Life is crazy for an Oakland Realtor these days. I barely have time to wash my hair and take calls from my parents and forget blogging. I'm tired, my body hurts and I need a vacation but I cannot go to bed tonight before I write this update about the market in Oakland and the surrounding areas.
Forget what you're hearing on the news. I'm going to tell you what's REALLY going on for buyers in Oakland's (and partically in other places) real estate market. It can be very difficult for the average buyer to successfully get an offer accepted and close escrow right now. I try to have a meeting with every one of my clients (in person or by phone) during which I explain what the difficulties are and I make sure they don't expect a smooth, short ride. Oh, there are some exceptions and a few people slip through the cracks and have a relatively easy time. But it is difficult, long and stressful for most. And there are some people who, even though they are preapproved, will never be able to make a successful offer. There are three key areas the buyers need to know about if they think they want to buy in the near East Bay right now: Inventory, Lender and Loan Type.
Inventory. With the $8000 tax credit for first time buyers expiring in December and interest rates still relatively low, buyers have flooded the market looking for deals. However, inventory has not kept up with this demand, in fact, it is declining (thanks for showing me this website Mei Ling!) Homeowners are still defaulting on their loans but banks are voluntarily holding off on foreclosing. This is great news for homeowners who are in danger of losing their homes. However, it means that buyers will have a harder time since there are fewer homes on the market and more intense competition.
The 90-day moratorium on foreclosing that was just passed by the State will probably only make things worse for buyers (better for homeowners). However, it appears that many lenders may be able to take advantage of loop holes.
What I'm seeing is a market that looks something like a room full of a hundred hungry dogs roaming around waiting for scraps and then five scraps are dropped in that are immediately pounced on the biggest and strongest dogs. In other words, there are a lot of buyers and their agents all looking for homes in the same neighborhoods and price ranges. Good, and not so good, homes are securing multiple offers in a matter of hours (I heard of one home that had 50 offers after being on the market a short time.). FHA buyers, buyers who are low balling (submitting offers well below asking or comps) and buyers who cannot or will not write offers with very attractive terms are losing out over and over again. FHA buyers and other buyers who are using special assistance programs are unfortunately having a very rough time. Bank owners (and even some non-bank owners) are notorious for preferring non-FHA or cash offers in a multiple offer situation. They'll even select cash or conventional offers that are tens of thousands of dollars (ie $40,000) lower than the FHA offers.
While I don't think it's impossible for my buyers (even the FHA buyers), it is very difficult. I've started employing strategies to find ways to eliminate the competition. (I am absolutely not giving away my secrets or the competition will follow thus making my efforts moot.) They also need to make the strongest offer that they possibly can (not too high or else the house won't appraise). Long contingency periods (you don't really need more than 10 days for inspections for most homes), credits, odd terms, and long escrow periods all make less attractive offers.
Lender. It is absolutely critical for buyers right now to have a good loan officer. Buyers rely on their preapproval to go forward and make an offer. If a loan officer preapproves a buyer for a loan that won't ultimately be approved by underwriting because the loan officer is not aware of the current lending standards, it could cost the buyer their deposit. Additionally, escrows are rocky due to new underwriting and appraisal rules, the loan officer is the only point of contact that buyers and their agents have with the underwriting department. Since banks often require buyers to sign contracts where contingencies automatically expire, instead of allowing buyers to remove them, deposits become unrefundable when these deadlines pass. If the loan officer cannot push things through to get approval or at least get answers, a buyer is in serious jeapardy of losing the house, their deposit and/or possibly being charged $50 to $100 per day for failing to close on time.
A good loan officer is one who works full time. They should be well versed in FHA (if you are going to need an FHA loan) - most lenders just started doing them in the last year since FHA became the main option for buyers who hadn't saved 10% or %20 for a down payment. This person should have a sense of urgency bordering on manic, you should sense that they will pull an all nighter, throw a fit or maybe even call cousin Vinnie for that ...eh hem... favor if it means you'll close on time. They should give you their cell number and call you back quickly (or at least text you or e-mail you to let you know they can't call you right now). Of course, it's a job and they need free time but it needs to be more of an air traffic controller kind of job to them, not an "I'm a retiree working as a greeter at Wal-Mart" kind of job.
Loan Type. FHA buyers are at a huge disadvantage right now. Sellers are overwhelmingly preferring cash buyers or byers with conventional loans. FHA has strict requirements for the property's condition and many times deals fall apart because the property doesn't pass muster or the bank refuses to give the buyer credits or time to fix the problems. Also, FHA buyers are considered less financially secure and more likely to not ultimately qualify for the loan. Lenders often also need a long escrow period due to the time it takes to get an FHA approved appraiser out to the property, to get through underwriting and to address any conditions that the underwriter comes back with. For those reasons, bank owners avoid them.
To be competitive, FHA buyers need the best lender they can find. Bubba from around the way who just took a class on doing FHA loans is not the person you want to be working with right now (although I'm sure Bubba is very nice). The loan officer I use and refer my clients to, John Carnahan of Prospect Mortgage, has the ability (in most cases) to close FHA deals in 30 days or less. He's been doing FHA loans for over 15 years, he knows all of the key people in the company and can get them on the phone in a matter of minutes if necessary. He's competitive and hard working and if you talk to him you'll really believe that he won't rest until your loan is approved and the deal is closed. Not all loan officers can do what John can do but you need someone who's sharp, motivated and a problem solver (there will be problems!)
Whether or not your loan is an FHA loan (of course you will be preapproved before you start looking in earnest), you or your Realtor needs to know how to eye ball a property. I don't care if you have vision, vision isn't going to get your loan approved. FHA and even conventional loans now will not loan money on certain properties with condition issues (see the article I wrote a while back on this). If you don't have the funds to deal with those issues, it's a waste of time to make offers on them. If a house is described as a "fixer," FHA folks and people without the means to address those issues, shouldn't waste their time looking at it. Even homes that "need TLC" should be approached with caution. Have your Realtor call first if there might be an issue before you even go see the home. Missing kitchen and bathroom elements, broken heaters, plumbing and electrical issues that are apparent all will not fly. Even holes in the wall and rickety front or back stairs often won't pass muster. If the house is missing windows or has broken windows or doors, at the very least, arrangements will have to be made for those things to be fixed. Long story short, most first time buyers of modest means will need to avoid any home that doesn't appear to be suitable or safe for immediate move in and full use of all plumbing and electrical systems. Of course, there's the 203k loan but good luck competing with the other 50 offers with that on your offer (yes, even fixers are hot right now when they are priced right).
To summarize, it is not easy to buy a house right now. You should find a Realtor to help you navigate the market (it's free to you) and make sure that you prepare yourself. If you aren't fully committed to the process and/or you aren't financially or otherwise (get preapproved!) prepared, you will spin your wheels and get lost in a sea of hungry pitbulls fighting for scraps.
