Low Interest Rates + First Time Buyer Incentives = Home Does Not Appraise

Real Estate Agent with Pacific Union Real Estate

I am in the Bay Area - primarily Berkeley and Oakland.  We have been experiencing a new twist in this interesting market place for the past three weeks.  We are again seeing multiple offers - real multiple offers.  I have been involved from the Buyers side in two situations with 10 offers during this time period.

The scenario seems to be that first time Buyers - supplemented by artificially low interest rates and first time buyer incentives - are bidding to a point where homes are going into contract for 5-10% more than the same home would have sold for in February or March. 

Then along come the appraisers.  There are no comparables within the past 3 months to support the contract price and the appraisal comes in below what a number of the offering buyers would have been willing to pay. 

Result: the Seller has to re-negotiate.  Result: Buyers need to have more than 20% down to have their offer accepted.


Comments (4)

Not a real person
San Diego, CA

We're seeing the same thing down here, but I'm curious as to why you think they are "artificially low interest rates." How can interest rates be "artificial"? Do you mean "historically low interest rates"?

Jun 27, 2009 03:00 AM
Chris Cohn
Pacific Union Real Estate - Berkeley, CA
Berkeley California Real Estate

What I mean by "artificial" is that I believe that the Fed bail out money is what is making the rates low (and loans possible), but I think the system would be more in balance if the interest rates were less low.  Buyers are basing the purchase price on their loan payments rather than thinking about the state of the economy and some sense of the "real value" of the property.

Jun 27, 2009 05:22 AM
Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Gotta love those appraisers.  No requirement under the new regs for them to have any local knowledge.  But why 20% down, when you can get FHA for 3.5% down?

Jun 27, 2009 06:15 AM
Chris Cohn
Pacific Union Real Estate - Berkeley, CA
Berkeley California Real Estate

The Berkeley, CA market has not traditionally used FHA financing and it is hard to get an offer accepted with an FHA loan, particularly in a multiple offer situation.  What is happening is that offers are often getting countered with a provision that the Buyer will accept an appraisal at less than purchase price and make up the difference in cash.

Jun 27, 2009 06:27 AM