What Impact Will The New Mortgage Rules Have On The Market?
First off the sky is not going to fall due to the changes however we will see a slowing in the market for the next market cycle. Typical market cycles for Vancouver Real Estate are the spring market which is March to Jun and the fall market which is from September to December. Market cycles are a period of time that there is the highest volume of transactions.
The impact of the rule changes will most affect the upcoming spring market cycle. During this time the market will adjust to the changes in buyers affordability. This adjustment will likely result in a reduction in the amount of transactions and thus put pressure on prices to come down if the inventory levels rise past the demand of the buyers. In the short term we will see the market pick up as buyers try to capitalize on the mortgage rules that are still in effect.
If the past is any indication of the future we would predict that potential sellers will either hold firm on their pricing or wait until the buyer’s confidence has returned before they put their properties on the market. This was the case when the Foreign Buyer’s tax came into effect in August of 2016 and I suspect it will be the case here.
Once the dust has settled at the end of the spring market we feel that the lack of transactions will create a pent up demand for housing in the Vancouver area. Buyers who need to find housing will see that the market has not “crashed” and will step back in. This spike in confidence should take back any reduction in the overall bench mark prices and the market will do what we like to call a bounce. Rebound to where it was at the peak once the buyer confidence returns.
So overall the effects of the mortgage rule changes will be that Buyers will have to adjust their budget down by 20%. In simple terms this year you can afford a 1000sqft 2 bedroom condo with a view and next year you can afford an 800sqft 2 condo with no view. People still need a place to live if they are going to live in this city so they will just need to accept less to do so.
Over the years we have seen real estate prices increase to a point where your average person may not ever be able to afford to live in this city. If you spend time reading the comments on any real estate article you will find there are a lot of people that are upset at the lack of affordability in the city and are looking to the government to step in to change things. We are in full agreement that changes need to be made and we have seen progress made on this with the Federal, Provincial and local governments implementing new rules and guidelines. These new rules and guidelines are simply an insurance policy to ensure that we will not see an economic meltdown like we saw in the US in 2008. Unfortunately we do not predict this will have a large affect on overall prices.
In accepting that Vancouver is an amazing city in an amazing country with an amazing diverse and welcoming culture and the only way to decrease the demand for people wanting to live here is to give up one or more of these qualities. Given the state of the world these days it is no wonder that people want to live here. Whether we like it or not we live in a capitalist based society and it is expensive to have it all.
I’m looking to sell my property and would like to know the best way to attract potential buyers?
Great question and one that is very common for people who are looking to sell their properties. There are many factors specific to each situation and client such as market conditions, motivation and timing but I would nutshell it like this.
Price- the key ‘invitation’. When searching for a home a Buyer will compare the features and specifications of your home to other comparable homes in the area. If the price of your home represents fair or good value, this will create urgency and greatly increase the likelihood that the Buyer will view your home. Ideally all of the other comparable properties are selling your home and your home is not selling the other properties.
Condition- Presenting the home to the market in a condition that will create an emotional connection to the target audience. Any upgrades or changes to the home must be made with an understanding of the return on the investment.
Marketing- the understanding of who the target audience is, what they are looking for, why they are looking for it, and how best to communicate to them.
The Right Price
The Right Condition
The Right Marketing Plan
Highest Possible Sale Price
I'm thinking of selling my home. What's the next step?
So you are thinking of making a move and are starting to collect information on how to get started. You have come to the right place. Whatever your need to make a move is, the process is generally the same. Below is a checklist that will help make your decision to move as stress free as possible. Our goal has always been to give our clients all of the information on the process up front so that you are not surprised by the unknown. Following these steps will keep you on track to have a fantastic experience moving to your next home and we would be very happy to work with you to assure that it all goes smoothly.
1. Find out what your home is worth in the current market.
2. Find out what your mortgage penalty is or if you can port the mortgage to another property.
3. Find out how much equity you have in your home minus any mortgage penalties, legal and selling fees.
4. Work with your Mortgage Broker or bank on getting pre-approved for a new mortgage or a port.
5. Verify that you have a minimum of 5% liquid cash of the cost of your next home available to put down as a deposit.
6. Once you have your budget established you can look to see if there are any properties that fit within your budget that will suit your needs.
7. Once you have identified a few prospects you should go and have a look at them to see if your budget is in line with your expectations for what you are looking for. If the homes you are looking for are suitable it is time to put the plan into action.
8. Decide if you would like to sell your home before you buy or buy your next home before you sell your current home. There are pros and cons to each option so make sure you know them all before jumping in.
What is a reasonable maintenance fee?
The BC Strata Act states that if you live in a multi-dwelling property with more than four units, the strata (the ownership group) must form a strata council, have council meetings including minutes, hold annual general meetings, share annual financial statements, etc. and collect monthly maintenance fees from the strata members, e.g. the owners. It’s worth noting that this maintenance fee typically covers operational costs such as strata management, garbage collection, gardening, amenities like pool or concierge and sometimes utilities such as gas and/or hot water - but it does not cover the big expenses of maintaining the building and common areas itself (roof, piping, membranes, exterior walls/windows, etc.). Most often these periodical building repairs are funded through special assessments approved by the strata and paid by the individual owners as an extraordinary out of pocket expense.
Maintenance fees these days tend to be around 35-45 cents per square foot, so for example, in a 1,100 square foot two bedroom condo, you should expect to pay around $385 - $500 per month. It’s the strata that sets the amount based on the annual operating budget, so in case the strata is underfunded or some significant property repairs are coming up, the maintenance fee can be quite a bit higher. Therefore it’s important that you and your realtor assess if the maintenance fee is reasonable based on the items included in the fee, the financial situation of the strata, the condition of the building and predicted future costs to maintain the property.
It is a fair assumption that we’ll see the average maintenance fees go up in the future because of the introduction of the Depreciation Report here in BC. This report is a thorough building inspection and assessment combined with a 30-year capital plan; What is the condition of the property and what are the long term predicted costs necessary to keep it in good shape. These reports will in many cases reveal significant repairs needed and thereby trigger a demand for increased strata funds, and accordingly putting an upward pressure on maintenance fees.
I was told by a friend that wood frame buildings are more likely to leak than concrete buildings. Is this true?
The short answer is no. Concrete and wood frame both will have a similar amount of risk in regards to water ingress issues or more commonly called “leaky condo”. So buying one over the other will not reduce your risks. If minimizing your risk of paying a large sum of money to fix a leaky condo is what you are after, you need to look at how and when the building was constructed rather than what it is made of. For this, we need to delve into building code, the governing body that dictates what and how things are built.
The building code has changed drastically in the past 50 years in an effort to create a minimum standard for how things are built. It’s intention is to make buildings safe, more efficient and nicer to look at. In the early 80’s the building code went through a major change to make new homes more energy efficient. What they didn’t realize was that if you saran wrap a building so it cannot breath, it will rot in to the ground. Both wood frame and concrete buildings built from about 1979 to 2000 have suffered from this. Here is a little secret - in this climate every building leaks! Even ones built today. The question is how will the building deal with it. If the building is older than 1979’ish it will tend to dry itself due to its ability to breathe. Think of it like a piece of Swiss cheese. Air can flow fairly freely between the inside and outside of the building; therefore, giving the building envelope a high likelihood of drying out. You may be a bit warmer in the summer and colder in the winter, but your carpets will stay dry. The building code went through another major change in 2000 due to the leaky condo problem of the 80’s and 90’s. The engineers figured out a way make the buildings energy efficient and able to breathe at the same time. They called this envelope system “rainscreen”. There were some early growing pains with the new technology but for the most part it has seemed to solve the problem.
No matter what type of property you are looking at buying your focus should be on how it was built, not what it was built from. It is highly recommended that you hire a good realtor who has extensive knowledge of building practices, as well as an understanding of the difference in the building code over the past 50 years.
Why is the inventory so low?
The question many people ask around this time of year.
The Vancouver Real Estate market tends to go in cycles with the majority of inventory & buyer activity being from Feb-June & again from September to November.
Although this can be frustrating for those who need/want to buy & sell in the summer or at Christmas time... it can have its advantages. For Sellers, this means that there is less competition if the right buyer comes along & for Buyers this means that there could be a good deal to be had if someone absolutely needs to sell.
For those of you that have the luxury of waiting... there will be a lot more product to choose from & more buyers out there looking after Labour Day.
What is the penalty if I pay off my mortgage before term?
If you choose to pay off your mortgage before your term has ended you most likely will be subject to a mortgage pre payment penalty. If you are in a variable rate mortgage you will have a a 3 month interest penalty. If you are in a fixed mortgage you will either have a 3 month interest penalty or an IRD (interest rate differential) penalty. The IRD penalty can be quite substantial, as the lender will take your existing rate and compare it to the current rate and you pay the difference for each month remaining on your term. The challenge is every lender calculates it a bit differently, and the major banks are known for fairly high IRD penalties over the past 5 years.
When it comes to paying out your mortgage to save on interest there are a lot of options and strategies that you can put in place to save some interest dollars. It is also important to pick the right lender initially if you are considering making extra payments of possibly paying your mortgage out.
Your best option is always to consult a mortgage professional that can provide unbiased educated options for you to review.
We are planning to sell our home but have only lived in it the last 10 months. Will we have to pay tax on our sales profit, if any?
The Canadian Revenue Agency (CRA) does not work with a specific timeline; there is no specific period of time you have to have lived in your primary residence before you are tax exempt from any profit from a sale. It is a case by case assessment by the CRA based on factors like motivation (is there a good reason to sell relatively shortly after buying?), history (is there a pattern of selling shortly after buying?, i.e. flipping properties), size of profit (is it above what can the expected based on the current market conditions?), time (obviously, if a property is sold three weeks after the purchase is completed, it will draw the attention from the CRA).
So, as long as your motivation/reason, history and profit doesn’t raise a red flag with the Canadian Revenue Agency, and you have lived in your home for a reasonable amount of time, you should not expect to pay tax on any sales profit. As mentioned, tax exemption is only granted as long as you are selling your primary residence.
When I list my home for sale, is it mandatory that I answer all of the questions on the Property Disclosure Statement?
No, the PDS is not a mandatory form. The seller may choose to fill in some of it, all of it or leave it blank. It all depends on the situation. In many cases Sellers will not fill it in if the property is a rental and they have not lived in the home. This is generally accepted in the industry as the Seller does not have firsthand knowledge of the property and any disclosure would be more of an estimated guess rather than knowledge. On the other hand, a Seller that has occupied the property will more than likely be able to answer the questions with the confidence of making the correct disclosure. The PDS is a document that can help build trust between the Buyer and Seller, therefore if the Seller has the ability to fill it in but does not it may put an obstacle in the way of a successful transaction. At the end of the day the Seller can make the decision on whether they will fill in the PDS and they should consult their lawyer or trusted real estate professional on their unique situation.
Is it a good time to buy a rental property?
We get this question a lot. Buying and selling real estate in Vancouver has been a hobby for a lot of people for the past 10 years. The trend has been driven by speculation that prices will continue to rise and they did. Up, up, up! Oh the good old days, what fun. The disheartening thing is, that I am still meeting with buyers and sellers that have not adjusted their mindset to the reality of today's market. Those great times have come and gone, so if you are buying a rental property based on holding it for a couple of years and then flipping it for a profit, I would say no it’s not a good time to buy a rental property.
The reality of buying a rental property in today’s market is that the prices are stable or as we like to say in the business “it is a balanced market.” All indicators show that it will be extremely unlikely for prices to go up anytime in the near future. So, this only leaves two options; prices will stay the same, or prices will go down. There are plenty of people that say the latter but in my opinion I think we will see things stay pretty much the way they are for the next 3 to 5 years. The demand for housing in the lower mainland will still continue to be high, but this will be offset by rising interest rates and more density. With this in mind, you really need to make sure you are getting into real estate as an investment with both eyes open.
No one can argue that owning real estate over the past 50 years hasn't been a good investment. Over the long term, it’s a fantastic stable investment. I’m not suggesting that you should plan on owning your investment property for 50 years, but I will say that a long term vision is what you will need in order for it to be a good investment. Rather than looking at a rental property as a means of immediate pay out when you sell it, your formula should be based on paying down the mortgage and creating cash flow with long term rental income. Over the long term, you should calculate the value of the property to increase by the rate of inflation.
So in conclusion, it can be a good time to buy a rental property, but you need to look at your expectations. If you are interested in a long term investment it might be right for you. If you are looking for a quick and easy way to make some money, it is not.
Is it a good investment to build a laneway house on my property?
This depends on your motivations and scenario. Read on...
Hope that helps! Your RRG Realtor is well-informed on the costing and planning/building process for laneway houses, so if you have further questions, please contact us.
Is it better to buy in winter or wait for spring?
This completely depends on the market, and the two major components of the market: prices, and activity. Generally, winter will bring less inventory, and less competition for inventory. Sellers and buyers generally know this, so while there may be some deals to be found for a buyer, pickings will also be slim. HOWEVER, markets are fickle and fluid and affected by other major factors besides the seasons… if rates are on the rise, if supply of a certain type of in-demand product is low, if economic changes locally or internationally become relevant, if, if, if…. Bottom line, and not to sound cliché…. Call your agent about the specific product your curious about!
How do I determine the ROI on any renovations I'm considering prior to selling?
This is a broad question but in short, you need expert opinions and it really depends on what you're considering doing, the current state of what you're considering changing and market conditions. What's happening with market activity for homes similar to your home now? What's happening with homes similar to what your home will be like when the renovations are completed? Paint will almost always generate a return particularly when using contemporary conservative colours and making sure the trim looks sharp. Flooring can also be an easy generator of good return particularly if the current flooring is mis-matched, tired or damaged. Buyers have a hard time seeing past this relatively easy thing to change so if your current flooring and paint is not appealing, it can be a relatively inexpensive no-brainer. With larger projects like kitchens and bathrooms or moving walls, etc., you need to do your homework. An experienced, very active local realtor will usually be able to give you very relevant input regarding whether a $20,000 kitchen or adding that basement suite makes sense in a home like yours or whether you should spend money on replacing the flooring or should simply discount the asking price and let a potential buyer do this. Opinions from busy local contractors may be a bit biased but are also quite relevant.
Bottom line, any money that your putting into a reno before listing is far from guaranteed to come back in the sales price but the reno will help your property stand out among the competition, i.e other similar listings. You're hoping to earn at least a few thousand dollars, and definitely NOT hoping to lose the same so put significant time into building your frame of reference before making any decisions. Get the opinions of at least two local realtors and at least two contractors. After that, you should have an idea of what to do (or not to do) next. All of us at RRG have significant experience exploring and guiding clients through such adventures.
If I don't complete on my purchase after removing subjects, do I absolutely lose my deposit?
Yes, at least per the current form of the REBGV's standard Contract of Purchase and Sale. It is automatically and without delay forfeited to the seller. Should the seller consider themselves to have damages as a result of non-completion that exceed the value of the deposit, the seller may then sue for these excess damages.
Is there a benefit to holding open houses? Is it good for the seller, or just the realtor?
"Open Houses" are absolutely a benefit to sellers, especially in the current market, AND are a benefit to the listing agent. It is completely fair to state that these benefits complement each other, in fact.
Three factors get a house sold: price (the 'invitation'), condition (decor, cosmetic appearance, state of repair), and exposure (marketing and physical ease of access). Open houses obviously fall into the exposure category, and in a nutshell, we believe the winning attitude is that any exposure is good exposure. So, yes, open houses benefit sellers, particularly in more of a balanced or buyer's market. When buyers are more tentative or less motivated, ease of access for the viewing of a listing becomes much more important. Buyers are less likely to actively seek agent-arranged showings and more likely to simply 'drop by an open house' when it fits into their schedule. The concurrent benefit to the listing agent is that being in front of people who want to buy or at least talk about real estate is a key way for them to attract new clients.
The market is very hard to read. Are things picking up?
Yes, no, perhaps, maybe, definitely, of course, and of course not. All reliable predictors, such as crystal balls, magic 8-balls, and coins turning in the air, point to this. Sorry, media fatigue setting in….
Statistically, activity is still lower overall than this time last year, but relative to earlier this year, the number of sales is up about 10% vs. January and prices are generally up a tiny bit. That’s an aggregate, though. Depending on the niche or price range, the reality can vary greatly. Entry level condos on the eastside are very sluggish but prices still steady. Two bedrooms on the west side in the more moderate, $500,000 to $600,000 price range are selling strongly. Houses under about $1,100,000 on the east side are still selling like hotcakes. Houses between $2,000,000 and $3,000,000 on the west side are hurting, as is just about anything ‘high end’, particularly downtown luxury condos.
The general message is that, despite the media’s ongoing effusive efforts, buyers are starting to ignore the hype and are getting on with business, although in a much more prudent, calculated manner than in recent years. People needing homes are getting off the fence, calculating carefully whether renting or buying makes more sense, and are taking action. Sellers are taking pricing and negotiating positions based on real data and realistic expectations, and are less bullish on their values.
In short, a more rational ‘new normal’ seems to finally be settling in, though high-end product is still correcting.
Is it true, as reported in the media lately, that 20% of condos in downtown Vancouver are vacant?
This is a GREAT question, and the answer is NO, it is not true. The reported number in the media is actually based on research done by an entity at UBC, specifically on buildings in Coal Harbour only, which has a very high density of wealthy American and foreign ownership and is one of the most desirable city ‘pied-a-terre’ locations in Canada (or globally, for that matter). It is entirely to be expected that a large percentage of these property owners will be out of the city or country at any particular time. There are minimal stats and research to demonstrate accurately what the true overall ‘vacancy level’ is downtown. The best research available points to roughly 7%, a number which for reference is within range of many other Canadian city cores.
I want to buy a condo that I will always be able to rent out if I want or need to. How can I ensure I buy in a building that will allow this? If I buy a ‘new’ condo, I have this right forever, correct?
It is quite challenging to find a building to buy into where one can truly feel ‘guaranteed’ they will always have the right to rent out their unit in. It isn’t impossible though, and there are also market niches one can buy in within which it is very unlikely to find rental restrictions (eg, downtown towers). Rental bylaws within a building can be changed by a 75% majority of voting owners at any of a strata’s Annual General Meetings or Special General Meetings, meaning there is truly no ‘guarantee’, per se.
The ‘new’ condo question: even ‘first time’ owners, IE original purchasers within a new building, do not necessarily have this guarantee anymore (as they did prior to January 1, 2010). Developers selling new buildings since this date must now enter an ‘end date’ on the Rental Disclosure Statement, thereby defining the end-date that first-time owners can retain the right to rent out their unit until (past practice by developers was often to leave end-date ‘blank’, thereby original owners could rent in perpetuity). Since January 1, 2010, the end-date for rentability on the RDS of a new developement is now typically 5 years from the date of the first owner’s completion, but can vary. After this date, all owners will become subject, within 1yr, to whatever rental restrictions may have been created by the strata.
So, options would be:
1- Buy into a new building with an RDS that has a very long ‘right to rent’ period, IE a length that you would feel would survive your ownership of the unit (and/or that is in an area of higher renter-to-owner ratios)
2- Looking for buildings in areas that would have more investment-property biased owners, or high ratios of tenants-to-owners. EG, downtown, Yaletown, etc..
3- Researching buildings that allow ‘Rentals with restrictions’ and assessing risk factors by studying any bylaw votes in recent years, history of restrictions, etc..
4- Buying in a building that, though not in a ‘renter-dense’ area, has a long history of no restrictions and no (or minimal) attempts to restrict them.
In a nutshell, you’ll likely need to do some sifting, and it will be virtually impossible to get a ‘guarantee’… however, it is completely possible to find options where the risk should be acceptably minimal. This is definitely a quest in which a knowledgeable and ‘strata-savvy’ realtor would be of great benefit: please note that all members of The Real Results Group focus primarily on the strata markets of Vancouver.
Inspections on Pre-Sale or 'new' condo purchases... are they necessary?
In the vast majority of instances, our opinion is that they are ABSOLUTELY necessary. There is sometimes a buying-public mindset that modern day warranties (primarily the '2-5-10' New Home Warranty program) and the fact that a building is 'new', has been built in accordance with modern-day building codes, and has satisfied all municipal permit processes, renders getting an inspection unnecessary and/or redundant. However, these codes and warranties, while generally ensuring a building and home is safe, habitable, and functional, do not address many factors which should be of importance to a buyer of such an expensive, large investment as a condo, and the building it is in. These factors include, generally, such things as quality of workmanship, integrity of materials and finishes, and construction deficiencies that a non-inspector may not recognize.
The process of buying a new condo does include that a legislated (Residential Development Marketing Act) 'deficiency walkthrough' inspection be conducted by the buyer and a representative of the developer prior to completion; this is an opportunity for a buyer to identify any deficiencies within the unit, and the developer must agree to rectify all discovered deficiencies prior to an agreed upon date. There is no legislated requirement for a buyer to have their own representation present, and as such, developers and their marketing departments will generally not encourage or recommend that a buyer seek this. Therefore, it is up to a buyer to be aware that they do have the right to request that they have their own representation present, and that this representation be an inspector of the buyer's choosing who will review the unit as well as the building. We believe that any prudent buyer should do this, and that such representation should be a qualified and experienced Professional Home Inspector, specifically with experience dealing with developers and deficiency lists. Generally, developers are very professional and reasonable, and will go to great lengths to rectify all discovered deficiencies; the key word to note here is, 'discovered'!
We have built up a significant frame of reference from having sold many new homes over the years. Here are some examples of what we feel a professional inspection can greatly help a buyer be aware of;
In more instances than not a best-case scenario enfolds, wherein the developer has done an excellent job, and nothing serious is found that couldn't have reasonably been discovered by a prudent, diligent buyer over the course of a deficiency walk-through. In those cases, an informed 'benchmark' is created, and peace of mind is usually GREATLY increased. In rare instances the worst-case scenario can develop, where truly poor construction can be pre-emptively identified that, without a strata's awareness and pro-active investigation, may not have been discovered until consequences (damages incurred, conflict with the developer) are endured. The middle ground is that it is quite common for items to be discovered that may not be discovered until warranty periods have long expired, may never be discovered, or are only discovered by the next buyer's inspector upon sale of the home. Also, certain deficiencies in the building are sometimes identified that can be brought to the strata's or developer's attention immediately by the buyer once they become an owner, giving the strata a head-start on pro-active warranty and deficiency management with the developer.
In a nutshell, there is definitely value to getting an inspection done on a pre-sale; think of it as very (relatively) cheap insurance and peace of mind.
How Does Population Growth Impact Vancouver’s Real Estate Market?
Population size and population growth are the core variables that will impact any real estate market: the more people in the economy, the greater the demand for housing. It’s no surprise that Vancouver has become one of the most in demand cities in the world for many reasons and it is evident in the real estate prices.
There are three main categories that are relevant to Metro Vancouver’s population growth; international immigration, interprovincial migration, and natural increase (birth minus death). Below is a graph that outlines British Columbia’s Population Growth:
In BC just over 80% of the population gain between 2006 and 2011 was due to migration. International migration accounted for most of the gain (66%), while interprovincial migration represented 15%.The rest (19%) was due to natural increase.
Interprovincial growth is indicative to a booming economy. As displayed in the table below, the only provinces that have seen a net gain in 2011/2012 was Alberta and Saskatchewan. These provinces, specifically certain areas, such as Fort McMurray and Calgary are experiencing a booming real estate market. The housing demand outweighs the supply on the market. British Columbia has and will continue to experience an increase of interprovincial growth for baby boomers that are entering retirement. However, BC has lost approximately 5,000 residences to seek a home in another province. With that, a general slowdown in the BC economy has already resulted in a net loss in inter provincial migration to BC in 2011 and a 30% drop in international migration.
Ontario, British Columbia and Alberta has seen the largest gains of international migration. The majority of BC’s immigration landed in Vancouver. From 1996 to 2011 Metro Vancouver's population increased by 481,663 people. With immigration to Vancouver, came lots of wealth to purchase properties. For example, a large percentage (estimates suggest upwards of 80%) of Westside sales in the first quarter of 2011 were from Mainland Chinese investors. With that, the average MLS selling price increased 11% from the previous year.
British Columbia’s natural increase (the difference between births and deaths) was an estimate of 5,000 people (19%). Currently, the average family size in Metro Vancouver is 2.6 people. The increase in family size such as having a baby, or the decrease in family size (losing a family member) are the main reasons why people upsize or downsize their current home. Although Vancouver has not gone through any major demographic shifts in the recent past, we are on the verge of seeing a major shirt with the baby boomers downsizing for their retirement.
Why Do Strata Fees Vary from Building to Building?
Strata fees are derived from unit entitlement which serves to distribute ownership of the common property among the owners of the individual strata lots. This is calculated by dividing the number of square feet in an owner's strata lot by the number of square feet in all strata lots.
The Strata fee is distributed into two different funds.
There is no minimum or maximum allocation to the contingency fund set out by the Strata Property Act of BC. Therefore the requirement is set out in the regulations; the strata corporation must determine the amount of the annual contribution to the contingency reserve fund. Often, we find that people are comparing strata homes based upon the maintenance fee, and people tend to favor the strata home that has a lower strata fee; however this can be costly in the end. When comparing strata homes, it is essential to look to the operating budget to learn of the property management style (too see if they handle issues as they arise or if they are proactive in maintaining the building) as well as the looking at the contingency fund. If the maintenance fees are low, and that is reflective in the maintenance fee, you will likely be paying for the repairs out of your pocket.
With legislative requirements to put in place depreciation reports, which will estimate the repair and replacement cost for major items in the strata corporation and the expected life of those items. Once these depreciation reports are put in place, we believe that this will inevitably increase strata fees as the property management company, strata council and the owners in the building will have a detailed report informing them of the maintenance and repairs that will need attention in the future. The increased strata fees may be painful in the beginning, but the money will be paid one way or another, either from the contingency fund or directly from your pocket.
Why is the city assessed value not reflective of true market value?
The city’s mandate for valuating properties revolves solely around calculating taxes based on fair approximate market value. True, up-to-date market value is constantly shifting, and can vary somewhat even between seemingly similar homes. As the city’s purposes are satisfied by ‘approximate value’, and as calculating accurate market value for every property would be a prohibitive and unnecessary expense of tax dollars, the city uses an ‘electonic appraisal’ based on raw MLS data, simple parameters, and a two year average. Therefore, the city’s assessed value of any given property can certainly be an indicator of ‘ballpark’ value, but should not be relied on at all in any situation demanding accurate market valuation. This number can be used to effectively ‘spin’ the marketing of properties… but buyers and sellers would hopefully not, in the end, rely on it to any substantial degree when making a transactional decision.
How are interest rates set?
(Answered by Dave Lacusta – Dominion Lending)
There seems to be a lot of confusion about how mortgage rates are set in Canada. Every time the Bank of Canada announces a change to its target for the overnight rate (formerly the bank rate), which is every 6 weeks, my phone rings off the hook with people inquiring about the latest changes to mortgage rates. When I explain to them that there is no correlation between changes in the overnight rate and changes in fixed mortgage rates in Canada, there is a long silence on the other end followed by confusion.
Fixed residential mortgage rates are determined by changes in the bond market and the competitiveness of the chartered banks in Canada. The Bank of Canada has very little, if any, influence on them. If you compare changes to the overnight rate with fixed mortgage rate trends, you will notice that sometimes mortgage rates went up, sometimes they went down and sometimes they stayed the same, regardless of which way the overnight rate was adjusted.
The chartered banks set their mortgage rates based on yields in the bond market. A Government of Canada bond represents a risk free investment to the banks. If the banks choose to invest in a mortgage, they are taking on added risk and incurring costs to set up and service it. The banks will set their mortgage rates high enough above the equivalent bond yield to cover their costs and provide some sort of profit margin for the added risk they are taking on.
As an example, a 5-year Government of Canada bond is yielding about 1.39% today and most 5-year discounted mortgage rates are set at about 3.09%. This means that the chartered banks are only earning a risk premium of 1.70% before expenses.
So now you might be asking, how are bond yields determined? By investors' expectations for interest rates in the future. These expectations are arrived at by assessing the state of the Canadian economy and predicting where it is headed relative to other world economies. There is no science to such predictions (although some economists spend a lot of time trying to make it into a science). At best the markets make their best guess and keep updating their guess every day.
The best way to try and predict when mortgage rates will rise and fall is to track Government of Canada bond yields daily. It is normal for yields to change slightly from day to day, but if you start to see consistent increases or decreases then you can expect that the banks will be adjusting their mortgage rates accordingly. If you are interested in a 5-year mortgage rate then track the equivalent 5-year Government of Canada bond; if you are interested in a 1-year mortgage rate then track the equivalent 1-year Government of Canada bond, and so on.
Now that I have told you that the Bank of Canada does not have an impact on mortgage rates, there is one exception to this rule. Most variable rate mortgages are affected by changes to the prime rate as set by each of the chartered banks. The prime rate will change, in the same direction and by the same amount, as any change to the overnight rate. So if the Bank of Canada announces a decrease in the overnight rate by one quarter of 1% (or "25 basis points" in financial parlance), then you can expect most variable rate mortgages to also drop by one quarter of 1%. Please note that the chartered banks add 2% on the overnight rate of 1% to offer Canadians the bank prime rate of 3% on a variable rate mortgage.
So unless you have a variable rate mortgage, don't pay attention to the hype surrounding interest rate announcements by the Bank of Canada. If you want to know where fixed rate mortgage rates are headed, follow changes in the bond market.
Are all concrete buildings the same?
Surprisingly to many, most towers in our city are not really ‘concrete’, though they are often described as such in marketing materials, on MLS, etc.. A ‘concrete’ building will have a concrete core, concrete pillars or demising walls, and concrete exterior walls. Concrete frame buildings have concrete cores and concrete pillars, but will have a cladding system for the exterior walls. These cladding systems can be window or aluminum/metal curtain-wall, or some other type of cavity-wall (ie, ‘rainscreen’) system. It’s important to understand the difference; any building can experience water ingress or envelope issues. True ‘concrete’ buildings are the least susceptible, with wood-frame buildings and concrete frame buildings being roughly equally susceptible. In particular, buyers should be diligent when considering buying into concrete frame buildings built in Vancouver in the 90’s; these were often built with ‘EFFIS’ cladding, a stucco painted-styrofoam panel system (a basic description) that proved problematic and unreliable in our climate and is no longer used for residential applications. If you have any questions or need more information, please don’t hesitate to contact one of us at anytime.
What’s the benefit of working with a team rather than an individual?
If an independent individual agent happens to have a lot of active clients, they can quickly become stretched, in terms of time and resources available for each client, and on-demand availability to service listings, write contracts, etc.. Many are excellent, but most will be susceptible to this. Teams have pooled resources, shared manpower, and usually streamlined systems operated by an assistant. There are two general types of team;
1) "Primary Agent", where one productive agent has backed themselves up with an assistant and/or junior agents or buyer agents. This agent's systems will be entirely devoted to representing and supporting their style and service levels. Clients will usually get 'face time' solely with this agent, but sometimes will be serviced by the assistant or junior agents.
2) "Group of Agents", where a small group of agents pool resources and share paid assistant services (RRG being this type). Clients primarily work with one individual; however, this individual is usually backed up by other individuals, allowing for more consistent, on-demand service, a larger body of accessible knowledge and counsel, and overall greater resources. On this type of team, the agent will typically have access to an assistant, or less-busy team-mates, to help them maintain full service levels with each client. As well, this type of team's systems will tend to, as a result of collaboration and mind-share, be more developed, thus streamlining processes.
Should I use price per sqft as an accurate measurement of market value?
In a nutshell, not as an 'accurate' measurement, and typically not for the purposes of valuating anything other than condos, and perhaps townhouses if in a larger development. When you have many units that are very similar within a building or within a small, dense market area (i.e., within a neighbourhood), dollar-per-square-foot ($/sf) history of recent similar sales certainly becomes one of the key initial valuation tools. Other factors will then affect the valuation; floor level, view, condition of unit, finishings or renovations, outdoor space, parking stalls, restrictions, occupancy, the list goes on!
What’s the benefit of taking a 10 year mortgage term vs a 5 year term?
Currently, with the 10 year term rates below even ‘low’ average historical 5 year rates, there can POTENTIALLY be some big savings. The total cost of interest over 10 years for two consecutive 5 year terms, with the first at today’s rates and the 2nd at what the 5 year rates are very likely to be 5 years from now (eg, historical averages in the 5-6% range), could easily eclipse the total cost of interest over 10 years for one 10 year term at today’s 10 year rates.
Example, assuming a $400,000 principal
1. Two 5 year terms, with 1st at 3.29% and the 2nd at 5.29%, total interest paid; $160,158.53
2. One 10yr term, at currently available 3.99%, total interest paid; $137,216.28
The savings in the above scenario work out to interest savings of about $23,000, or at least $2,000/yr. The caveat here must be that borrowers must educate themselves on penalties for early payments, limited acceleration options, etc., that have the potential to limit the savings or appeal of a 10yr option. Invariably, the 10yr will be ‘less flexible’, and more suited to long-term holds.
I’m listing my house, and am aware the market is shifting downwards. How do I approach pricing?
Firstly and MOST importantly is taking into consideration what you’re actually selling, and how its own ‘micro-market’ is performing. If what you have rarely comes to market, always sells quickly, and has no current competition, than this may mean a more bullish strategy can still work. If what you have is very common, would have a hard time standing out in a crowd, and has lots of competition, then being IMMEDIATELY bearish would of course be the way to go.
That being said, in general, a downwards-shifting market means a lot more supply, and decreasing demand. The seller mentality needs to shift from ‘gaining’ as much value as possible to ‘retaining’ as much value as possible. A seller who is serious about selling will need to do their best to remove any expectations based on recent comparable prices; markets are fluid and ever-changing , and just like a stock-market can have a herd mentality, which means they gain momentum quickly, upwards or downwards. The key is reading the market accurately, and reacting before the competition does. Though it can be a bit hard to be ‘the first to leap’, it’s better to lead a market downwards than to chase it. For example, if all the competition is priced at $500,000 with no-one buying, it’s the first to lower their price to $475,000 that will likely sell. The competition will then have to follow this lead, and if there’s still very few buyers at that price point, the same process will happen all over again; everyone will sit at $475,000 until someone drops to $450,000.
It’s like dropping and then catching a falling stone; you must put your hand out where it’s about to be, rather than where it was when you let it go.
I'm hearing a lot about the upcoming legislated requirement for all stratas to create ‘Depreciation Reports', and that these will result in higher fees. What's the story?
The general reason that these regulations have been introduced is to standardize how stratas budget, and pay for, long term inevitable expenses such as roofs, plumbing, envelope repairs, etc., etc.. It also establishes and addresses asset inventories, cash flow models, record-keeping regarding storage lockers and parking, and other issues that to date have been the cause of endless conflicts and problems for stratas and their members/owners.
To date, the strata act mandated that stratas maintain a contingency fund, and perform some generally loose standardized budgeting. So, some stratas would elect to have higher fees and maintain a very large contingency fund, accessing this fund when issues would arise and thereby limiting the need for ‘surprise' levies or assessments. Others would elect to have low fees and a minimal contingency, levying/assessing as needed. Also, many stratas, until a majorly expensive issue would arise and ‘sting' them, would not participate in in-depth long-term budgeting or expense forecasting. As many of these planning or budgeting decisions would often be made by the council members with minimal participation from other owners in the strata, when an issue would finally arise that demanded serious financial participation from all owners, conflicts would happen.
In our opinion, these reports and their mandatorily legislated nature is a good thing. Transparency will be greatly increased for buyers reviewing documents and doing their diligence, many sources of confusion and conflict within stratas will be eliminated, and accountability between owners and their councils will be increased. Yes, fees will generally rise for most stratas that do not have this type of budgeting in place already (many new stratas already have ‘capital plan' budgeting in place). However, if one were to, based on typical current strata financial practices, amortize (for example) 30 years of fees and special assessments back down to a monthly fee, one would quite likely find this monthly amount to be considerably higher. While many owners may prefer to have lower payments and pay for projects ‘as they happen', the more practical (and certainly more ‘peaceful') route is to diligently budget long-term.
The adaption will be somewhat painful as BC stratas phase these reports in, but as a frame of reference, strata fees here are generally considerably lower than in many other provinces where such budgeting is already in place (EG, Toronto has much higher fees on average).
Follow this link to a very comprehensive informational piece
I'm not happy with my previous realtor, who I chose based on a friend's referral. How do find a buyer's agent?
‘Trust', IE familiarity rather than credentials, experience, or referrals, is quite often the ONLY qualifying criteria buyers will use when selecting a buyer's agent. Buyers also often don't take the selection of a realtor nearly as seriously as a seller does; they SHOULD. The realtor fees are paid from the proceeds of the sale, and while the seller's agent and seller largely ‘set the fee' that will be split roughly evenly between the seller's and buyer's realtor, the funds come from the buyer. So, in essence, both buyer and seller are ‘splitting' this cost. The point here is that buyers need to, for many reasons, QUALIFY their prospective agent and ensure they're confident they're going to get good value for the services provided. It's usually easy to find a real estate agent; it's identifying a good one that is the right fit for you that is a bit more challenging.
I recommend interviewing at least 3 for the job, and finding them by cruising some open houses in the area you wish to buy in. Observe them first, and if you find their demeanor appealing, ask them about the building or property, the area, etc.., but perhaps without letting on you're ‘realtor shopping'. Once you've identified your 3 ‘prospects', call them and invite them for a coffee or see if they'd like to meet you at their office. In about a 20-30 minute ‘interview', you should find out about their experience level and knowledge of the area, get a feel for whether they are more about ‘you' or more about ‘the deal', and also ask them how they get paid. They should go out of their way to make sure you know what to expect and when, find out if you have the best mortgage rate, and educate you in general. You want to feel a good personal connection, and also feel they are professional and have your best interests at heart.
Regardless of how you do get introduced to or ‘find' a prospective realtor, DO put them through the interview process! The substantial professional fee that you will put in their pocket is more than worth it if they protect your interests, make sure you understand the value of what you're purchasing, and overall create a confident, comfortable experience for you as you spend hundreds of thousands of dollars on likely your biggest
Why do different realtors charge such different fees?
The real estate sales/service industry is 'market based' when it comes to fees, and as such, 'typical fees' will vary from market to market, and also within each market. EG; in many areas of the U.S. and in places such as Toronto, there is a 'flat fee' structure that is prevalent; 5% is common. In B.C., you typically will see 7% on the first $100,000 + 2.5% on the balance, which as a net rate against our B.C. prices today, is considerably lower than most North American markets.
Within a given market (eg, Vancouver) however, is where fee differences from realtor to realtor stand out. Most 'full service' realtors will charge in the range of 7% on the 1st $100,000+ 2.5% on the balance, but this is negotiable. A good realtor should be able to justify and reasonably defend his value; interviewing at least a few when considering selling will very likely show that some are more 'worth' this fee range than others.
There are many discount realty companies and their realtors in the marketplace as well. They will charge much less, but statistics show their net sale vs list price percentage average to be a bit lower, and days on market to be more.
An inherent problem for consumers is that, typically, the agent for the buyer gets paid through the 'listing contract' between the seller and their agent. If the 'share' of the fee being offered to buyers' agents is not competitive, this sometimes hurts traffic to the listing.
The 'cost' of the fees is important, but feeling like your hired professional 'netted' you as much as the market could bring you is the bottom line, regardless of fee amount. You get what you pay for, so interview at least three realtors, and challenge them on their fees, as well as speak to at least a few references. There's a lot more at stake than just the fees!
I keep hearing that the market is ‘balanced' these days; what does that mean?
Generally, it refers to a market where, relative to historical market norms, there is neither a shortage or abundance of inventory. Conditions are ‘healthy'. Prices are stable, there's few ‘competing offers', sellers need to expect to discount a bit off their list price when negotiating, buyers can expect to have a bit more time and property choices to work with. If a property is priced well, it should still sell quickly, for quite close to asking. Following is a bullet list of ‘identifiers';
I want to move up (to a larger, higher priced home), but with the market seeming to be turning downwards, I'm not sure if this is a good time. Is it?
Every situation is different and you should consult with a professional 3rd party about your particular scenario. But, that being said, in general it's usually smart to ‘move up in a down market'. Ideally, you'd be in a situation where you can sell quickly, then be patient when buying. Example; if your current place was worth $400,000 a few months ago at the market's ‘peak', and it's come down about 5%, you're retaining about $20,000 less equity. But, if what you want to buy was worth $700,000 at market peak, and it also has of course come down 5%, you're saving $35,000 on the purchase, for a net savings of $15,000. This ‘spread' can become quite significant depending on the price ranges we're talking about.
If the market has moved down even further between when you buy and when you sell, you can of course possibly increase this ‘spread'. Currently, conditions are good for exercising this type of strategy; the market is turning and will likely continue to do so for a little while, and rates are likely to stay low.
I'm not comfortable with competing offers, but am fed up with missing good properties. How do I cope with competing offers?
In our market, if a buyer is to increase their chances of success, it's important that they familiarize themselves and gain some comfort with the concept of competing offers. A good property that is sharply priced in a market segment that is at least somewhat active is bound to get multiple offers. Buyers must ‘court' the seller more than ‘negotiate'. Success will be had by the buyer with the best combination of price and commitment. Emotional deterrence to competing offers can be costly; hopefully the below helps you create a frame of reference that helps to develop an objective approach! Buying a home can be emotional; the process itself is short, however, and the reward almost always very long-lived.
The first concept to embrace here is that there are three numbers to consider when writing any offer; list price, market value, and value to the buyer.
1) The List Price; this is an ‘invitation'. If there's lots of activity, it's clearly a good invitation and likely well (or under) priced. Once it's gotten you ‘in the door', it's best to largely ignore the list price, and any emotional deterrence you may have to ‘paying over list'. It was simply an effective part of the marketing strategy the realtor/seller used to bring the property to the right buyers.
2) Market Value; currently and recently, what are very similar properties selling for? From this data, you and your realtor can come up with a clear idea of current market value. From this information, and how it relates to the list price, one usually sees a correlation to the activity and how many offers are rumoured to be coming in.
a. EG #1; if market value is between $480,000 and $500,000, and the list price is $500,000 but there's still lots of activity and many offers coming in, the market is clearly ready to move the market value up; by how much is difficult to gauge (see next bullet for more on this).
b. EG #2; assuming same market value, but a list price of $475,000 and only two offers, it's reasonable to assume market value is holding fairly steady, and the seller is either motivated, under-priced, or intentionally trying to generate multiples. It may not even take over asking to ‘win' if the market itself is a little ‘flat'. The examples could go on, but hopefully the gist is clear.
3) Value to the Buyer; the most important number. There's more to competing offers than picking a price, but it's of course the most important part of the process. In most cases it's best to expect that there will be only one chance to ‘win', so you'll need to commit to a price that is equal to, or just a bit more than, what would be the top number you'd be willing to pay for the property were you not competing.
a. EG; market value is clearly $480,000 to $500,000, list price is $499,000, and there's 4 other offers. You love the property, are comfortable ‘pushing the market up', and could spend up to $550,000 from an affordability standpoint. At $520,000, you feel a bit pressured, but would kick yourself if someone else bought it for $521,000. So, perhaps $522,000 would be the number.
To be competitive in competing offers, one must consider commitment as well as price. ‘Commitment' refers to the conditions or subjects. These are usually financing, review of documentation, and inspection. When not competing, it's usually agreed by buyer and seller that the buyer will have about a week to satisfy these conditions, within which the buyer can walk away at any point. So, the seller is committed, but the buyer isn't for a week. When competing, a buyer's ability to shorten, omit a few, or even omit all conditions greatly strengthens their offer relative to others, as the seller will be concerned that should a buyer walk away during this conditional period, they will have trouble generating the same price again. These efforts to shorten/omit subjects usually involves hustle, and a good realtor experienced in these situations will help greatly in determining the maximum ‘commitment' you can safely and comfortably provide in the shortest time possible.
There are other tools that can aid in competing offers, but the above provides a good overview. The strongest a competing offer could be is one with the highest price, no conditions, dates left up to the seller, and deposit cheque in hand at time of offer. Buyers competing need to come as close to this ‘benchmark' as they comfortably can or are willing to in order to know they've given themselves their best chance at success. You and your realtors' job will be to find this point and take your best swing.
Aftermath; if you win, you may feel you paid too much- it'll be important to remember you've ‘pushed your own market', most likely to your own benefit. If you are close to the best offer, you MAY get a second chance and be asked to pay a bit more or provide a bit more commitment. If you lose, especially by a small margin, it's common to kick yourself; this is why it's important to feel your taking your best shot when you initially submit the offer.
How do I know if staging will be worth it?
It's virtually impossible to know exactly how much return a seller will get for any dollars spent on staging, however, statistically speaking, it's quite rewarding. With staging, it's not so much about being able to increase the list price relative to similar properties; it's more about how much CLOSER to the list price (ie, higher net sale price), and how much more quickly, a listing will sell. Quick analogy; say you have two $100 bills in front of you. One is fresh off the printing press, crisp, clean and shiny. The other is old, crinkly, one corner taped in place. They're both worth the same, but we know which will be picked up first, 9 times out of 10. We've seen examples of pretty much identical apartments in the same building, listed at the same time for almost identical prices, one staged and one not, where the staged unit sold for $1,000's more and much more quickly than the non-staged unit. In a nutshell, it's almost always a good investment!
What is the best time of year to sell?
There's general market cycles to consider here, but what you're selling is also a factor.
· Vancouver market cycle; typically, mid-November to early March sees the least activity, mid-March to May/June sees the most activity, summer is slower, and fall is busy again though not as busy as the spring market.
· What you're selling; it's important to get an idea of the ‘competition'. If it's the heat of the spring market, but there's 30 listings very similar to your property in the area, it may not be a great time. Conversely, if it's November but there's nothing on the market like your property, and the last comparables sold in multiple offers, then it could be a great time to strike. Another consideration could be outdoor space; a home with a great patio, a view roof-deck, or outstanding landscaping is much better presented in late spring, early fall, or even summer.
Bottom line, consult with a professional (or two; comparison is good) , and make sure all factors are considered.
I'm a buyer, and I've heard mixed information about whether it's free to use an agent or not. Please explain.
The common perception seems to be that a buyer's agent works for free for their client, or is paid from the fees paid by the seller to their agent; ie, at no ‘expense' to the buyer. This view is somewhat semantic; usually, at the end of the day, the buyer pays one amount, and the seller nets a lower amount, with the difference going towards realtor services. If you pay $400,000 for a property, and the seller will net $386,ooo, this means $14,000 is paid for real estate fees; feeling that this money is well-spent should be as important to a buyer as it will be to a seller. To that end, a buyer should interview at least two buyer's agents before choosing one to represent them. A good buyer's agent will be able to convey value for their services, should instill confidence in you that you will be advised competently, and should demonstrate strong market knowledge.
*Note; currently, buyers do have the choice to negotiate with and hire directly a buyer's agent, cutting the seller and/or seller's agent out of how much they pay their professional representative. In the future, it's our belief that this will be commonplace; it's become mandatory in a few regions of North America. Today in BC, buyer's agents have legal/fudiciary obligations to disclose their fees from the seller/seller's agent, protect their clients best interests at all times, etc..
When is it a good time to buy?
This really depends on an individual's needs and goals, and how they relate to factors such as a rising or falling market, interest rates, etc., etc.. It's always a good time for some people, and not a good time for others. A good first step to figuring this out is to verify your spending potential (meet with a mortgage broker and/or financial planner, etc.). Next; consult with professionals! There's an absolutely massive amount of information and advice available online, in publications, etc.., but nothing beats sitting down with a few different professionals who will listen to your situation and shed light on your options. Our advice is to consult with a few different realtors before committing to one.
How do I find out if a condo is leaky?
Primary indicators can be the time-frame the building was built in (most were built between early '80's and late '90's) and it's general construction style (eg, woodframe with stucco-clad exterior is most common), however diligence is also required to get a truly accurate picture; eg, a building matching these criteria may have had it's exterior updated (ie, rainscreened) at some point. An experienced local realtor should have a good handle on which buildings in the area are suspect, as well as have the resources to quickly investigate unfamiliar buildings. Other tools for diligence, in the case of a purchase scenario, would be strata minutes, engineering reports, owners' disclosures, and a buyer's own Professional Inspection. It's very important to note that even in the case of a building that has had 'fixes' or been 'fixed', there could still be risks. A buyer needs to match their own risk profile with the facts they can discover about that which they're considering buying; typically, the lower the risk (ie, built since about 2002, rainscreened, still under warranty), the higher the cost. To build your own frame of reference, check out these sites;
As a group, we have developed a high level of knowledge regarding building envelopes, suspect buildings, etc.. Calling one of us is a highly recommended way to get a quick answer.
How does the HST affect me as a buyer?
This depends on whether you're buying new, or resale. In both scenarios, you'll pay a little more tax on associated services (HST for lawyer fees, inspector fees, etc..). In the case of a resale property, other than this relatively minor factor, it will not affect you; there is no HST charged on the purchase price. When buying a new property, prior to HST, you would have paid 5% GST on a purchase price of approx. $500,000 or more, with substantial discounts available in price ranges below this. With HST, purchases are subject to 12% HST minus a discount of 71.43% off of the Provincial portion of the HST (7%), with the availability of this discount maxing out at a purchase price of $525,000. This means that a purchase at any amount over $525,000 will receive a flat discount of $26,250 off of the 12% gross HST. Any purchase below this will receive a proportionately smaller discount. For more information, refer to; http://www.sbr.gov.bc.ca/documents_library/notices/HST_Notice_003.pdf