#TerminologyTuesday: Irrevocable

The word IRREVOCABLE means "not able to be changed, reversed, or recovered".  And that is basically what it means in reference to a real estate contract, or "offer" as it is commonly called.

When you make an offer, there is a clause in the standard OREA form to make it irrevocable for a specific period of time.

"This offer shall be irrevocable by (Seller/Buyer) until (time) on the (date) day of (month), 20xx, after which time, if not accepted, this offer shall be null and void and the deposit shall be returned to the Buyer in full without interest."

Until that deadline has passed, the offer can not be changed or withdrawn by whoever made it (typically the buyer first, but this applies to counter-offers from the seller to the buyer as well).  The party to whom the offer has been made has until that time to accept it and communicate acceptance.

While not technically required for a contract in general, the nature of real estate makes this a pretty standard part of the process.  It gives the seller assurance that the buyer will be bound but also gives time to consider other offers that might come in.  And it gives the buyer an idea of when to expect an answer, not held in indefinite limbo while a seller considers it and possibly waits for other offers to come in.

On that note, a shorter time period can put pressure on the sellers and is generally better for buyers, while a longer time period works in favour of the sellers as they can bide their time a little to see if anything else does come in.  In practice, it's a balancing act between giving what is necessary and trying to protect your own interests as well.  The listing may ask for a 24 hour irrevocable, but the buyer is not strictly required to oblige that request, just like they're not required to give full price or any other terms outlined in the listing.

But then, the seller may be from out of country, in hospital, or any of a host of other possible scenarios that might require some time to respond, and a shorter deadline may not be feasible. You might just be shooting yourself in the foot and irking the seller for no reason.  And even if there is no 'good reason', it's still one thing the seller is looking for that you're not giving them, so it all has to be considered strategically and with an overall view of the rest of the offer.

Make sure you work with a competent and experienced real estate professional, and trust their advice.

Market Media Monday for August 26, 2024

A curated list of recent headlines relevant to real estate in Canada, with short excerpts. Click each headline link to read the full article on the source site.

[ Open bidding in Ontario: Game-changer or business as usual? ]
"Late last year, changes to Ontario’s real estate legislation, the Trust in Real Estate Services Act (TRESA), came into effect, making open bidding legal in Ontario. (Real estate is generally regulated at a provincial level, so as of now, these changes only apply to Ontario.) It was big news at the time, but has it made a big impact? Here’s what this legislation means for buyers and sellers in the province, and how it could influence the housing market."

[ Young Canadians have ‘no shortage of barriers’ but are still optimistic about homeownership, report says ]
"About 84 per cent of Canadians aged 18 to 38 say that owning a home is a worthwhile investment, according to a recent Royal LePage survey, and 54 per cent believe it’s an achievable goal."

[ Canadian Real Estate Inventory Grew More Than 2x The Rate of Sales ]
"Canadian real estate prices have yet to budge, but there’s a lot more inventory hitting the market. Canadian Real Estate Association (CREA) data shows new listings surged in July 2024. An army of sellers hit the market last month, sending new listings to grow at more than double the rate of sales. Some of the country’s biggest markets are now seeing double-digit growth, as sellers potentially overestimated the impact of rate cuts stimulating buyers."

[ ‘It could happen over time’: Former CMHC chair on longer mortgage terms in Canada ]
"The former chair of the Canada Mortgage and Housing Corporation (CMHC) says longer mortgage terms like those typically seen in the U.S. could eventually be offered in the Canadian market, but it would require a number of fundamental changes."

Market Media Monday for August 19, 2024

A curated list of recent headlines relevant to real estate in Canada, with short excerpts. Click each headline link to read the full article on the source site.

[ Should Canada ditch the mortgage stress test? What experts are saying ]
"Despite recent interest rate cuts, the Canadian real estate market remained slow this summer. This has prompted some in the industry to call for an end to the stress test – a tool that determines whether a person can qualify for a mortgage. But would it be a good idea?"

[ Canadian Real Estate Is Stable, Toronto Condos Are An Exception: BMO ]
"No news is good news, especially for real estate investors looking for markets to stabilize. BMO Capital Markets dived into existing home resale data, and found little movement in July. Inventory is outpacing sales but they believe stocks are largely just being replenished. Toronto condos are a notable exception, where they are starting to see a supply glut. Considering Toronto real estate led Canada’s markets on the way up, it’s worth paying attention to see if it leads on the way down."

[ Canadian home sales dip as mortgage costs stay high ]
"National home sales declined in July as mortgage costs remained high, despite recent interest-rate cuts by the Bank of Canada, reports the Globe and Mail."

[ Posthaste: Take heart, Canada's housing market hasn't been this stable in years ]
"Canadians have been watching the housing market like a hawk since the Bank of Canada began cutting interest rates, hoping for a rebound from the post-pandemic doldrums. So far though that has failed to materialize. There was a bit of a spark after the central bank’s first rate cut in June, but in July the market “took a pause,” according to data released by the Canadian Real Estate Association last week."

Market Media Monday for August 12, 2024

A curated list of recent headlines relevant to real estate in Canada, with short excerpts. Click each headline link to read the full article on the source site.

[ Is it better to buy or rent? An expert shares her insights ]
"With increased supply outpacing demand, prices are lower in some markets, which gives buyers an edge, Reddy said. It could be time to take advantage of the buyer's market."

[ Why Canada’s cottage country has changed forever and the Home the Week ]
When you think about Canada’s cottage country, your mind wanders to natural landscapes, a cottage dock jutting into serene waters, bordered by lush forests with the call of loons emanating from somewhere distant. But there’s a looming profanity in paradise, writes Sam Riches, in the form of short-term rentals.

[ Stalled jobs market paves way for Bank of Canada to keep cutting interest rates ]
Canada’s unemployment rate held steady at 6.4 per cent and the economy shed about 2,800 jobs in July, a soft monthly reading that economists said paved the way for continued interest rate cuts by the Bank of Canada.

Market Media Monday for July 8, 2024

A curated list of recent headlines relevant to real estate in Canada, with short excerpts. Click each headline link to read the full article on the source site.

[ GTA home sales down 16% in June despite interest rate cut: TRREB ]
The Toronto Regional Real Estate Board says home sales in June declined 16.4 per cent from last year, with many potential buyers staying on the sidelines despite the highly anticipated Bank of Canada interest rate cut.

[ Bank of Canada Rate Cut In July Less Likely, But Can’t Be Ruled Out: BMO ]
Canadian inflation is demonstrating it can be a lot stickier than the central bank expected. Last week’s CPI report showed annual growth accelerated, reversing some of the Bank of Canada (BoC) progress on taming inflation. The move sharply lowered the odds of the BoC making another cut later this month, but there’s still a chance, according to BMO.

[ Canadian Mortgage Borrowers To Reduce Consumption Even After Rate Cuts: BoC ]
Canada’s sharp and unexpected rate hikes will continue to produce damage, even after rate cuts. A new staff research note from the Bank of Canada (BoC) shows the overnight rate is much higher than initially anticipated, reducing consumption for mortgage borrowers since the climb began in 2022. Rates are now being slashed and providing relief, but reduced consumption is seen through 2027.

[ Should you get a 30-year mortgage? ]
Signing a 30-year mortgage in Canada can be an attractive option for some home buyers in the face of relentless real estate prices and historically high interest rates. Specifically first-time home buyers and those now renewing their mortgages.

[ Over 100 Hamilton tenants face threat of eviction as landlord starts listing townhouses for sale ]
The for sale sign in front of Heather Mulryan's Hamilton townhouse is a constant source of dread. The 41-year-old single mom of two boys has rented her home on Hamilton's Mountain for 14 years but said she received a surprise letter from her landlord, DiCenzo Management, in April. The letter, delivered to all tenants, said the landlord will be selling the 36 units on Anna Capri Drive — and Mulryan's was among the first on the market.

Market Media Monday for July 1, 2024

A curated list of recent headlines relevant to real estate in Canada, with short excerpts. Click each headline link to read the full article on the source site.

[ Mortgage Professionals Canada Survey: Mortgage Anxiety vs. Ownership Confidence ]
On June 11, 2024, Mortgage Professionals Canada (MPC) released the results of their Semi-Annual State of the Housing Market Report. This survey highlights growing anxiety among mortgage consumers, especially about the financial implications of renewing mortgages at potentially higher interest rates.

[ A Third of Canadian First-Time Homebuyers Need 6-Figure “Gifts”: CIBC ]
Canadian first-time buyers require a little, okay—a lottle help from friends and family. Nearly a third (31%) of first-time buyers needed a gift to help buy a home in the bank’s 2024 YTD data. That’s up from 20% back in 2015, which seemed high back then. 

[ Canadian Mortgage Arrears Rate To Rise 50% In 2024: Fitch ]
Canada’s mortgages in arrears are expected to see a sharp increase after the recent record low. The arrears rate is forecast to rise to 0.25% to 0.3% by the end of the year. If it hits the high end, the rate will have climbed 50% from the end of last year, and doubled the record low also in 2023. 

[ Canadian GDP On Track To Outperform, Weakness Confined To Housing ]
Canada’s economy might be stronger than expected according to this week’s data. Statistics Canada (Stat Can) data shows real gross domestic product (GDP) grew in April. Even with preliminary numbers showing growth stalling in May, output is still set to outperform the central bank’s expectations. Most weakness is contained to just a few sectors, including housing—which is providing a drag despite increased state-stimulus. 

[ Why hundreds of thousands of people are leaving the city for other parts of Canada ]
Toronto once reliably lost about 20,000 more people to other cities in Canada than it lured in from around the country. But in 2017, that number doubled to 40,000. And then it doubled again. In the past two years, 220,000 more Canadians have abandoned Ontario’s capital than arrived.

[ Interest rate cuts won't fix Canada's housing affordability crisis ]
Since interest rates began to rise in early 2022, housing affordability in Canada has worsened. And while the Bank of Canada’s recent and expected rate cuts may improve affordability, a review from Desjardins Economic Studies concluded that a return to pre-pandemic levels is unlikely.

#TerminologyTuesday: Co-op

In your real estate browsing, you might come across an occasional listing that looks like a lot like a condo, but is described as a "co-op"..  just what is that?

Well, first off, it's not a condo. With a condo, an owner legally owns their unit and it is registered in the land titles system the same as any other piece of property you might buy. The rest of the property (hallways, elevator, etc, in an apartment condo) is called "common element" and is owned and taken care of by the condominium corporation.  As a condo owner with share in that corporation, all the 'common element' is essentially owned together by all the owners, and maintenance is paid for through the monthly fees.

Community ownership

Co-ops are an earlier community-ownership option that predates the laws that allowed the development of condominiums and the registration of condo unit ownership in land titles.  In a co-op, the entire property is owned by the co-op corporation and an owner owns SHARES in that corporation - not the physical property itself - which allow use of the unit as part of those shares' rights.

Otherwise, co-ops operate on a day-to-day basis in a similar fashion to condos. There is a board of directors responsible for the management and maintenance, and monthly fees that pay for that. Legal requirements around management of co-ops are not quite the same: management may be done almost entirely by the co-op board of directors, whereas a condo should have a professional and licensed condominium management company. This means that quality of management can easily vary from building to building.  But, as long as management is well-run, this is not a significant concern.

Financing

One of the biggest practical differences from a real estate market perspective is that the type of ownership greatly affects the financing that is available. Because you are not buying a property that will be registered in the land title system, you will not be able to get a mortgage when buying a co-op. Yes, you read that correctly, no mortgage. 

There are some financial institutions that will offer financing in a share purchase agreement format, but the amount you can get will be significantly less. With the one I am familiar with, you can only get 40% loan-to-value. This means if you buy a co-op at $300,000, your loan will only be $120,000 maximum. You have to come up with the other $180,000 yourself.  With a condominium and a mortgage, you can usually get at least 80% loan-to-value (depending on income qualification, appraisal, etc, of course).

The other option for buying a co-op is all cash, whether your own savings or borrowed from somewhere else like a line of credit or family member.

Occupancy Rights

Some other factors that are important to understand about co-ops is that the shares bring a right to occupancy in a specific unit, but those rights are not unlimited.  

For one thing, many co-ops require approval of a new buyer by the co-op board. In theory, this shouldn't be a problem if the buyers are financially stable enough to buy the co-op, but it is at least a step in the sale process that needs to be taken care of.

Another important factor is that occupancy is granted to the owner who owns the shares and their family, and no one else. So in general, co-op units can not be rented out to anyone else. This obviously reduces the market interest in it compared to condominium ownership, as most condo can be rented fairly easily.

Affordability

The combination of the factors above generally translates into a lower market price for a co-op compared to an otherwise similar condominium. When it's easier to finance and easier to rent, higher prices are more feasible for condos. There is more demand for a condo simply because there are more buyers qualified with the easier financing.  However, if you are going to be a largely cash buyer anyways, a co-op might give you more bang for you buck, and possibly less competition depending on the market.  

As always, make sure you're working with professionals and do your due diligence. With that, a co-op just might be the right fit for your needs.