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When buying a foreclosure (REO), there are many things that can happen. God willing, it is a smooth and uneventful transaction except for the celebration at the end. However, there are some things that can sabotage a transaction. These tricks below are part of the counseling I give my buyers when entertaining the idea of making an offer on a REO. Then there is the therapy that follows.

It is probable that your REO purchase will be successful. Being aware of these tricks can make purchasing a REO a HIGHLY probable success.

1. Dear REO Buyer, cash is King and time is cash. More down payment and shorter escrow. That motivates a bank.
2. Dear REO Buyer, don’t expect a humane or rational person on the seller’s side. You have a modicum of emotion involved whereas the banks do not.
3. Dear REO Buyer, don’t expect to low-ball an REO unless you perfect #1 above. But don’t forget #2 above.
4. Dear REO Buyer, your new home value may decrease or flat-line for the foreseeable future. Don’t get cold feet. Your timing may still prove to be better than the rest. We know that’s true for many who are in distress today.
5. Dear REO Buyer, minimize the number of times you re-negotiate any terms.
6. Dear REO Buyer, prepare yourself for a frenzy of competition. Your alternatives are Short Sales and once that hook is baited (Active Short Contingent), it’s a waiting game with [probably] a single worm (offer).
7. Dear REO Buyer, prepare yourself for possible lending, regulatory or consumer protection changes during the process. Our government is continually corrupting the supply and demand forces. Be well-connected to me and your lender.
8. Dear REO Buyer, you should have a MLS client portal at a minimum. Because new listings move so quickly, you may want to use my MLS Search tool that can show you intraday status changes and new possibilities.
9. Dear REO Buyer, you should understand the recent activity and supply in your target area. From my Communities web page, you can get a lot of information about and listings in Sacramento, El Dorado, and Placer County areas like Fair Oaks, Orangevale, Granite Bay, Carmichael, Citrus Heights, Gold River, Rocklin, Roseville and many more.
10. Dear REO Buyer, trust your Realtor and lender. Hire the team members that support YOUR priorities but guide you toward success, not more stress. Hire me.

There is a bulk of pent-up demand called “first-time FHA buyers”. These were the buyers that missed the opportunities over the last 8-10 months. All-cash buyers were and still are scooping up properties. These deserving and excited newbie buyers are learning the cash lesson the hard way.

But it shouldn’t last for long. (We’ve been saying that for at least 3 months now.)

Major indicators through August 2009

The magic “Swing indicator” numbers for September are 38—9—7. That means 70% of the 54 zip-codes and Counties tracked had a momentum “UP tick” in September.

1 – Existing Home Sales: The number of sales and the momentum has been heading lower for months. It’s a funny thing about sales; you need product to sell.

2 – REO Sales: This number usually moves in parallel to the previous data point and since supply has been low, so have sales and the REO proportion of those sales. We are seeing a slow release of new homes but it seems not enough to satisfy demand.

3a – Median Price (Sac Cnty): A commodity trader would say “seems like some resistance at the $180K level”. The momentum is also showing an elbow at this relative bottom. Here again we see the outcome of a higher demand than supply. That causes prices to increase.

3b – Median Price (ED Cnty): El Dorado County has fewer homes, a wider range of prices and demand, and has shown less of an abrupt loss in value compared to Sacramento. The momentum has flat-lined but it’s hard to tell whether there will be another dip. This too will depend on demand and supply in the coming 12 months.

3c – Median Price (PL Cnty): Placer County has many newer developments that have kept the prices a bit higher compared to Sacramento. The momentum is showing some bounce.

3 – Median Price (3 Cnty): This chart shows the choppy past in El Dorado which speaks to the variety and range of prices. Sacramento is much smoother merely due to the population of sold homes.

4 – Notices of Default: The number of notices sent over the last 5 months has decreased but that may be an outcome of the moratoria and lender process snafus. Since a NOD becomes a NOTS (foreclosure) over 90% of the time, this advance data point is also indicative of the foreclosure rate.

5 – New Home Permits: It’s too bad that most builders do not see a profit at the current price levels since it is supply we need. But we don’t need more McMansions. Many builders are in distress with stalled developments and empty lots. It will take a lot to get these builders back in the game.

6 – Mortgage Rate: The rate you can currently get as a buyer is almost a commodity itself. Think how valuable your rate will be when inflation hits and rates climb to 7% and above. Keep in mind that a loss in value over the next 12 months should be mitigated by getting a historically low rate today.

7 – Momentum Swings: This is my favorite indicator. The current reading is 38-9-7. That means 38 of the 54 zip codes had a momentum increase in the current month; 9 of them were unchanged from the prior month; and 7 of them had decreases. The chart shows the oscillating heartbeat of the market as well as many other facts that can be seen (e.g., Mar 2004, Mar 2005).

Zip Code price indicators (preliminary) through September 2009

There are 50+ zip codes tracked in my system. To review them in aggregate, go to my Communities web page (http://JayEmerson.com/Communities.asp). This page shows a summary of areas, prices, and then individual links to the specific community where you can see more information including Rental Surveys.

Keep in mind that all of the momentum changes are reflected in the Momentum Swings indicator.

Commentary through today
The sun is setting earlier each day which usually has a dampening effect on the market. Activity is indeed slowing down. The phones are getting a little quiet. Buyers are aware that their available matches are slowly coming onto the market. Supply is coming slower than the appetite (“demand”). The good homes are sought by many others. It is a poker game and the dealer may not be human.

Who knows what the banks are going to do and when. That’s not a question. If Notices of Default (NODs) tell us anything, there is quite a logjam in the foreclosure pipeline.

For this reason, we may be experiencing a corrupted market. Do you think?

There is still demand though. Most if not all of our office listings are Pending or Active Short Contingent. Supply is up a little but as my clients know, it requires a PhD in Patience right now. Money is available and many buyers are trying to beat the tax credit deadline which increases the stress levels since most of the listings are Short Sales. Whether Congress extends or modifies that “carrot” or not is yet to be seen. And whether lenders start approving short sale offers (doing “un-loans”) in less than 15 days, the currently enacted tax credit is already at its sun set.

Here are the unknown forces that will have a bearing on the market in the coming months:

• Will demand absorb new supply as it is released?
• Will lenders continue approving short sales to avoid the foreclosure process?
• Will the tax credit get extended and/or improved?
• Will inflation completely ruin the market?
• Will political knee-jerk reactions keep us from hitting the real bottom?

There are many questions. What these charts CANNOT tell us is whether YOU are poised to get a new home or real estate investment. I can help you discover your readiness. Best of all, my consultation for you comes with the knowledge of these indicators.

Don’t read just one chart and assume you can understand the entire market. Your interpretations may even be different or more correct than mine. Please share.

There are no saviors except time and a functioning market. But a functioning market cannot be continually corrupted by short-sighted politicians.

(This is also posted at my website: http://JayEmerson.com/Indicators.asp)

If you are reading this and are trying to determine your options as a distressed or otherwise anxious borrower/homeowner, then please continue reading. If you have no use for information to help normal humans in this market, you can stop here.

Since you are still reading, let me begin by stating a truth: Sellers who qualify as humans in today’s market have a special place in my heart. Banks are making most of the seller’s decisions today. REOs and Short Sales both bring banks. These are not banks giving loans, though. They are banks “un-lending”. Click here to read my Short Sale Primer. It is a great source of information.

These tricks are seldom discussed except with my sellers. There is a lot of coaching and therapy required from a Realtor (especially in California). These are nuggets of wisdom that, God willing, can help you or someone in a stressful situation.

1. The sooner you can get a bonafide offer to the bank, the sooner they will respond to either a loan modification or short sale approval. Determine a fair market price, get a sign in the yard and get it listed on the MLS. Utilize my Communities web page to determine activity, home prices, and even average rents for many of the areas in Sacramento, El Dorado, and Placer County.

2. Having multiple lenders or mortgage insurance (MI) doesn’t ALWAYS mean there will be a promissory note required. Too many sellers (and Realtors) just give up. A good Realtor knows how to avert or overcome this situation. But don’t ever sign a promissory note.

3. Discuss your options with legal counsel prior to commencing any action beyond your lender request for assistance. This is a small 1-hour fee compared to the peace of mind it will give you. Plus, I am not a lawyer; I only PLAY one on TV. If you want a suggested real estate attorney, please ask.

4. If you are an investor: MANAGE YOUR TENANTS!!! Know Tenant’s Rights. Taking rent but withholding mortgage payments can be a felony. If the property in question is a rental, it is still possible to get an approval.

5. Keep the buyer in the game with frequent contact and schmoozing.

6. Make it true in your case that owner-occupied short sale listings are better maintained and more move-in ready than REOs.

7. Don’t let your Realtor talk you into countering an offer unless pieces are missing. If it’s an absurd offer, reject it. Otherwise, sign and send it to the bank.

8. Let your Realtor continue marketing your home after the first offer is submitted. The odds are high that the first (and second) buyer will not last through the banks’ “un-lending” process.

9. Don’t let taxes, utilities, insurance, or HOA dues become delinquent. THOSE can kill a deal quickly. But you won’t find out until it’s too late.

With these 9 things in mind, a homeowner is closer to “coach-able”. If you are in this situation or expect it will arise, call me soon. Actually, call your lender first. Then call me.

Short Sale Impact on Seller’s Credit

It’s not as true any more that a seller be in default to get an approval. If seller stays current, their credit-worthiness may help them buy again very soon.

Don’t stop paying. Call me ASAP.

Jay - 916-517-9606

The magic “Swing indicator” numbers for July are 37—14—3.  That means almost 69% of the 54 zip-codes and Counties tracked had a median price momentum “UP tick” in July.  Going back to 1998… (read the rest here)For the 50+ zip codes I track, the Community web pages have been updated with home price, price momentum, and rent survey information…  (see the rest here)

Like me, many of you wonder “what the FHA appraiser will see that I/we/you don’t see”.  Here is a summary of what they look for…

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At-A-Glance FHA Home Requirements

Realtors and home buyers are always wondering what standard FHA Aprraisers use when approving or rejecting a home for FHA financing. The following information was the “FHA Guidebook for Appraisers.” The following is a quick list of many common reasons for a home’s rejection by an FHA Appraiser.

CRAWL SPACE

·         •Must have access to all of the crawl space areas.·         •Major water build-up in the crawl space is not allowed and must be remedied.·         •Any areas of wood rot must be removed and repaired.·         •Ventilation & vapor barrier are required.·         •At least 18″ clearance is required from the floor joist to the ground.·         •If the crawl space has been dug out, the earth cannot be disturbed within 1 foot of the stemwall or pier supports. If the earth has been disturbed, then a retaining wall should be installed.·         •If a sump pump is used, it MUST be hard wired. Extension cord hook-ups are an extreme safety hazard and cannot be used.

ATTIC SPACE

·         Access must be provided (except where there is no attic space such as with some vaulted ceilings or in mobile homes).·         The attic access opening cannot be smaller than 14″ x 22″.·         Attic must be adequately ventilated, providing positive airflow with no dead airspace.

ROOFING MATERIAL

·         •The roof must have at least 3 years of remaining life.·         •Estimated life expectancies:ü  Rolled roofing…………………. NOT acceptable for FHA. ü  Composition roofs………….. average life 15-20 years ü  Wood shingle…………………. average life 16-22 years ü  Built-up roofs………………….. average life 10-13 years ü  Torch down roofs……………. acceptable w/certification that roof was installed
 ………………………………………. per manufacturer’s specifications. ü  Metal roofs……………………… acceptable w/certification that roof was installed
 ………………………………………. per manufacturer’s specifications.

·         Roofing on slopes of 2 1/2:12 or less MUST be installed by a licensed roofer using built-up roofing that meets the Uniform Building Code. Rolled roofing is not acceptable.·         FHA will accept a maximum of 3 layers of roofing material. If more than two layers of roofing exist and re-roofing is required, all of the old roofing must be removed as part of the re-roofing. The placement of composition shingles over wood shake shingles is not acceptable.

ELECTRICAL

·         A single main shut-off breaker is required.·         If more than one breaker must be tripped to disconnect the power, a new service panel is required.·         The main service must be at least 100 amp. If it is less, a new service is required.NOTE: These electrical requirements eliminate most pre-1960 homes that have not had an electrical upgrade. If FHA is the only financing option, then a 203K program should be considered to finance the improvement.

HEATING

·         The heating and cooling system must have at least 2 years of remaining life.·         Wood stoves or solar heating are not acceptable as the sole heat source. NOTE: Coal or wood stoves with automatic stokers are acceptable.NOTE: These heating requirements may eliminate most pre-1960 homes that have not had a heating system upgrade. If FHA is the only financing option, then a 203K program should be considered to finance the improvement.

HOT WATER HEATER

·         MUST have an installed Safety Release Valve (SRV).·         The SRV must have a discharge line that drains to the outside of the home. It cannot be reduced in size from the valve outlet. In the case of a basement installation with a drain the discharge line must exhaust 6″ to 24″ from the floor.NOTE: The Safety Release Valve upgrade is usually under $20 for the valve plus installation.

LEAD-BASED PAINT

·         All properties built prior to 1978 should be considered as target housing for lead-based paint hazards. Defective peeling/flaking paint on any interior or exterior surface must be identified and repaired following the EPA guidelines.

SEPTIC SYSTEMS

·         Homes with septic systems are acceptable.·         Evidence of septic tank pumping within the last 5 years is required.

WINDOWS FOR SLEEPING ROOMS

·         Escape or rescue windows shall have a minimum net clear openable area of 5.7 square feet. The minimum net clear openable height is 24″ and width is 20″. The maximum escape window sill height is 44″.NOTE: These window egress requirements may eliminate most pre-1960 homes that have not had a window upgrade. Small basement windows can be enlarged and upgraded. It has been my experience that most FHA Appraisers overlook this requirement unless the windows are inoperable or are set into an underground basement with 60″ plus sill height. If FHA is the only financing option, then a 203K program should be considered to finance the improvement.

545 PEOPLE
By Charlie Reese

Politicians are the only people in the world who create problems and then campaign against them.

Have you ever wondered, if both the Democrats and the Republicans are against deficits, WHY do we have deficits?

Have you ever wondered, if all the politicians are against inflation and high taxes, WHY do we have inflation and high taxes?

You and I don’t propose a federal budget. The president does.

You and I don’t have the Constitutional authority to vote on appropriations.. The House of Representatives does.

You and I don’t write the tax code, Congress does.

You and I don’t set fiscal policy, Congress does..

You and I don’t control monetary policy, the Federal Reserve Bank does.

One hundred senators, 435 congressmen, one president, and nine Supreme Court justices 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.

I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.

I excluded all the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman, or a president to do one cotton-picking thing. I don’t care if they offer a politician $1 million dollars in cash.
The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator’s responsibility to determine how he votes..

Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.

What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits. The president can only propose a budget. He cannot force the Congress to accept it.

The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes. Who is the speaker of the House? Nancy Pelosi. She is also the leader of the majority party.
She and fellow House members, not the president, can approve any budget they want.. If the president vetoes it, they can pass it over his veto if they agree to.

It seems inconceivable to me that a nation of 300 million cannot replace 545 people who stand convicted — by present facts — of incompetence and irresponsibility. I can’t think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist.

If the tax code is unfair, it’s because they want it unfair.

If the budget is in the red, it’s because they want it in the red .

If the Army & Marines are in IRAQ , it’s because they want them in IRAQ

If they do not receive social security but are on an elite retirement plan not available to the people, it’s because they want it that way..

There are no insolvable government problems.

Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there exists disembodied mystical forces like “the economy,” “inflation,” or “politics” that prevent them from doing what they take an oath to do.

Those 545 people, and they alone, are responsible.

They, and they alone, have the power.

They, and they alone, should be held accountable by the people who are their bosses.

Provided the voters have the gumption to manage their own employees.

We must vote ALL of them out of office and clean up their mess! Whatever you do,….next election,
DO NOT RE-ELECT ANY OF THESE INDIVIDUALS!!!!!

Charlie Reese is a former columnist of the Orlando Sentinel Newspaper.

What you do with this article now that you have read it………. Is up to you.

My post is a request to my dear colleagues who are REO listing agents (or any listing agent, for that matter), please manage the utilities such that you can contractually make the property available for inspection.  My buyers have appointments and utility mis-haps delay the process.  None of us want an undue delay in the process.  Thank you for listening.