Everyone wants to sell real estate these days. That is what happens when you have one of the hottest markets in North America.

It means new choices for consumers when buying or selling, but it appears more than 90 per cent of Canadian home sales still involve a professional real-estate agent. The statistic is the same in the United States, where discount brokerages have been operating for the past 10 years. The question is, why?
It is easy to attack real-estate agents and the commissions of up to 5 per cent for buying and selling. But what do you get with the alternatives?

Last October, organized real estate and the federal Competition Bureau reached a deal that allows sellers to use discount brokers and have their listings posted on the MLS system at a discounted fee of a few hundred dollars. Home at Ease and RealtySellers in Toronto are among those offering this service to consumers.
There are also for-sale-by-owner companies, such as the Property Guys and ComFree, which will sell you a package so you can sell by yourself, including having your property listed on the for-sale-by-owner website. For an extra charge, you can list on a national MLS website with a registered broker. Their packages cost between $500 and $1,000.

Lawyers are trying to sell real estate through a similar website called PropertyShop .ca where they will also help you negotiate and close your deal, for a fee of around 1 per cent to the buyer and 1 per cent to the seller.

You can also use a public auctioneer to sell your home, for a fee of around 2 per cent to 2.5 per cent total commission.

For-sale-by-owner companies claim to have a unique system for selling real estate. Yet they are not licensed to sell real estate or give advice to consumers. They are not regulated, yet they help people sell their largest investment, without providing any guidance about the pitfalls, especially when hidden defects are not disclosed to buyers.

They are not there to help during the difficult contract negotiations, where mistakes of judgment and in the contract itself can easily be made. Still, more and more sellers are using these services to try and save the commission. Buyers must therefore be very careful before signing anything with a private seller. This includes verifying the lot measurements by asking to see the seller’s deed and survey, conducting a home inspection and asking the seller to represent that they have never had issues with water penetration into the home, or to provide details of any corrective action taken.

Discount real-estate brokerages that merely post listings on an MLS system are not, in my opinion, providing the due diligence required of their provincial codes of ethics. Buyers must therefore conduct the same due diligence noted above before committing to any purchase.

Lawyers can assist with negotiations and can certainly close a deal. However, lawyers are not salesmen or marketers. Will they be there at 11 p.m. to help reach a deal? Do they have the network of buyers and sellers that agents build up over the years, not just from this country, but from all over the world?
With auctioneers, you may pay less in commissions, but are you sure they will attract the most buyers, to get the price you want?

Real-estate agents are far from perfect. For every consumer who tells me about a great experience, I hear many more about incompetent agents who do not properly protect their clients, whether it is overpaying in a bidding war, not listening to requests or receiving unwelcome surprises after closing. I believe the real-estate industry needs to do more to properly mentor new agents, and to reduce the number of part-time agents who don’t do a proper service to themselves or their clients.

In all cases, buyers and sellers need to do a lot of research and ask questions before selecting anyone to assist with buying or selling their next home. Remember, if it was easy, everyone would be doing it.

Also read
Why I wouldn’t sell on my own
Yes you can sell without an agent
Mark Weisleder is a lawyer, author and speaker to the real estate industry.

Alison Philpot sold her house privately but wonders if it was worth the trouble she experienced.
BILL GRIMSHAW/FOR THE TORONTO STAR

Since writing about whether you could create a bidding war without an agent, I have received numerous emails from sellers, real estate agents and companies that provide “for sale by owner” services on the pros and cons of selling by yourself.

Allison Philpot sold her home in Ottawa using a For Sale by Owner marketing service. She listed her home for $419,000, and was able to create a bidding war after her first open house. She received a top bid of $429,000, which she accepted.

The buyers seemed like nice people, as they lived in the community. Unfortunately, they later terminated the deal, relying on a condition in the offer, although Allison suspected that they just found a house that they liked better. The second bidder was no longer interested.

She then dealt with another buyer, who was represented by a buyer agent. Allison later admitted that she was out-matched in the negotiations, and eventually sold her home for $405,000. In addition, she agreed to pay the buyer agent a commission of approximately 2 per cent or $8,000. So her net selling price was $397,000.

After the fact, she reasoned that had she used an agent from the start, she would have probably sold for about $430,000, and that even if she paid $20,000 in commission, she would have netted $410,000, or $13,000 more, without any of the aggravation.

Still, Allison states that had she not gone through the experience herself, she would probably have felt that she had overpaid the agent.

The buyer who walked away from the first deal later told Allison that he would never try and buy a property again without an agent, as he found the process way too stressful himself.

I received many emails from real estate agents talking about their additional network of potential buyers that they bring to every sale, as well as their own experience in qualifying potential buyers in advance and protecting sellers from unusual clauses that are sometimes inserted into agreements. Many agents in Vancouver are now setting up marketing events overseas, as more and more foreigners are looking at Canadian real estate as a safe haven to invest. More buyers mean better prices for sellers.

I spoke with Patrick Sullivan, a vice-president for Com Free, a company that provides services to assist home owners selling by themselves. These tools include a guide to assist the seller in determining the sale price, staging the home for sale, conducting open houses and preparing for negotiations. He suggested that there is no real harm in a seller trying to save money selling by themselves. They can sell with an agent later if they are not successful. He also claims that Com Free listings continue to grow and that they have many success stories. However, because they have no contract with the seller, the seller is not obligated to tell them how long it took to sell and what the property sold for, so it is difficult for Com Free to state how their seller compares with sellers who use an agent.

If you plan on doing this by yourself, at a minimum either have your lawyer look at the contract before you sign it, or make the deal conditional on your lawyer’s review and approval of the agreement. In my opinion, no marketing service can properly prepare buyers or sellers to deal with the stress and emotion that will invariably be involved with any real estate negotiation. It is not easy. Every buyer, seller and property are unique and will require a successful strategy to win.

Whatever method you choose to buy or sell your next home, be prepared and fully informed before you start.

Also read:
Should you sell before buying?
Mark Weisleder is a lawyer, author and speaker to the real estate industry.

Through our amazing Sutton Member Program (SMP) you will always PAY LESS MONTHLY due to the fact our RATES are ALWAYS LOWER than at any of Canada’s Banking Institutions. We are even LOWER than rates being offered through the Bank’s secondary lending groups and Mortgage Brokerages. The only way to get access to our amazing rates is through your Sutton Realtor. If you buy your home through your Sutton agent you will have access AND if you list your home with a Sutton agent WHOEVER BUYS YOUR SUTTON LISTED PROPERTY will also get access to our incredible rates. Thus, your Buyer will be able to afford more!

You can inquire about the SMP mortgage opportunities by contacting me, Brian Maguire,  at Sutton Group-Summit Realty Inc. at (905) 897-9555 or by email at bmaguire@sutton.com.

But we are still subject to CMHC’S policies because the Lenders won’t advance the funds you need if CMHC were to refuse the Insure those funds. These two YouTube videos will fully explain the changes. Enjoy.

Click here to watch a brief video explaining these rule changes.

Click here to watch another brief video explaining the changes to the HELOC program.

Our true mandate now is to guide and protect our Clients. To make sure they don’t get sued; To make sure their possessions are protected; To keep their family members safe; To make sure they don’t pay too much or sell for too little; To make sure the Purchase Agreement protects whichever side we are representing; To make sure they are aware of their best financing options; To educate them about the neighbourhoods, the amenities, the not so obvious problems with homes or areas, etc. We know where to find exactly what they need and want and we take all the financial and personal risk for them. We have real value. We earn our Fees.

 We are our Client’s Insurance Policy!! And our initial task when meeting them is to make them aware of the VALUE of our services.

 Protection from Litigation – The Realtor assumes all the risk associated with this binding legal transaction and the potential for litigation. We carry an Insurance policy protecting against Errors or Omissions for this very reason. In effect, we are the Client’s Insurance policy against an unwanted and unnecessary legal action involving the purchase or sale of a home. Historically, according to NAR, 82% of all law suites involving residential real estate are between private Buyers and Sellers. Our primary function is to ensure that this never happens.

Bonded – The Brokerage is bonded. Thus providing the security to the public of knowing they are being represented by reputable individuals who have gone through a screening process before being licensed by the Government of Ontario to sell Real Estate. Each new Agent now has to provide a Criminal Record Check with their application to the Registrar before being licensed. This is a far cry from selling privately and acting directly with complete strangers who have appeared off the street.

 Potential Buyers are Screened  – Before touring a home, we will have invested our time with our prospective Buyer discovering who they are , what they can afford and what they want and need -  thus greatly reducing the risk associated with having unknown strangers wandering through a home.

 Buyers are Pre-Qualified – Before inspecting your home, Buyers will have gone through a financial pre-approval process, either with their Bank or a Mortgage Consultant, to satisfy the Sales Representative that they are actually qualified to buy any home.

 POSSIBLY MOST IMPORTANT – Personal Security and Family Safety -            

Anyone inspecting a home through the services of a Listing Brokerage will be accompanied by a Realtor, whether registered with the Listing Brokerage or with another Brokerage, thereby removing all immediate risk to the family and placing that risk squarely with the accompanying Realtor. After all, for the most part, the Sellers have absolutely no idea who these supposed Buyers really are. With that in mind, when does a private Seller allow these strangers access to view their home. Under most circumstances, the only reasonably safe time is when the male occupant is home which usually greatly reduces the opportunity to sell.

 Real Estate Marketing –  Individual Agents have databases of clients and prospects, anyone of whom may be the Buyer for any new listing. Many agents are now linked to huge bases of prospects not just through Real Estate specific websites to market homes but are using Facebook, Twitter, Linkedin, Youtube, etc. to effectively take their marketing to a new level. For this reason many new properly priced MLS listings are sold immediately.

 We market properties to specific markets, depending on the property, on an on-going basis. We have on hand or access to a library of marketing materials and the experience to know when and where to apply them. Each listed property is marketed to and through the 1000’s of Agents who belong not just to TREB but to several additional Boards in the surrounding areas.

We also have expertise in preparing the home for sale. And most importantly, we have the knowledge and available data to properly PRICE the home. Realtor.ca does not provide SOLD prices. Thus, the most critical component of listing and selling a home, the required data, still resides exclusively with the Realtors.

 Negotiating Experience – In general, the private Seller has no negotiating experience. For certain, he has no experience where he is emotionally involved in a process involving his family’s future and their largest single financial asset.

 The reality is that most Private Sellers net less through a private sale than through the traditional sales process and take all the unnecessary risks in the process. The key component here is that both the Buyer and the Seller have entered the Private Sale process for one reason only – to save money. Unfortunately, they are both trying to save on the same expense – our Service Fees. CLEARLY THEY CAN’T BOTH ACHIEVE THAT GOAL.

In this process there is no one keeping them at “arms length”, a key ingredient in this negotiating process. Emotions are likely to run high on both sides. It becomes difficult to stick to relevant factors and, to make matters worse, they are missing the required economic data to support the negotiating process on either side.

 The Realtor has a real stake in getting the Seller the absolute best price in the shortest possible time and the expertise to carry this out. Each Agent also has a support system with his Peers and the Brokerage on which he/she can rely in difficult situations. The Seller is completely on his own and, generally, flying blind.

 Financial Risk – All marketing expenses are the Agents with no guarantee of being reimbursed should the property not sell. All of our Time and Energy are invested up front with no guarantees. The Seller has no financial outlay unless he willingly accepts an offer on his property. Getting the home SOLD is clearly of paramount importance to any Agent.

To effectively market a home during normal times when a listing can be expected to sit on the market for a few weeks, it can be a substantial outlay. You have MLS fees annually and membership fees which must be factored in, actual marketing costs – flyers, newsletters, feature sheets, Newspaper advertising, etc. – computer and cell phone charges, car payments, gas and maintenance and most important the cost of your time. Amazingly so do the discounters. Do the math. They never survive.

With the new rules, the private seller gets to pay the Agent a fee for placing his “MERE POSTING” on MLS. The Seller now gets to take all the risk and spends his own money attempting to sell his home. In the unlikely event that he does manage to get it sold, he has exposed his family and his home to unnecessary risk. Worse yet, he will be on “pins and needles” hoping that his sale will close. Does he dare buy another home in the mean time?  Does he have a choice?

And more than likely, after exposing his family to unnecessary risk and spending his own money attempting to market his home plus paying the “mere posting” fee to the Realtor to get it on MLS in the first place, he either accepts an offer through a Realtor or Lists his home properly – in either case he ends paying the Realtor’s Fees on top of his own expenses. Wow. Both exasperating and expensive!

AND THE REALTOR WILLINGLY ASSUMES ALL THESE RISKS!!

Occasionally, one can see “For Sale By Owner” signs, and some owners think that selling their own home will not only save them money, but believe they have an advantage over the sellers that have their home listed by a reputable Real Estate sales professional. Before you decide to take on this very important and legally complicated process…remember not even most Real Estate Lawyer’s recommend selling your own home yourself in today’s market. Here are a few of the reasons why:

1. You are limiting your exposure to potential buyers (less than 10% of what a good real estate broker will generate) which theoretically means your home will take ten to fifteen times longer to sell on the market.

2. The longer a home is on the market the lower the selling price is. Why? Because most buyers think that if the home has not sold after this long… there must be something wrong with the home.

3. The selling/buying process begins AFTER the buyer leaves your home. Most sellers think that all it takes is for someone to see their home, fall in love with the great decor… and the offer automatically will follow. Remember that the buying process begins after they leave your home. If a real estate sales representative does not represent the buyer, and they are looking on their own…they usually leave the home and start to talk themselves out of the buying process. Real estate professionals are trained on how to overcome buyers remorse–a very common occurrence.

4. Because of the limited exposure you will very likely end up with a lower selling price. Remember, in order to generate the highest price possible for your home… selling means exposure. You need the maximum exposure possible, to generate the highest price possible.

5. Most buyers find it extremely awkward to negotiate or even to talk directly with sellers and therefore avoid FSBO properties.

6. Lack of negotiating experience and lack of pertinent information often will result in a lower selling price, or worse yet, a bungled contract and possible lawsuits.

7. The majority of qualified buyers are working with experienced real estate professionals.

8. Many serious buyers will pass by a FSBO home merely because they recognize that it is not in the real estate mainstream, this can some times make them wary.

9. As most local buyers now retain an experienced real estate sales person to represent them as their buyer-agency, you will probably be negotiating against an experienced professional.

10. Expected savings in broker’s fees will also be greatly reduced if you offer a selling commission to entice real estate sales representatives to bring potential buyers.

11. If you are planning to use a Lawyer to help you negotiate the offer, then your lawyer’s fees will be considerably higher.

12. Only real estate sales representatives have access to the up-to-date market information. News reports cannot approach the timeliness or specificity available to real estate sales people. Further, real estate sales representatives are involved in home sales much more frequently than the average homeowner is. This familiarity leads to a degree of expertise that provides an edge on negotiating and successful selling.

13. You only pay the commission to the real estate broker, if they successfully sell your home at the price you are happy with.

14. Accepting an offer is one thing, ensuring a safe and successful closing is quite another. Real estate transactions usually always have problems on closing. At times, expecting the Buyers and Sellers Lawyer’s to fight it out or resolve the problems, can sometimes mean the deal is lost. This is the time that your experienced real estate professional, can be the most important. Your Real Estate professional can act as a great mediator. Lawyers MUST act only on their client’s instructions and are not paid to negotiate.

Contact us for a free market evaluation!

When getting your home ready to sell, you need to look at your house in a new way. Think of your house as a product about to go on the market where it is probably competing with brand new housing. It needs to show well – which means clutter-free and well kept.

Today’s homebuyers lead busy lives and may not be interested in taking on major repairs or improvements upon moving in. You need to make your house a “10”. This document will help you spot what is right and what is not so good about your “product”. It will give you the opportunity to take corrective action to ensure your house looks fresh, clean and well maintained when the “For Sale” sign goes up.

Fix It First

If you need to make improvements to your home, do the work before it goes on the market. Potential buyers are not interested in hearing about your good intentions to look after defects before a transfer of ownership takes place. Even if fix-up work is underway, buyers may not be able to visualize what your home will look like when the work is finished. They will just remember it being in a state of disrepair.

Professional Inspection: Yes or No?

A serious buyer may want to have a professional home inspector check your house from top to bottom before making an offer. Even though this guide will help you identify problems on your own, the option of hiring a professional home inspector is open to you as well. If you can afford it, an inspection in advance of putting your home on the market is a good idea. It is your best way of finding and taking care of serious deficiencies before an inspector hired by a potential buyer discovers them.

CMHC’s Homeowner’s Inspection Checklist

This practical, easy-to-follow guide for homeowners will help you identify common house problems and deal with them. In it, you will find illustrated how-to tips offering effective solutions for every room of your house. Use the ordering instructions on the back page of this fact sheet.

Let’s Begin Outside

Check Your House’s Curb Appeal

How does your house look from the street? That is where prospective buyers will be when they first see your home; and, that is where they will form that all-important first impression. Stand at the curb in front of your house and note what you see.

• Remove any clutter in your yard.
• Repair cracked or uneven driveway or walkway surfaces.
• If your lawn has bald spots, apply some top dressing and re-seed. Prune trees and shrubs of dead wood. Weed and mulch flower beds, if you have them. If it is the right time of year, consider buying some flower-filled planters to enhance the eye appeal of your property. Make sure your lawn is mowed regularly. Ensure that the composter area is tidy.
• Are your windows and walls clean?
• Does your front door need paint?
• Ensure your eaves and downspouts are clear of debris and in good repair.
• Are your backyard deck and walkways clean? If not, use a power washer and do any necessary painting, staining or sealing.
• If you have a swimming pool, are the deck and pool clean (when in season)?
• Do all outside lights work? Replace any burned out bulbs, and clean fixtures of dirt and cobwebs.
• Is there a shed? Does it look presentable?
• Do windows and exterior doors need recaulking? Even at 6-7 years of age, the caulking may be dried out and in need of replacement.
• Do you have decorative wooden poles on the porch? Is the wood at the bottom in good condition? Overall, does it need a new coat of paint?
• If you have a gate, is it well oiled?
• When you have completed the curb appeal inspection, carefully check the rest of your home’s exterior.

Will Your Roof and Chimney Pass Inspection?

If you are uneasy about climbing onto your roof, you can inspect most items from the ground using binoculars. Otherwise, be careful when working or moving about on your roof. Unless roof repair is a simple matter of applying new caulking, you will probably need the services of a professional.

Check the general condition of your roof. Sagging sections, curled shingles, pooled water on flat roofs and corrosion on metal roofing mean it is time for repair or replacement.

Both masonry and metal chimneys need to be straight and structurally sound, have proper capping on top and watertight flashing where they penetrate the roof.

All roofs undergo stress from snow and rain loads, so a truss or rafter may become damaged, resulting in a noticeable small depression. A professional should do this inexpensive repair.

Examine Your Walls

The condition of your exterior walls directly affects the look and curb appeal of your home.

• Replace old caulking. You may have to cut or scrape away old caulking to get a good seal. Do not seal drainage or ventilation gaps.
• Is your exterior paint looking good? If you see faded colours and cracked or peeling surfaces, you need to repaint. Be sure to get competitive bids if you hire professional painters.
• You can clean vinyl siding but defects or damage to it and to metal siding usually means replacement.
• Stucco can be repaired but some skill is required to blend patches with existing stucco.

Now, Let’s Go Indoors

A prospective buyer will usually enter through your front door; so, that is where you should begin your interior inspection. You want your buyer to see a neat, clean, well-lit interior. Get clutter out of sight; ensure that carpets are clean and floors are scrubbed and polished; and that walls and trim show fresh paint (preferably neutral or light colours).

• Take a sniff. Are there any unpleasant odours in your home? If so, track them down and eliminate them. Ensure all your lights work and are free of cobwebs. You want your home to look spacious, bright and fresh.
• If you have considerable family memorabilia, consider thinning it out. Your objective is to help potential buyers feel as if they could live in your home. That mental leap becomes more difficult for them if your house resembles a shrine your family.
• Professional realtors and decorators say the most important areas of your home to upgrade and modernize are the kitchen and bathrooms. Buyers also want to see new or recently installed floor coverings throughout.

General Interior

• Check stairs for loose boards, ripped carpeting, and missing or loose handrails and guards.
• Most problems with interior walls are cosmetic and can be repaired with spackling compound and paint.
• Ensure doors open and shut properly. Minor sticking is normal but excessive binding indicates possible structural problems.
• Open and close all windows to ensure they work properly. Fogging between the panes of a sealed window indicates the seal is broken and the unit needs to be replaced.
• Keep furniture to a minimum so rooms do not appear smaller than they are. Ensure that traffic can flow in or through rooms unimpeded. If they contain bookshelves or cabinets overflowing with books, magazines and knick-knacks, remove some of these items.
• Ensure closets look spacious, organized and uncluttered. Create space by getting rid of old clothes and junk.
• Remove or lock away valuables such as jewellery, coins, currency, cameras and compact discs.
• Kitchen and Bathrooms
• People splash water around in the kitchen and bathrooms so check around sinks, tubs and toilets for rotting countertops and floors. Problems could be due to poor caulking or plumbing leaks. Fogged windows, molds and sweating toilet tanks indicate high humidity levels, which you can remedy with exhaust fans.
• In the kitchen, clean all appliances, including your oven. Clean or replace your greasy stove hood filter. Clean your cabinets inside and out, as well as your countertops and backsplashes. Repair dripping faucets.
• Remove anything stored on top of your fridge and remove artwork and magnets.
• Remove any items stored on countertops.
• Remove items stored under the sink.
• In bathrooms, scrub sinks, tubs and toilets, taking care to remove any rust stains. Remove mildew from showers and bathtubs. Fix dripping faucets or trickling toilets, and vacuum your fan grill.
• Clean mirrors, light switch plates and cupboard handles.
• Consider installing new 6-litre toilets if you currently have water-guzzlers.
• If you have ceramic tile in either your kitchen or bathroom, ensure grouting is intact and clean.

Basement

The condition of the foundation and main structural members in the basement are critical to the fitness of any house. The purpose of your inspection is to make sure these are sound and durable.

• Look for cracks, water seepage, efflorescence (white powder-like substance), crumbling mortar or concrete, and rotting wood. If any of these problems are present, you need to do further research to learn about causes and possible solutions.
• If your basement is damp or musty, consider using a dehumidifier.
• Like all other areas of your home, your basement should be organized and clutter-free.
• Change the filters in the furnace and have it cleaned–this is the number one item purchasers want done after a home inspection.
• If you have a pet with a litterbox, ensure the litterbox is clean.

Garage

• Get rid of the broken tools, old car parts, discarded bicycles, empty paint cans and the hundreds of other useless items that accumulate in garages. Again, you want a clutter-free zone.
• Use cleaning solutions to remove oil stains from the floor.

When It’s Showtime!

You have inspected your house and taken care of problems. Now you are ready for showings. You will need a plan of action that assigns duties to each family member so the place can quickly be whipped into shape.

• Open all drapes, blinds, etc. and turn on lights to make the house bright.
• Air out the house to get rid of cooking, pet odours, and so on.
• Have fresh flowers in view.
• Pick up clutter, and empty garbage.
• Make sure everything is spotless.
• Set your thermostat at a comfortable level.
• Remove pets from the house or put them outside.
• If you have an agent, leave when the house is being shown. If you are selling it yourself, you need to strike a balance between being helpful and crowding the buyer.
• In poor weather, provide a place for boots, overshoes and umbrellas.
• Display photos of the house in summer to show landscaping if selling in the winter months.
• Leave out heating and hydro bills.
• For those on a septic system and/or well, leave out inspection and maintenance information.

Home sales in Saskatchewan increased 9.6 per cent in January over December, more than double the national average increase, the Canadian Real Estate Association said Tuesday.

There were 612 homes sold in the province in January, up 15.3 per cent from 531 sales in January 2010, CREA said in its monthly report.

The dollar volume of sales increased 25 per cent to $151.4 million in January from $121.3 million in January 2010. Average prices increased 8.3 per cent to $247,357 from $228,430 during the same period.

Saskatoon and Regina posted significant increases in sales activity, dollar volume of sales and average price in January compared with the same period last year.

Saskatoon had an 8.9 per cent increase in sales to 195 while Regina saw a 17.5 per cent increase in sales to 215.

The dollar volume in Saskatoon increased 21 per cent to $58.6 million, while Regina’s increased 27.2 per cent to $55.9 million.

Average prices in Saskatoon increased 11.2 per cent to $300,353, while Regina saw an 8.3 per cent increase to $260,133.

Nationally, home resales rose 4.5 per cent in January to the highest level since April 2010, led by Vancouver and Toronto, CREA said.

CREA said 39,481 homes were sold in January, up from 37,773 the previous month but down 6.6 per cent from January 2010.

“We anticipated the recent announcement of tighter mortgage regulations . . . would pull forward sales activity into the first quarter of 2011, particularly in some of Canada’s more expensive housing markets,” said Gregory Klump, CREA’s chief economist.

“The sharp rise in sales activity in Toronto following the announcement provides early evidence confirming this,” he said.

© Copyright (c) The StarPhoenix

Read more: http://www.thestarphoenix.com/business/Provincial+home+sales+post+growth+January/4292572/story.html#ixzz1EFPR1DkC

Joe may not realize it, but the latest moves from the Minister of Finance, Jim Flaherty, have hurt his chances of meeting his retirement goals.

Mary is in the top tax bracket. She is 40 years old and wants to grow her wealth intelligently. She believes that in the next five years, she is extremely likely to generate investment returns that will beat her 2-per-cent after-tax borrowing costs (3.65 per cent mortgage with 46 per cent deductibility).

Her goal is to be able to retire at 55 so she can volunteer full time at a community hospice where she is currently helping out. She wants to lock in five-year rates, borrow $300,000 on her $600,000 of real estate equity to invest in a portfolio with a yield of over 4 per cent. She correctly believes that there is a very strong probability that she will come out ahead using this strategy, and can deal with the financial downside in the event that the strategy doesn’t work.

Unfortunately, Mr. Flaherty has inadvertently made things tougher for Joe and Mary. I don’t think this is right.

Even though the new rules are only aimed at “high-ratio” mortgages where someone is borrowing at least 80 per cent of the value of the property, these changes will likely affect all mortgages in short order.

To review the new rules:

1. Maximum amortization has been reduced to 30 years from 35 years. Compare that to the previously available 40-year mortgages and interest-only mortgages, with no forced payment of any principal.
2. When you want to refinance your mortgage, you can now borrow up to 85 per cent of your property value, down from the 90 per cent available in 2010. Before 2010, you could have borrowed up to 95 per cent.
3. The government will no longer provide insurance backing on home-equity lines of credit.
4. If we look at Joe’s situation, the second rule will have no effect. What Joe needs is to borrow some funds from his $1-million house in order to cover his expenses for the next decade or so. Joe and his wife are very unlikely to still be in their home 10 years from now, and when the house is sold, any debt will easily be paid off.

If Joe manages to get a line of credit, he is now faced with the prospect that the rate will increase in two ways. The first is that as a variable rate, when (not if) interest rates rise, Joe will have higher rates. The second is that in any case where a bank sees greater risk, they raise rates. Without government insurance, even for a small percentage of a bank’s line of credit assets, look for banks to hike line of credit rates across the board. If you read the fine print on your line of credit documentation (and who really does that?), the bank has significant flexibility to adjust rates higher whenever it deems it necessary.

If Joe decides he doesn’t want to go the line of credit route, he can likely get a mortgage. The benefit is that there is a mortgage contract, and if it is a fixed-rate mortgage, this eliminates the interest rate risk for Joe during the life of the mortgage. The downside is that he will want to borrow a larger amount than he needs in the short term. Now there is a new downside. Joe isn’t a 28-year-old who needs big brother government to ensure he pays off his debt faster. Joe simply wants to leverage his real estate equity. But guess what? With a 30-year amortization, Joe needs to meaningfully pay back his principal, when that is the last thing he wants to do.

You might say that this 30-year maximum amortization only applies to high-ratio mortgages, but as we saw with a similar ruling on 40-year amortizations, the banks quickly made the change on all mortgages. It will very likely happen the same way this time, with most if not all 35-year amortizations disappearing from the mortgage market.

In Mary’s case, the issue isn’t going to get a lot of sympathy, but Mary has no reason to want to pay the loan down. It is inefficient for her wealth-building strategy to draw down investment assets to pay down a loan. Her strategy is the exact opposite. She wants to borrow to invest. She can pay the loan off after five years – most likely with some meaningful profits left over. Why should Big Brother looking out for high-debt ratios put limits on Mary’s wealth-building strategy? She is fully aware of the risks and rewards and wants to move forward.

When it comes to the new rules, I begrudgingly believe that the government has a right to intervene. After all, around the world we have seen governments (and taxpayers), left holding the bag on insolvent banks and individuals. Nevertheless, is it really OK for the government to make Joe and Mary’s retirement goals more difficult to achieve?

Follow Ted Rechtshaffen on Twitter: @TriDelta1

If you’ve heard that a certain neighbourhood is poised for growth, that’s just the first step, he says. Before you invest a dime, you need to verify the information. Read the minutes of council meetings, ask local politicians whether the leadership is focused on bringing new jobs and growth to the area, and check for a written renewal plan at the municipal planning department.

“You can actually see what’s coming if you get one of those reports on the neighbourhood,” Mr. Campbell says. “You just have to have patience, like most investors should.”

Before you buy, drive around the neighbourhood, he advises. Look for renewed signs of pride of ownership that weren’t there before – a sure sign that renewal is under way.

Other tips for getting the best return for your real estate investment:

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1. Look for transit improvements

If you want to buy in an area that will increase more than average in value, choose a neighbourhood with a major transportation improvement occurring nearby. The demand for such properties is always strong, even when market conditions turn sour. Also, think about who the target buyer will be when you sell the property and whether there are amenities nearby to attract such a buyer.

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2. Check the zoning

Don’t buy a property hoping to convert it into something else without finding out how it is zoned. Check with the planning department to find out whether there are any zoning changes pending.

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3. Don’t buy too early

Governments announce a lot of things, especially around election time, but not all projects pan out, Mr. Campbell says. “Watch for the tractors and watch for the diggers, and that’ll give you a big indication that they’re at least committed to getting this project going.”

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4. Don’t buy too late

Once a neighbourhood’s redevelopment is close to being finished, that’s a sign it has become a more mature area and will only increase at an average rate. It’s important to “get in front of the tractors,” Mr. Campbell says.

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5. Buy used

Many renewal projects involve knocking down old buildings and putting up condo towers and trendy shops. Rather than buying into the new condo building, buy an older home in the surrounding neighbourhood, Mr. Campbell says. You’ll see a bigger bump in the value of your property than with a new condo that everyone is lining up to buy.

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6. Consider renting

Sometimes when you’re buying a house to live in it’s not the ultimate investment spot, but you may need to live there because of its proximity to your work. In such a case, consider renting your accommodations. If you can afford it, buy another property with more growth potential as an investment.

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7. Consider the demographics

Is the area’s average income increasing faster than the provincial average? What about population and job growth? If these figures are above average, chances are good that property values will see higher-than-average growth. You can research a region’s demographics by looking at studies done by Statistics Canada, provincial government economic departments and local economic research firms.

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8. Don’t get carried away

You want a fair price. If you get emotionally attached to a house, you might talk yourself into overpaying for the property, Mr. Campbell says. Similarly, if you get caught up in a bidding war, it’s easy to get swept up in what he calls the “I’m going to win this” mentality and spend more than you should.

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