The real estate market in Oakland right now can feel pretty schizophrenic right now. There are homes selling in days with multiple offers and others are sitting languishing on the market. The portion of the market that appears to be the most active is the first time home buyers in the lower price points. Many of the buyers are utilizing FHA financing that allows them to put 3.5% down and are also being more conservative about the price point where they are looking.
Right now the market for first time home buyers is brisk. There are lot of properties on the market, but the reality for many of the first time home buyers using FHA financing, purchasing a bank owned property with lots of deferred maintenance is just not an option. There are specific guidelines for FHA financing that requires the property to meet minimum requirements of health and safety before the loan can fund. These leaves a lot of the bank owned properties out of the running.
I am currently working with a buyer using FHA financing. We ran into competition on every house that she was interested in and were outbid on every offers submitted. Finally after submitting a backup offer we were in contract. Things are moving forward and then the appraisal… Even though this property was on the market for only 1 day, and we actually were the back up offer for the property, the property appraised for $70,000 less than the offer price.
The difficulty with appraisals is the appraisers are required to look at the past. What has sold in the last 3-6 months and in this changing market, the appraisals do not always reflect the reality of the current market. In addition the lending community has changed its guidelines to become much more conservative than in years past.
There are solutions to the problem, but typically either the buyer or the seller ends up not being too happy about the situation. The buyer can bring cash to the table to make up the difference. For example if the buyer offered $450,000 for the property but the appraisal came in at $400,000 the buyer would bring $50,000 to escrow to make up the difference between the offer price and the appraisal price. Often times this is not even a viable option.
The other option is the seller could agree to adjust the price from the offer at $450,000 to $400,000. This is usually not a great option for the seller.
One solution is for the buyer and seller to meet in the middle with a price reduction and the buyer bringing some money to the table.
Another option is the buyer and seller agree to call it quits and the buyer moves on and the seller tries to sell to another buyer.
Every situation and every house and every process of buying and selling will be different. It is important to be aware of all the potential issues, take deep breath and see what the best and most viable solution(s) are.
