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LISTING AGENTS BEWARE! THE FHA BUYER PURCHASE TRICK!

By Satar Naghshineh

Real Estate Broker/Owner with Satar - Amiri Property and Financial Services Corp.

October 07, 2009 03:35 PM

LISTING AGENTS BEWARE! THE FHA BUYER PURCHASE TRICK!

This also could be titled "How to secure a home for a FHA buyer!". This blog is about housing markets where competition among starter and low end homes is fierce.

So there is a property that is listed at 390k. Low end comps at 380k and high end comps at 400k. The FHA buyer's agent makes an offer for 410k!

Wow, that is just great and your clients get excited. Ignoring the lower offers that the conventional and cash strong buyers gave, you enter into contract with this FHA buyer as it will net your clients more....or NOT!

Guess what, the appraisal comes back at 395k. The FHA buyers do not have more than the 3.5% needed to get the loan. So they re-negotiate the purchase contract at some number (usually appraisal price) and proceed to close at the lower price.

So what has this FHA buyer done?:

1. They eliminated competition.

2. They eventually got the property at or near appraised value.

Make sure that the FHA buyers you come across have more than 3.5% down and are willing to waive the loan and/or appraisal contingency upfront (if they exists).

Have you guys seen this? I've seen it on the listing side and buyer's side as we compete in our local market against other buyer agents.

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Jean Hanley

Coldwell Banker Kivett Teeters - Hemet, CA

Specializing in Folks Who Want To Buy/Sell Homes

In my area this seems to be done a lot. I hate it. It is just a game that agents are participating in with their clients, and in my opinion, these agents are basically commiting fraud.

Oct 07, 2009 03:40 PM

Kate Bourland

Marketing with Kate - Redding, CA

Onlilne Marketing Mobile Marketing

hmmm,this site is so valuable. I can see it from both sides of the coin. It would be frustrating though

Oct 07, 2009 04:09 PM

Satar Naghshineh

Satar - Amiri Property and Financial Services Corp. - Irvine, CA

Hi Jean - It does make things difficult, especially when you are dealing with a new or unsuspecting agent. However, I can't see the fraud aspect as the seller eventually agrees to the new purchase price. Care to elaborate? Thanks for commenting. By the way, if you don't know me by now, I do not take offense to opposing views so feel free to comment.

Kate - Absolutely! Thanks for commenting.

Oct 08, 2009 10:20 AM

Christine McInerney

Great Life RE - Knoxville, TN

The McInerney Team, Knoxville TN Homes For Sale

I have not seen this. However, how could they waive the appraisal contingency? Our FHA addendums say that the home must apprasise at purchase price for the loan to go through.

Oct 08, 2009 01:57 PM

Thanks for the comment. I have no idea as I was not aware of this requirement. The irony of this blog is that I learned that my partner's client lost a bid on a property to an FHA buyer yesterday. The FHA buyer was willing to waive the appraisal contingency so the listing agent went with their offer. So you are saying if it doesn't appraise, the buyer's can't make up the difference?

Oct 09, 2009 01:20 AM

Christine - I asked my FHA broker the following question:

"If I put an offer for 300k and the appraised value comes back at 290k, can the FHA buyers come up with 10k cash to make the loan work?"

The answer she gave was "Absolutely yes".

Oct 09, 2009 09:06 AM

1~Judi Barrett

Integrity Real Estate Services 116 SE AVE N, Idabel, OK 74745 - Idabel, OK

BS Ed, Integrity Real Estate Services -IDABEL OK

Interesting... have not seen this here. Just never know what I'm going to read about on AR.

Oct 10, 2009 12:57 PM

Judi - Thanks for stopping by. It happens a lot here. The FHA buyer agents are competing against cash buyers for starter homes. The FHA buyers are trying to buy to live and the investors are buying for income properties.

Oct 10, 2009 01:07 PM

Brian Brumpton

Keller Williams Boise - Boise, ID

Boise Idaho Real Estate

Satar,

This is the first I've read about this. I wouldn't advise my buyers to buy a home that didn't appraise at value. Even a conventional buyer would probably have reservations in this market about doing so.

It may be different if it were a dream home that's not going to come on the market ever again and they planned to stay there the rest of their lives but those are few and far between.

Oct 11, 2009 01:57 AM

Thanks Brian for the comment. Every market is different and in my area (Orange County, CA) we are seeing competition for homes under 500k. Also, the trick is to use the appraisal to renegotiate the purchase price.

Oct 11, 2009 06:11 AM

Chris Olsen

Olsen Ziegler Realty - Cleveland, OH

Broker Owner Cleveland Ohio Real Estate

Hi Satar -- This seems very shrewd for an unwitting listing agent and seller. If it appraised, I guess the FHA buyer would be stuck overpaying?

Oct 12, 2009 11:45 AM

Yes it is. If it does appraise and since they are putting only 3.5% down, that means only a $700 difference in this example. Thanks for stopping by and commenting. it is appreciated.

Oct 12, 2009 01:41 PM

Elizabeth Weintraub Sacramento Broker

Elizabeth Anne Weintraub, Broker - Sacramento, CA

Put 40 years of experience to work for you

I have. I have gone back to the buyer's agent and told them to lower their offer. Yup, lower it. I tell them we'll hang in there with that FHA buyer but the offer has to meet the appraisal. The buyers are thrilled, my sellers get a solid buyer, and the thing closes.

Oct 16, 2009 02:30 AM

Thanks for the comment. Just to make it clear for that don't know you, you are doing this on your short sales and not on your regular listings. I do the same on all my short sales!

Oct 16, 2009 03:48 AM

Jon Zolsky, Daytona Beach, FL

Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL

Buy Daytona condos for heavenly good prices

I think there wold be no difference here whether the financing is FHA or conventinal. If the appraisal does not come at the contract price, the Buyer can walk away, or renegotiate the deal

Oct 21, 2009 06:47 PM

I agree completely! The logic behind this is that a seller given two purchase offers where the purchase price is the same, will lean more to the conventional loan than the FHA loan. So the FHA buyer needs to be more creative.

Oct 21, 2009 07:02 PM

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