By Brett Woolley
Author’s email: BrettW76@cox.net
FHA buyers in many cases are first time home buyers seeking both an inexpensive home and the program’s low down payment requirement of 3.5%. As of January 2010 there were approximately 4,700 single family homes in the Phoenix metro area listed for under $100,000. Of these about 30% or 1,401 are foreclosed or “Lender Owned/REO” properties. You would think that the Lender Owned below $100,000 segment of the housing market would be ideal for the FHA buyer (note I am excluding Short Sales from this discussion, see my blog article on Short Sales). Yet the reality is that most foreclosed properties in this price range are very difficult to buy with an FHA loan and end up going to cash investors. In fact, more than half (53%) of the banks currently selling Lender Owned properties below $100,000 refuse to even entertain offers from FHA buyers. The rest of the banks will entertain FHA offers but you clearly have to get in line behind cash and conventional buyers. To complicate things further the below $100,000 market is the hottest and fastest selling segment in the Phoenix area right now. So, what is an FHA buyer to do? You need a new stratgey! Here’s how I recently helped an FHA buyer:
1. Stop looking at homes upfront. This was a new paradigm for me. We were wasting our time (and gas money) looking at all of these REO homes in the traditional way, only to find out they were sold while were standing in them. Instead, we relied on MLS photos and descriptions to make offers, and we toured the home only after the bank expressed interest in our offer and countered us with their contracts.
2. Make multiple offers. Making an offer on one home, waiting for a bank response, then starting over wasn’t working. In the REO world it is common for the bank to collect offers and make multiple counter offers to several buyers at once. So we decided to fight fire with fire by making offers on multiple homes the minute they hit the market. To make these offers we needed a loan pre-qualification letter from the lender with the address and loan amount left blank. With this necessary letter we could fill in the home information over and over and not have to wait for a new letter each time. Our strategy was to keep at least 3-5 offers going at all times including weekends.
3. Make good offers. This part of our strategy really paid off! How do you compete with a cash offer? You have to out bid it. In our market out bidding the cash investors was easy—offer at least the list price! Even though REO homes in AZ have already been severely discounted, the typical cash investor has a garage sale mentality. The garage sale shopper sees a lamp for .25 cents and says “will you take a dime?” Cash investors are the same. Offer list price or be willing to offer a little more and surprise, you beat the low-balling investors and now the bank is interested in your FHA buyer.
I now believe that an FHA buyer can succeed in the Lender Owned market below $100,000. You just have to know exactly where you want to live, and be aggressive in following the preceding steps. If you are thinking of buying a home through FHA, call me and we can discuss a strategy that’s right for you.
Brett Woolley is a professional Buyer’s Agent specializing in helping clients buy homes in the Gilbert, Mesa, Chandler, and Scottsdale AZ areas. Contact Brett at 480-236-2735 for a no-obligation buyer consultation.
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