San Diego Real Estate - Jon Sterling from Jon Sterling on Vimeo.

We have noticed for a while that first-time buyers were driving the home sales in the San Diego real estate market.  Right now, there is a perfect storm of low mortgage rates and tax credits for first-time buyers of new construction homes in California.

The problem?  California is running out of money to fund the tax credits.

Originally, $100 million was reserved for the first-time buyer tax credit, and now less than $20 million remains. If the low mortgage interest rates weren't enough to motivate buyers to buy now, perhaps the shrinking pool of tax credit money will provide the extra motivation.  Plus, interest rates aren't likely to get any lower and have risen over the past week or so.

Get moving!

Here's some information on the California first-time buyer tax credit (you can read more at the California Franchise Tax Board website).

Ways to have your tax credit denied:

• Somebody has lived in the house before.
• Your application isn't received withing the first week after closing escrow.
• California runs out of money for the credit before your application is processed.

Other important pieces to note:

• The home must be a primary residence.
• The home must be a single family residence.
• You have to live there for two years.
• You'll have to return a portion of the credit if you move before two years have passed.
• California is monitoring this credit and may require proof from you at any given time.
• The credit is not refundable.

More information for first-time buyers can be found at the posting First Time Buyer Questions From San Diego.  You can also SEARCH FOR SAN DIEGO REAL ESTATE here.

There is a dream house raffle being held in San Diego to benefit the Ronald McDonald House Charities.  The winner of the raffle can choose between the $1.9 million house and $1.6 million cash.  There are other prizes available as well and the tickets are $150 each.  The drawing will be held on June 20, 2009.

The Ronald McDonald House Charities provide help for families who have children experiencing a medical crisis.  Regardless of what the economy is doing, there are medical emergencies and families who need help.  This is a great opportunity to give back to the community.

For more information on this raffle or other fundraisers held by the Ronald McDonald House Charities, visit www.rmhcsd.org.

A friend of mine needed pricing advice.  Here's what she gave me.  Without knowing anything else, what would you tell her?  The opinions that differ from mine are encouraged to comment the most.  -Jon

Client:

So here's what I found. Things that I mention are features my condo does NOT have. These are all almost identical condos otherwise to mine.

Active

• $110,000 - Fireplace, garage, ground level, updated kitchen appliances, no fridge
• $114,900 - Fireplace, updated kitchen appliances

Sold

• $99,900 (LP $107,900) - Sold on 12/24/08, No upgrades, ground floor

Expired

• $116,000 - Ground floor, bedroom carpet '06, hot water heater '07, kitchen appliances '08 (old microwave on counter, not built in)
• $120,000 - No upgrades, fireplace, new carpet

My condo does have upgraded light and sink fixtures, cabinets, freshly finished deck, new washer & dryer in '05, new built in microwave '03.

Agent response (ME):

From what I can see, it sounds like anywhere from $100,000 to $110,000 would be appropriate.  If you list at $105,000 to $110,000 and expect to negotiate down to $100,000 IF necessary, that sounds about right.  If you're talking about $107,000 or $108,000 vs. $105,000, I'm not sure that's a significant difference.  Buyers tend to shop in larger price increments ($5K, $25K, etc.)  BEWARE of listing too high and lowering it later.  See previous email.  (Note: If you list too low, you will create an auction type environment and get multiple bids, driving the sale price back up to market value.)  Plus, you can always say NO to low offers.  (Note #2: You should treat every offer like it's the only one you'll get.  Negotiate it until it works or it dies.)

The sold condo is the one the buyer's lender and the appraiser are going to use for valuing yours, regardless of the price you negotiate with the buyer.  Recently sold properties give the best indication of "current market value."  It too bad that it's the same price you paid, and you have to understand appraisers are under extra pressure to be conservative these days because of the housing meltdown.  Again, metropolis looks like it has fared well, but be prepared for the worst.  Appraisals have ruined more deals for my agents than I can count.  You think you have it sold, then the lender does an appraisal and says, "No deal."  It sucks for everybody at that point.

This is an email excerpt from a message to one of my clients today.  The client appreciated the information, so I thought it would be good to share.

Are home prices still dropping in San Diego?

Yes.  There was a slight increase in prices in certain pockets of San Diego in February, but it is not the beginning of a trend.  The increase in prices was due to a temporary shortage of housing inventory.  With all of the loan modification efforts underway, the lenders froze their foreclosure activity in November and December.  That freeze created a shortage which drove some prices up, but it won't last.

The notices of default (NODs) filed in January in San Diego County were up 25% (3353 of them).  It takes a few months to get from NOD to foreclosure sale, but that's an indication of more foreclosures on the way.

The median price in February 2008 was $430,000 and the median price in February 2009 was $325,000.  Nobody knows the bottom of the market until it starts to climb again.  As a buyer, the advantages of very low mortgage rates and the first-time buyer tax credit are significant right now.  The most important question I ask buyers today is how long they intend to keep the property.  If it's less than three years, this might not be the best time for that person to buy real estate.  There are other factors, but planning to keep a property long-term is an important one because prices could continue to drop.  If the buyer plans to live in the property or rent the property indefinitely, this is probably the best time to buy real estate in our lifetimes. 

What type and size of home is available in the $225K to $350K price range?

This will largely depend on the neighborhood.  Sarah has seen some of the single family homes in this price range in neighborhoods she likes, and I would be happy to email you the same information. 

What options are available in the distressed sale arena, where we would be buying from a lender?

There are 10,984 foreclosure homes in San Diego right now.  The average price of those homes is $266,000.  Many of those need serious work, which can impact the lending options.  We can deal with those on a case-by-case basis, and there are plenty of distressed property opportunities.  Most lenders use real estate agents and third-party asset management companies to market their properties, and I have resources to find the others. 

What do you think about us buying a duplex and renting one half of it?

I'm a big fan of two, three, and four-unit buildings.  Anything above four units does not qualify for residential lending, and there are other complications.  Getting someone else to pay part of your mortgage is great for long-term wealth building.  I like to tell my clients to treat their real estate purchases like the game Monopoly.  Just keep telling yourself, "four green houses, one red hotel, repeat."

Mangled Mortgage is the single best resource for agents working in battered real estate markets.  Check it out today!

Statistics don't lie.

Your clients need to understand numbers.  They are inundated with media messages that may or may not represent the entire ststistical story accurately.  It's your job to be sure they have good information so you can guide them through the buying and selling processes.

A question everyone in real estate hears is, "How's the market?"  Your answer will often determine whether or not that person will continue their real estate coversation with you.  If the conversation stops after you answer, you should probably adjust your approach to this subject.

"The market it terrible."

Wrong answer.  It's never terrible, and nobody wants to hear about it if it is.  Try again.

"It has been interesting lately."

Still weak.  Next!

"The foreclosures in our area are presenting great opportunities for buyers."

Getting better.  Let's improve upon this.

"One out of every 35 homes in our city is in some stage of foreclosure.  Our average market time is 62 days and mortgage interest rates make this the best purchasing opportunity since the Great Depression.  Properties are selling at an average of 95% of their list price, mainly because cash investors are buying one-third of all the houses sold."

That's better.

When you use statistics to tell your story, you become more valid in the eyes of consumers.  First of all, you demonstrate that you understand the numbers and what they mean to buyers and sellers.  Secondly, you are removing emotion from the equation when you speak in numbers.  Lastly, numbers are the language of business and real estate is a business.

I use foreclosure statistics (my favorites are ForeclosureRadar.com, Realty Trac, and the info I get from my title rep at First American) in my market because foreclosure sales are on everyone's mind.  I tell my sellers that inventory is the lowest it has been in five years and notice of default filings are the highest they have been in five years.  That means it's a great time to list today, but might not be a great time to list in six months.  I have charts and graphs to show the statistics in a visually appealing way and help me tell my story about the numbers.

I use the same information when I talk to my buyers.  I let them know we will most likely be in a multiple bid situation because 85% of the properties sold are getting multiple bids.  I also tell them we are expecting another wave of foreclosures, but we don't know exactly when that will happen.  Mortgage interest rates are at historic lows and the tax credit expires December 31st, so that's where we need to focus our attention.

The same set of statistics tell that story.  Nothing about my conversations with my clients is bent or misrepresented.  All I'm doing is obtaining good data, interpreting that data, and telling my clients what it means to them.  I do this because it's my job.

WARNING: This is high-tech stuff.  If you don't have a plan to implement these strategies, you might as well leave the business and go find a "regular" job.  Technology rules our lives and you need to master these strategies in order to compete in today's challenging market.

• Look at what all the other agents in town are doing to market themselves and their properties.  Don't do those things.  I'm talking to you, bus benches.
• Tell others what you do for a living.
• Know how to calculate mortgage payments.
• Answer your phone.
• Return phone calls.
• Say "please" and "thank you" often.
• Get involved in your community.  It makes you a better person and helps others, which is good for everyone's real estate.
• Don't read the newspaper or watch the news.  Trust me on this one.
• Know the inventory better than consumers.  They have internet access too.  Plus, it's your job.
• Smile at strangers.  You might be the only one smiling at them today.
• Look people in the eyes when you speak to them and use a firm handshake.
  

Do I think it's ridiculous that these things have to be mentioned? 

Yes. 

Do all top-producing agents do these things? 

No.

Will mastering these skills set you apart from the competition?

Yes.

All joking aside, these are basic real estate skills you need to master if you expect to achieve any degree of success in this business.  Too often, we spend our time chasing the new and shiny tools that appear in our inboxes.  I'm as guilty as everyone else in this arena.  At least once a week, I'm spending my time exploring some new tool or gadget that promises to help me achieve more with less.  Every once in a while I find one that is worth it.  Most of the time they aren't.  

These started as a series of Facebook and Twitter updates.  The feedback I received from my fellow agent friends and consumers was educational.

Mangled Mortgage gives a complete explanation of all the different outcomes to a mortgage default situation.

Our entire market is full of foreclosures and short sales right now (over 2/3 of our inventory).  Many of them have been put "on hold" while the lenders talk to the consumers to see who is eligible for a loan modification.  Because I have over 200 agents in my office and I couldn't enough time with each one of them to teach them about the process, this book was born.

There is no competing book on the market that talks about all three of these topics and how they fit together.  Anyone who wants to understand how the real estate business is changing to meet the demands of our current housing crisis needs to order this book today.

Includes:

Terminology

The foreclosure process from start to finish

The short sale process from start to finish

The loan modification process from start to finish

How we got here

What happens next

Political developments to watch

How the real estate industry is responding to the crisis

Tips for those people working in real estate and interested in foreclosures, short sales, and loan modifications

Visit www.mangledmortgage.com for the latest updates.  Send a message to info@mangledmortgage.com for ordering instructions.

Top reasons to buy real estate in 2009:

1.  Interest rates are low.  Low interest rates mean your dollars have more purchasing power and you can afford a bigger mortgage.

2.  There are plenty of choices.  Because there are many homes on the market, buyers have more choices.

3.  Negotiations favor the buyers.  In most markets, there are many more listings than potential buyers.  As I heard one real estate professional say about the way buyers are thinking:  "It's payback time!"  Funny, but true.

4.  Real estate is a good place to put your money.  Long-term, the leverage provided by holding your money in real estate outperforms any other investment.  Plus, people can survive without their stocks, but they can't survive without shelter.

5.  Nobody knows where the bottom of the market is until it starts to go back up.  Trying to "time the market" is ridiculous and nobody has ever been able to do this successfully.  (This is a good transition into the next section)

Top reasons NOT to buy real estate in 2009:

1.  Nobody knows where the bottom of the market is until it starts to go back up.  Trying to "time the market" is ridiculous and nobody has ever been able to do this successfully.  (See number 5 above)

2.  There are enough properties on the market that there isn't any reason to rush - in most cases.  Some markets are moving fast, while the majority are not.  There will still be great opportunities to purchase real estate at a discount into 2010.

3.  Jobs are not as secure as they used to be.  Even the biggest and "most secure" companies are experiencing layoffs. 

4.  Your "nest egg" could be eroded if the stock market continues to perform poorly.  "Buy low, sell high" applies to stocks and to real estate.  It might not be the best time to sell your stocks for a down payment.  Talk to your real estate professional and your financial adivsor to figure out what makes the most sense.

5.  It takes a great credit score to get a loan these days.  If you have any minor or major blips on your credit report, it could make it difficult or impossible to obtain a new mortgage.

There are many agents claiming to be "short sale specialists" right now.  Here's a list of questions to ask your agent to see if they have the necessary experience to get the job done.

There are no right or wrong answers here.  The questions are designed to give you a good idea of who you're talking to and what you can expect from them, given their past experience.

Give a brief description of your business and your team structure.

How long have you been in real estate?

How long have you been doing short sales?

How many short sale transactions have you closed in the past 12 months?

How many of those were short sales?

How did you get into the short sale side of the business?

What percentage of your business is listings and what percentage is buyers?

What do you like the most about working short sales?  The least?

What are your biggest daily challenges right now?

How would you rate your internet presence on a scale of 1-10?