So, if I’m generating so much concern and potential negative effects by being involved in political discussion, why do I do it?

It’s very simple: Because, virtually everything that government does has a direct and a substantial impact on the economy and the real estate industry. Consequently, one cannot possibly have an intelligent discussion about the state of any facet of the real estate industry without involving the influence of government, particularly the federal government, in that discussion.

As just one example, the present rate of the unprecedented and tremendous level of borrowing by the federal government directly influences:
1. The reduced availability of credit due to the lower volume of available liquidity (actual dollars in the system available for use); and
2. The cost of credit (interest rates) due to the increasing rate of interest that must be paid by the US government to continually attract buyers of US Treasury Notes & Bonds.

These 2 factors alone prevent private business from both expanding and modernizing; 2 major factors in sustaining existing jobs and creating new, permanent jobs (rather than temp positions, like government Census workers that will be let go in a few months).

These 2 factors also have a direct negative impact on both the ability and willingness of people to buy real estate. Let’s face it; most people have a limited financial ability to pay. So, the higher the interest rates go, the less they’re able to borrow. Then, there’s the matter of “buyer confidence.” When people are fearful for the security of their job, they tend not to make big-ticket purchases, such as a home. Thus, demand for real estate drops, and so do the prices to attract buyers.

Another negative impact from these 2 factors is an increased level of unemployment which creates 2 more subsequent negative events: 1) Higher state taxes to meet the demand for unemployment insurance, and 2) Increased levels of mortgage and other credit defaults.

The 2nd of these 2 subsequent negative events (mortgage defaults) then manifests into yet another major negative event; increased numbers of foreclosed properties due to the inability to pay the mortgage debt due to the lack of employment and lack of employment opportunity.

The increased number of foreclosures results in banks dumping property on the market creating an even greater over-supply than previously existed, which further erodes (water’s down) prices of other properties, which, in turn results in the inability to sell and create liquidity (get cash money) to either pay one’s bills or move on to another place or venture.

As you can see from this little snippet example, the actions and/or inactions of the US federal government play a direct role and cause a major influence on every facet of the real estate industry. Whether it’s single-family residential sales, commercial retail or office leasing, or industrial development; the US federal government is THE major influence.

In the end, I believe it is critically important to inform and to discuss political / economic issues with anyone who wishes to understand them. I also believe, that the better informed and the more they are able to understand the unvarnished political / economic facts that exist, the better prepared they are to make the best financial decisions for themselves.

As for where I fall in the political / economic spectrum, I’ll address that in a future post.

As always, your comments and opinions are welcomed.

As the numbers of sold units, both residential and commercial, have dropped, so have the number of real estate agents; by and large, most of those who have left the industry were primarily the inexperienced and the hangers on. However, those of us who live and breathe real estate have remained; yet, most are not earning at the levels they’re accustomed to, and most are encountering continual and extraordinary frustrations from virtually everywhere – from the incompetent bank asset managers whose average age is 23 years old without a clue as to what the real estate industry is about, to the regulators who pile on requirement after requirement and change them in mid-stream, to the pressures of dealing with sellers who are either so emotionally stressed out that they can’t seem to make any decision (much less a rational one), to the buyers who are trying to see a thousand houses in hopes of saving another $2, and so on.

With the state of the economy, plus all of these pressures, many real estate agents are, themselves, stressed out beyond the normal high level of stress associated with this way of making a living.

Just this week, I closed a transaction in which I was the Buyer’s Agent. Although I’d never had any prior dealing with the Seller’s Agent, he seemed to be a well informed and experienced person, and was quite cooperative throughout the transaction. However, subsequent to the actual closing, he discovered there was an acknowledgement that should have been made by the buyer which was overlooked. So, he sent me an email along with the document for the buyer to sign; this document was required by his company before they would issue his commission check.

Anyway. Upon receiving his email, I read the document (which was perfectly fine). But, instead of assuring him I would obtain the buyer’s signature, and without realizing the possibility that this agent may be pretty stressed out from all of the things we all suffer under, I thought it would be prudent to advise him, that the buyer may not be willing to sign it since the closing had already taken place and there was no benefit to the buyer.

BAD MOVE!!!

Needless to say, and without going into detail, the Seller’s Agent let loose on me in a follow-up email. And, in all fairness, almost immediately after receiving that email, I received another from him apologizing for blasting me.

After thinking about this for a moment, knowing the nature of this person from my dealing with him during the course of this transaction, I realized that this fellow must be under some tremendous stress. I also realized, I should have been more aware of the probability of his emotional state before thoughtlessly blurting out something that may have been true, but not necessarily important to state regarding the potential for the buyer to ignore signing the post-closing acknowledgement.

So, rather than getting all puffed up and insulted, frankly, I felt terrible that I caused this fellow additional and unnecessary stress. So, I sent him back an email and assured him I would see the buyer immediately and would probably be able to get his signature on the document. I also told him, there was no need for him to apologize, because I totally understood his anxiety. I also suggested that he might want to go home early, kick off his shoes, sit back and have a cold one to help him relax.

I can’t tell you how good I felt the next morning when I received an email from this agent, thanking me for understanding. I’m very glad my stupidity didn’t cause permanent damage to our professional relationship; that’s the last thing any of us needs or wants.

The moral of this factual event?

Show compassion for your fellow agent; he/she is under tremendous stress, and neither you nor I should be adding to that stress when there’s probably no need to do so.

Then, some months ago, I saw an interesting trend developing in the subject lines in emails I got from other real estate people; it was the growing number of subject line statements that contained the words, “REDUCED,” and “SHORT SALE”, and “FORECLOSURE”, and “MAKE AND OFFER,” and the like.

After a while, I started noting that a larger and larger percentage of my emails were from real estate sales agents doing email blasts trying to motivate other agents to show their listings. I also noted, that as the percentage of emails with these subject lines from real estate agents grew, so were the number of unsold listings in our multiple listing system.

In fact, by 7:00 AM today, I already received 120 emails, of which about 50 were from real estate agents with the distressful subject lines.

So, what does all of this mean?

Well, if the “Subject Line” statement is any indicator of the state of the local residential real estate market (which it seems to be by correlation with the growing number of unsold listings in our mls), it seems our market area is still in a downward trend.

You might want to give it a try, just for giggles.

I’d like to know if you see any relationship between the number of emails with distressed subject line statements and the number of unsold listings in your market.

I look forward to hearing from you.

Let’s take a common-sense example in economics: When there are 2 items perceived to have equal utility and desirability, the one with the lower price will be in greater demand and achieve more sales (gain wider distribution). That basically sums up the description of the Principle of Substitution. And, anyone who’s gone shopping for anything fully understands this basic economic principle.

Okay, now let’s move on to some basic human behavior. Wait a minute, I believe, that when I just described the Principle of Substitution I also described an example of human behavior. Right?

Of course, I’m right. Because, basic economic principles are merely the written form of observed typical human behavior in economic situations. This fact is borne out in many books, but, in my humble opinion, is best demonstrated in a book entitled, “An Inquiry into the Nature and Causes of the Wealth of Nations.”

That book was written in 1776 by a man named Adam Smith. And, no; he was NOT an economist. Rather, Smith was a Scottish philosopher who wrote his book after years of merely observing and analyzing the behavior of vast numbers of people involved in various types of business transactions.

So, what does all of this have to do with appraising?

EVERYTHING. Because, an appraiser, like Adam Smith, is merely supposed to observe, analyze and understand how people perceive the value of real estate, then translate those observations into words to communicate an opinion of the value most people would place on a given property. Let me give you a typical example.

There’s a 3 bedroom, 2 bath house with a 2-car attached garage in a subdivision of about 60 very similar homes. Now, all are the same age, about the same size (with insignificant variations), and are in the same good condition. And, the subdivision has a very low-traffic volume because there’s only 1 point to go in and out, and there aren’t any thru streets to go anywhere out of the subdivision. So, it’s rather private.

Joe is selling that 3 bedroom, 2 bath house with the 2-car attached garage in that subdivision. He’s not upside down on his mortgage, he’s not behind on his payments, he’s not being forced to sell (except that his wife want to live closer to her mother), and the house is well kept.

Joe hires an agent, and the agent finds a buyer who’s ready, willing and able to buy, already having been qualified for a mortgage. They agree to a price of $139,000, which is subject to an appraised value of the same amount.

KEEP IN MIND, Joe, his agent and the buyer all know, a) there’s only 1 other house for sale in Joe’s subdivision by an owner who’s in serious financial trouble, but can’t sell because he can’t come to terms with his lender, and (more importantly) b) there have been 3 actual sales of very similar homes to Joe’s in his unique subdivision within the past 6-7 months:

1 was sold by the owner who was in the same normal selling situation as Joe who sold his house for $140,000;

1 was sold by an owner who was behind on his payments and trying to sell to avoid foreclosure, but needed the approval of his lender because the sale price was lower than the amount of the mortgage loan; that house also sold for $140,000; and

1 was sold by a bank who foreclosed on the former owner and just wanted to get out from under the loan, and they sold that house $123,500.

COMMON SENSE tells us, that, because Joe is NOT in the position of being FORCED to sell, his house can probably sell for somewhere around the $140,000 mark. Right?

But, here comes Mr. Appraiser, who totally ignores all 3 of the homes sold in Joe’s subdivision, and searches far and wide and uses sales that are in very different and less desirable locations, have all been sold in FORCED SALE situations, and ultimately tells Joe’s buyer that the market value of Joe’s house is $120,000.

Needless to say, Joe isn’t going to be selling his home to this buyer, because, due to the appraised value, this buyer is unable to obtain the mortgage amount necessary to close the transaction. Joe is also faced with the problem, that other buyers also may not be able to get financing in an amount sufficient for him (Joe) to sell his house at the value that he (and, any other reasonable thinking person) should get for his house.

SO, where’s the evidence of this appraiser’s “common-sense” that is supposed to be at the heart of what an appraiser is required to rely upon?

Frankly, folks. This is an absolutely true story of an event that I have just personally observed, first hand. But, sadly, it’s only 1 of seemingly countless occurrences of the idiocy of many in the appraisal industry. And, no, it’s NOT a profession; but, that’s a topic for another post.

I’m sure there are some very good, common-sense appraisers out there in the world. But, I’m just as certain there are far more that are not.

As usual, your comments are welcomed and appreciated.

First and foremost, when the purpose of an appraisal assignment is to form an opinion of the “market value” of a property, the sole purpose and goal of an appraiser is to the value that property using the same considerations and methods that would be used by the typical buyer and seller of that type of property in its market place; thus, the term “MARKET” value.

Consequently, the primary function of the appraiser in this circumstance is to understand how that “typical” market participant views the utility and value of that type of property. This is absolutely essential to be determined, understood and emulated, or the result will likely not reflect the value of that property to the market participants in its market.

A little too deep for you? Then, let me make really simple.

Value is like beauty; it’s in the eye of the beholder.

So, if you’re going report on the social preferences in a certain town, and the typical resident thinks that people with green hair and purple eyes and live on the east side of town are the most beautiful and most successful people in the world, you can’t report that they think the that people who have black hair and green eyes and live on the south side of town are the most successful people in the world.

In real property valuation (just as in the valuation of anything), it is absolutely critical to recognize the valuation method or methods used by the people who actually buy and sell that type of property in that market area.

It’s also generally true, that people who buy real estate for their personal use (an owner occupied property), aren’t particularly concerned with anything except how well the physical attributes of that property satisfy their needs; a/k/a the utility of those physical attribute. Consequently, they will look at the most similar types of real estate uses to the one they’re considering that were most recently bought by other owner-users, then compare them to the property they’re considering in order to get an idea of what they might reasonably be expected to pay to buy that property. (Not rocket science.)

But, what that owner-user buyer WOULDN’T do, is consider the net present value of the income of a property bought by an investor, because 1) the owner-user really doesn’t care since they’re not buying for cash-flow purposes, 2) they probably don’t know how to make such an analysis, and 3) if they do know how to make such an analysis, they will certainly know that using the investment valuation method (in place of the direct comparison valuation method) will give them a different value indication which will be of no use to them.

Now, there are situations where a property owner has a real estate parcel in an area that might be bought by an owner-user, yet has just as reasonable a probability of being bought by an investor. Therefore, in the case where that property owner hires an appraiser to advise how much he should ask for the property, the appraiser would best serve that property owner by providing 2 opinions of value; one opinion as if being sold to an owner-user, and the other as if being sold to an investor. Naturally, this would require the appraiser to develop two valuation methods; the direct comparison method for the owner-user value opinion, and the investment analysis method for the investor value opinion.

Getting back to when I discuss this topic with other appraisers, they say, “Well, I use the direct comparison approach as a check on the investment analysis approach,” or vice versa. To which I respond incredulously saying, “WHAT?!”

Then, I point out, that each of these methods / approaches was designed for use by people who view the use of the same property in two different ways; they have no relationship what ever to each other, so how can one be a check on the other? It’s like saying, “I compared the 0-60 mph performance of a 70 horsepower 2010 Smart Car to that of a 550 horsepower 2010 Lamborghini Gallardo.” Yes, they’re both cars. But, the Smart Car is bought for the purpose of city driving and high gas mileage (rated at 41 mpg highway), while the Lamborghini is bought for speed and sports car performance on the open road. In the end, their are no conclusions one can come to as to the value of either of these cars by comparing one to the other.

I can go on almost forever in discussing my frustrations with those who defend the indefensible use of multiple approaches to form an opinion of the value of a single property under a single use, but, I’ll leave some for future blog posts.

Your comment and/or opinion is welcomed.

An “assumable mortgage” is exactly what it sounds like; it is when a buyer agrees to take over the payments from the seller on the seller’s existing mortgage.

Sounds simple enough, right? And, it is.

Many people don’t know this, but, mortgage assumptions were quite common during the 40± years from the end of WWII right up through the 1980’s. In fact, the federally insured (FHA) and guaranteed (VA) mortgages were legally required to allow for assumption, and many conventional bank loans were also assumable.

During the many mortgage droughts in the 1970’s, as well as during periods of hyper interest rates of nearly 20% in 1980-81, mortgage assumptions were the dominant form of financing residential and commercial real estate transactions. And, if not for the fact that so many mortgages were able to be assumed, there would have been economic chaos similar to our current situation.

Unfortunately, for reasons that are unclear even to me (having underwritten and reviewed literally thousands of residential and commercial loans), lenders have removed assumption clauses on virtually all residential loans. One can only assume, that as interest rates were rising, lenders were unwilling to maintain low interest rate loans when they could earn higher rates on new loans.

Anyway. Here we are in 2010. There are literally hundreds of thousands, if not millions, of actual and potential foreclosures taking place. And, every time a property is foreclosed, that single foreclosed property has a substantial negative impact on the value of the homes in the immediate neighborhood which, in turn, has a negative impact on their surroundings, and so on, and so on. This isn’t to mention, that the lender who forecloses is required to set aside a reserve which takes money away from the amount they can use to make a new loan.

In short, foreclosure has a far more devastating negative economic impact than on just the homeowner who loses their home.

Over the past 2 years, the federal government has come up with gimmick after gimmick to try to create buying activity. They started with the First Time Buyer $8,000 Tax Credit, which had very limited success; then, they extended the 1st Time Buyer Tax Credit and added the Any Buyer $6,500 Tax Credit, which has been even less successful. Now, they’re forcing lenders to negotiate short sales, BUT, only CERTAIN lenders are REQUIRED to comply. Consequently, this, too, will have virtually no beneficial impact on the housing market.

However, there is one thing the federal government may have been able to do that would likely have had substantial success; Require residential mortgage lenders to make their loans assumable. While it’s too late to require lenders to allow assumptions of existing mortgages (because they are an existing legal contract between a lender and a borrower that needs the approval of BOTH parties to change), it can be done for new mortgages as a requirement of obtaining FDIC insurance, and by making it a Securities and Exchange Commission regulatory condition for selling mortgage backed securities in the bond market.

As for existing mortgage loans, the federal government could provide lenders of these mortgages a certain level of assurance, perhaps up to 10% of the outstanding loan balance, for a period of say, 3 years after the loan is assumed, in exchange for the lender making their existing mortgage loans assumable.

Naturally, as an historical condition of assuming a loan, the buyer would have to submit to a credit analysis, and provide the normal proofs of employment, income, and so on. However, there would be no requirement for an appraisal, since the value of the property is not at issue, as there is no new loan to be created. This would shorten the processing time and the time between contract and closing, thereby minimizing the probability of delinquent payments by the existing borrower.

And, if the loan to be assumed is delinquent, a condition of the assumption could be, that all delinquencies are brought current, OR the amount delinquent is rolled into the loan being assumed. In that circumstance, the lender has the opportunity to minimize current losses.

Yet, another feature that could also be incorporated into the federal mortgage loan assurance to provide incentive to lenders of existing mortgage loans to allow them to be assumed, is to hold the original borrower on the note for the (example 3 year) period during which the federal government provides that lender insurance. This was commonly done in the past, and certainly would be worth the trade-off to both the seller/borrower (in saving their credit and financial future) and the lender to avoid foreclosure and all of the substantial associated costs.

If the federal government really has the desire to stimulate the residential real estate market and implement this type of program, and if lenders use good business sense and go along with this type of federal loan guarantee and allow existing mortgage loans to be assumed, this would open up a whole new world of financing that’s already in-place, AND provide buying and selling opportunities that would, in my opinion, substantially increase sales of residential property throughout the US.

I’d like to hear your thoughts on this topic.

But, unlike many east coast and midwest cities that are required by physical obstacles to build vertically, in places like the Phoenix area, aside from the occasional mountain clusters and river beds, the land is relatively level for almost as far as you can see with relatively few physical constraints to prevent development. Consequently, development in these expansive areas, such as “The Valley of the Sun” which started as a small cluster in what’s now known as central Phoenix, has spread out concentrically for more than 30 miles in virtually every direction, and is still growing. The typical pattern of development in this area starts with several major subdivisions of several hundred homes, followed by retail shopping centers at the major intersections, then in-filled with professional offices commonly of the 1-story condo variety.

But, when riding through these areas, you’ll notice there’s a new retail strip or neighborhood center being constructed across the street from an existing retail center. And, it make one wonder, “Where are they going to get tenants to fill this place?”

Well, in some circumstances, there’s a practice called “cannibalism.” This is the practice of building a new retail center, usually containing a retail anchor that’s committed to a lease prior to construction, then going out to the typical national and regional companies and franchises (e.g. Starbucks, Subway, Pizza Hut, Papa John’s, Vitamin Shoppe, etc.), and finally filling the remains with local businesses. It’s at the local business level that the practice of cannibalism usually occurs.

What happens is, the developer or their agent goes out into the local existing retail market area seeking out those in older centers, centers in areas that are no longer being patronized by the mid to upper income people who have moved out of the area into the newly built subdivisions. They approach these local businesses and sell them on the idea they would benefit from being in the new center. And, depending on the developer’s desire and economic circumstance, the developer of the new center may offer certain financial incentives, such as a term of free or reduced rent, or lower cost or certain free built-outs, all to get the tenant to make the move.

So, what frequently happens is, the developer of the new retail center will lure existing tenants from other centers into the new center, which leaves the older center with a vacancy. This is an example of “cannibalism.”

However, when you consider the millions of square feet of new retail shopping centers that have opened over the most recent few years, combined with the declining general economy, it’s not too difficult to understand the economic damage being done to existing retail centers. But, as an unintended consequence of this practice, not only is the existing retail center sector suffering, but so too is the new retail center group.

The problem being encountered by the typical owner of the new retail center is, that his local business that moved from a center in which their business was already known, now (more frequently than not) has to re-establish their business in the new center; this is just like being a start-up for many of these businesses. Consequently, many of these local businesses are failing to make enough money to pay the rent, and are closing.

So, now what we are seeing, is growing vacancy in both the older retail centers as the result of tenancies being lured into new centers, and growing vacancy in new centers due to the failure of many of those relocated businesses.

What’s that saying? What goes around, comes around?

Anyway, feeling a bit guilty about not going to the meeting, I gave him a call yesterday and we met for lunch. Not one of those fancy 3 Martini lunches that many people envision when they think of real estate agents getting together. No, we had a couple of $1 meals and a glass of water at a local McDonalds. Regardless, it was good to see my old friend.

Anyway, after catching up on family and personal stuff, the subject inevitably turned to business; more accurately, the absence of business. We both observed there is a virtual absence of financing for commercial deals, as well as a massive and growing backlog inventory, especially the rapidly exploding inventory of properties where the owner is upside down on their value to debt.

We talked about the undesirability of dealing with short sales because of the problems caused by the lenders; they’re either unprepared, unable or unwilling to pull the trigger on making a decision on a deal in a reasonable time frame, etc., etc., etc. We also talked about the growing problem of the increasing number of brokers and agents who aren’t making enough money to pay their business overhead AND their personal expenses; and, that the number of companies and active agents are dropping faster and in greater numbers than Democrats not seeking re-election.

Then, we got to speculating; What would WE do if we were placed in that position? That’s when the atmosphere became both hysterically funny, yet somehow scary.

My friend had no idea of what else he would do, since he never really gave it any thought.

As for me, I have a great diversity of real estate related experience, so I really never gave it much thought either. But, pressing myself into that imaginary circumstance, I said, flippantly, “Well, I could always go back to music,” which startled my buddy.

I explained to him, that in my youth, I was actually something of a rock ‘n roll “star.” I was a professional musician and singer since the time I was about 13 years old, made my first commercial recording at the age of 14 years old, and became a full-time professional musician at 18 years old. I worked as a studio musician for a production group in New York that produced a number of top 10 and top 20 hit rock ‘n roll songs during the 1960’s and beyond.

This information shocked my buddy, who always thought of me as a real estate geek; a guy who analyzes income & expense statements, writes leases and sales contracts, does marketing stuff, and the like. He never imagined me as a long-haired music freak (Probably because I don’t have much hair left, and it certainly isn’t long, anymore).

But, all this personal stuff aside and turning to a more serious tone, we acknowledged, there are lots of real estate people who are not in the business anymore, and many more who are going to leave the industry because they just won’t be able to survive financially. And, recognizing the coming tsunami of commercial foreclosures, we came away from our lunch with a bit more subdued outlook, and that terrible question facing numerous real estate agents . . .

So, what do we do, now?

Anyway, during the depths of that (not so) “great” recession, interest rates were in the 16-18% range, and sales were very few and far between; pretty much like now. And, there was a joke going around those of us committed, full-time real estate brokers that went like this:

In June a mortgage rep went into a broker’s office and asked him if he had any deals that the rep could provide mortgage financing for. The broker, looking down at his desk and shaking his head replied, “I only had one deal this month, and the guy has his own financing.” With that, the mortgage rep bid the broker farewell saying, “I’ll stop back next month.”

The next month, in July, the mortgage rep came back, as promised, and asked the broker if he had any deal that he needed financing for. The broker, again looking down at his desk and shaking his head, said, “This month was even worse than last month.” So, the rep again bid the broker farewell saying, “I’ll stop back next month.”

The next month, in August, the mortgage rep came back again, as promised, and asked the broker if he had any deal that he needed financing for. The broker, again looking down at his desk and shaking his head, said, “This month was even worse than last month.” With this, the rep said, “I think you’re pulling my leg. Last month you didn’t have any deals at all. So, how can this month be worse than last month?” The broker, looking up at the rep with a sad look on his face, replied, “Remember that deal I had back in June . . .?”

Back to today’s dilemma, I was speaking to a few super agents I’ve known for over 30 years who work in the central New Jersey market (Middlesex, Union County areas). A couple of them are people who work for the largest independent brokerage in Middlesex County, who were born and raised in the local communities, are very high profile and have very strong community ties for decades.

Last week, one of these folks told me, that business is the worst he’s ever seen. He went on to say, that worse than the current situation, he doesn’t see any reason to believe there will be an improvement at any time in the future. He says, people are losing their jobs, those that have them are afraid to make a move for fear they won’t have a job to support a move, and they don’t want to wind up like others they know who are losing their homes as a result of losing their jobs. This is from a guy whom I’ve always regarded an eternal optimist.

Day before yesterday, the other person told me, “It’s so bad, I had one sale in November and it hasn’t closed yet.” He went on to explain, “I haven’t had to advertise to promote myself in the last 15 years. But, things are so bad, I’m taking out ads in local weekly’s to remind people I’m still here and want their business.” He went on to say, he, too, saw nothing in the present state of the general economy that makes him hopeful that sales will increase at any time in the future.

Yet, a third person, an active full-timers who’s owned his own brokerage in the same exact location in an historically very desirable and very active real estate area since 1969 has averaged less than 1 sale per month over the last 6 months. He, too, is convinced, that there will be no increase in sales until and unless people start to feel more confident about their economic future. He believes that “justified fear” is causing people to stand still and protect what they have, and preventing them from making any moves.

Well, folks, I hope that those of you who voted for “Hope & Change” are willing to understand, that the federal government cannot either create jobs or spend our way out of this negative economic circumstance.

Frankly, there’s been plenty of “Change” under the new administration (and, none of it good), but there doesn’t seem to be much “Hope.”

In short, FHA has apparently come to realize they are now the primary mortgage source for the majority of current home buyers. They have also seemingly come to recognize the fact, that to continue their 90-day seasoning requirement is only exacerbating the depressed housing market, since that rule prevents buyers from absorbing the homes being bought and renovated for resale by small investors.

However, there are a number of conditions that must be met; none of which seem particularly unreasonable.

For homes bought within 90 days of resale (whether or not bought at foreclosure auction) and being resold for more than 20% of that purchase price, there is a burden on the seller to justify the price / value increase. This can be done by 1) having the buyer’s lender obtain at least 2 appraisals (from 2 different appraisers) that might justify the higher price through market value evidence, or 2) by having the seller provide documented evidence (receipts, etc.) showing that the seller made various renovations or repairs, or 3) a combination of both of these processes.

Another important requirement related to homes being bought within 90-days of their last purchase, is that THE LENDER IS REQUIRED to obtain a home inspection to determine the quality of the home. The home inspection must address all major mechanical systems (plumbing, HVAC, etc.), electrical system, roof, structure, as well as all interior and exterior building components, etc.

It’s important to understand that 1) the home inspection to be ordered by the lender is NOT AN OPTION, and 2) the lender is allowed to recover the expense of the home inspection from the buyer.

Now, while there are various other criteria that must be met (e.g. 1) All transactions must be arm’s length, 2) The house has to have been publicly marketed thru an MLS, or various advertising, and 3) Title must actually be held in the name of the seller, etc.), this Waiver does not seem to contain any requirements that are either unreasonable or difficult to meet.

As Mr. Spock would say, “Go forth and prosper.”