensuring nothing’s been hidden or misrepresented. The lender can also arrange for a similar appraisal to take place to get the property’s value pegged down.
After all the terms are agreed upon and all inspections are completed, it’s time to cross the Ts, dot the Is, and close the deal once and for all. This involves the title or deed to the property being transferred from seller to buyer and the buyer paying for the house, whether using cash or across a mortgage plan.
Note: Different steps are involved in foreclosure sales, short sales, and auction sales due to their distinct legal requirements and uniqueness when compared to traditional sales.
So what is disposition in real estate? The answer is pretty simple, really. Any time a property is sold, bought, or seized, disposition has taken place. By understanding disposition in all of its forms, you can enter the buying or selling process with more confidence, along with being better prepared for a career as an agent or investor.
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