Advice for FSBO

April 10, 2011 1:34 PM

Help understanding implications of the condo I want to sell by owner being not FHA compliant? Also, does it make sense to get an independent appraisal?

We're trying to reduce debts and getting ready to sell our condo. Its in good shape, in a desirable neighborhood and we're above water (we owe around $225k and consensus on value seems to be $325k).

However, the building is less than 50% owner-occupied. I understand this means the buyer won't be eligible for an FHA loan, which if I understand means that the buyer will have to put down the full 20% down payment, which really reduces the potential number of buyers.

I would like to sell by owner, rather than using an agent, but am looking for some suggestions on how to best manage this issue.

Also, it was suggested that I get an independent appraisal, like the one that will be required by the bank for any mortgage, to use as the basis for setting the price, and possibly even share this appraisal value with potential buyers. Does this seem like a good strategy?

posted by RandlePatrickMcMurphy to Home & Garden (3 answers total)

Regardless of how you sell, there isn't really a way to manage the issue of your condo building being less than 50% owner-occupied; in many cities in the U.S., less than 70% owner-occupancy will take your building off the FHA "list," or buildings where 25% or more units in foreclosure or underwater but NOT in foreclosure will take the building off the list. Also, every lender is different.

But it's not your job to manage the issue. If you're doing FSBO, it's your job to manage buyer perception of your condo, not buyer expectations of your condo. Your job is to make potential buyers fall in love with your condo. That's it. When someone applies to buy, they'll talk to their lender, you'll interact with their lender to let them know those relevant facts, and the lender will tell them they're not eligible for a FHA loan.

What you don't want to do is put that information right out there for all to see, because as you mention, it reduces the number of people who will even look at your unit. There are a lot of reasons why a condo wouldn't be on the FHA "list," and owner-occupancy of the building is only one. You don't want potential buyers to jump to any conclusions, and if someone who doesn't have 20% down reeeeeeallllly loves your condo, you don't know what kind of things they can or will do to obtain it after they've fallen in love with it.

It's probably not necessary to get an independent appraisal to share with potential buyers unless you're truly not sure of where to set your price. If you set a fair price, the potential buyer is going to get an appraisal anyway, and will soon learn whether your price is fair or not.
posted by juniperesque at 2:29 PM on April 10, 2011

I'm not a realtor, so others with more experience might correct me. Different loans require different down payments. FHA is generally the lowest amount, 3.5%. But it's a slower process, so some sellers won't even consider FHA buyers unless the offer is much higher. My realtor knew a non-FHA lender who would take 5% and several who would do 10% loans. So I don't think it's 20% across the board outside of FHA, but the situation has been changing since I bought.

What you want to look at in setting the price are the sales prices for comparable properties in the neighborhood. You can start to get a sense of that from some online sources (Zillow, Trulia, Redfin), but an appraisal would do that more systematically. I wonder whether disclosure laws would mean that you'd legally have to share the appraisal if you got it. On preview, juniperesque's opinion that you don't have to get an independent appraisal reinforces my hunch that it's overkill.
posted by slidell at 2:38 PM on April 10, 2011

Yup, it's not your problem, it's your potential buyer's problem. Lots of loans have crazy terms in them, and it's not up to you to be proactive in describing every feature of your home that might be salient to a buyer. (How could you possibly know all of them?) If they need to know something about the unit, they'll ask, and you (or your realtor, if you go that route) can answer those questions as they come.
posted by Mayor West at 4:45 AM on April 11, 2011