FHA Deals: Beware Of The Appraisal
September 30th, 2010 | categories: Coconut Grove Real Estate
I have had several properties on the buying and selling side lately where there was FHA financing involved. For those of you who don’t know, an FHA loan is given by the Federal Housing Administration and is limited to small mortgage loans. The problem with FHA loans is that when the appraisal is done the value they come up with sticks with the property for 6 months. This isn’t a problem if the property appraises, but if it doesn’t appraise then there can be serious consequences for the seller.
Consider this scenario:
- Seller has listed his home for $350,000.
- Buyer and seller agree to a price of $300,000.
- Buyer is getting FHA financing (as most buyers are in this price range).
- Appraiser comes out and gives us a value of $280,000 therefore the bank will not give a loan for more than 96.5% of that amount.
- At this point, the buyer can come up with the extra money, seller can agree to sell for less, they can split the difference or the contract can be cancelled.
- If the buyer and seller cannot agree to make concessions, then this value of $280,000 sticks with the property for the next 6 months for any FHA buyer.
One could argue that the FHA is setting the market in this price range.
In my experience, the buyer and seller have managed to work something out but not without a lot of frustration and heartache.
When buying and selling, please use the services of a knowledgeable, local realtor. It can make all of the difference in the outcome of your purchase or sale. If you are interested in buying, selling, renting or building in the Coconut Grove area please don’t hesitate to contact me on my cell at 305.342.1623 or here.