Tuesday 29 September 2015

What is a condominium status certificate?

When you purchase a unit in a condominium complex, whether apartment or townhouse, you are buying your specific unit but you are also buying an equal share in the condominium corporation.  Because you are buying into the condo corporation, you need to do some due diligence first.

Condo ownership typically gives you a right to vote in condo meetings on things like rule changes but it also means shared responsibility for corporate obligations and expenses, like maintenance of all the common area (known technically as common elements).  This includes lawn care, snow removal, and in apartment buildings stuff like cleaning and upkeep of hallways elevators.

This should all be covered by your monthly condominium fees, with a portion also going into a legally-mandated reserve fund which the condo corporation uses to replace various building components and carry out repairs.  The reserve fund is used for a wide range of items, such as roof replacement, window updates, new carpeting, and so on.

The condo corporation should be carrying out a professional review of the reserve fund and expected repairs, looking into the future by at least several years, to make sure the reserve fund is reasonably adequate.  If significant repairs are required that can not be put off and the reserve fund isn't sufficient to pay for them, that is where owners can see special assessments to make up the difference.

Obviously, one of the most important things to consider when looking at a condo purchase is whether the reserve fund is appropriate for the age of the condo complex or building.  New condo developments obviously has smaller reserve funds because they haven't had time to build them up, and repair costs should be fairly minimal in the first few years.  Established condominiums on the other hand should have a healthy reserve fund built up.  But how do you know?

Here enters the "status certificate".  Don't let the name fool you, though.  The name might make you think of a certificate from school and imagine a one-pager.  But a proper status certificate, with the usual attachments, is actually a somewhat thick package of paper.  (unless your lawyer requests it online, of course, because then it's just a long multi-page file) It should include all the financial information for the condominium, including budget documents, reserve fund information, and whether the unit itself is in arrears or not, and any special assessments.  It also includes a copy of the condominium's by-laws and rules.  If you're interested in reading the source law, the Condominium Act, 1998 spells out [the minimum requirements in Section 76].

When making an offer on a condo, you should include a condition for your lawyer to review the status certificate.  Unless the seller has already requested a copy, you'll have to request one and wait for it to come.  Legally, the condo corporation is supposed to deliver it within 10 day of receiving the written request and payment (maximum $100 as per the Condominium Act, 1998).  As such, this condition is usually for a couple of weeks.

Once received, your lawyer will review all the documentation and either give a thumbs-up or bring to your attention any points of concern. From there, you can make an informed decision whether to proceed with the purchase or not.

Monday 28 September 2015

Want to sell quickly and for top dollar? Stage before you list.

Your property is one of the biggest investments in your life.  When you sell, you want to get the best price you can for it and generally as quickly as you can.  So why skimp on preparation?

Home staging can be an important part of the real estate sales process, because making a good first impression is important.  Buyers will only take 5 minutes to walk through your home if they're not interested, and they have already formed an initial opinion within the first 20 seconds they are inside.

Getting a professional home stager's advice is very useful, because you may think your home looks great when it is not as effective as it could be.  Interior decorating is about personalizing a space and making it your own, and most of us approach our living space from this perspective.  Home staging, on the other hand, is about removing personalization and appealing to the widest audience possible, creating a more neutral space and making it easier for buyers to imagine themselves living there.

You might question the value of hiring a professional home stager.  If you absolutely do not want to hire a home stager, then most real estate agents - myself included - can work with you on some basic home preparation.  However, consider the cost of a home staging consultation versus one typical price reduction on the listing.  Price reductions are usually in the thousands of dollars.

There's no guarantee of course, but properly staged properties do tend to sell more quickly and for top market value.  It is an investment well worth considering.

Friday 25 September 2015

Buy now or save more down payment?

The graphic to the side below is a chart from [a Globe and Mail article] where the author demonstrates that the traditional advice to save a 20% down payment to avoid the mortgage insurance premiums is out of date for those living in active real estate markets.  They do a great job of analyzing the interest cost of a conventional (20%+ down payment) versus an insured high ratio mortgage.

However, one thing that is missing from this analysis is the equity position.  If you look at just the left column which shows what happens if you buy now with only 10% down and the worst scenario they present on the right hand column where you wait 3 years to save more down payment and prices only appreciate 2% per year, it looks like you'd be a little bit ahead on the right hand column.  Because your total interest cost for the 5 year mortgage term would be $43,923 compared to $47,681.

Something we should also keep in mind though: if you bought today at $433,367, then in three years the house would be worth $459,893 at this more tepid rate of appreciation.  So while you might save $3,758 in interest by waiting and saving more down payment, you've lost out on $26,526 worth of equity growth.  And of course, the equity loss is even greater in the two middle columns, on top of the interest cost losses.

While these are only a handful of scenarios and the market could play out in many different ways with the interest rate and prices, I think it easy to see that it's a pretty safe bet that you're better off buying now, if you can, than waiting to save the down payment.

Wednesday 23 September 2015

Understanding municipal property taxes

Everyone who owns a home knows the joy of receiving property tax bills.  And most folks look at the property values going up and assume that means taxes are going up, but that is not a completely accurate understanding of how property taxes are determined.

In reality, the property value is only part of the equation.  Before your tax bill is calculated each year, the city has to sort out its annual budget. Once that budget is set, the total gets divided among all property owners proportional to property value.  As a simple example, if the budget was $100 and there were 100 properties of equal value, every property would pay $1. 

Of course, not all properties are equal in value, so a higher valued property pays more tax than a lower valued one.  And to further complicate things, you get into matters of area rating and different tax rates by property types - commercial, residential, industrial, etc - but the basic concept is still a division of city budget according to land value.

So, because your taxes are determined by splitting the budget among the tax base, even if all property values in the city were frozen your taxes would still go up if the city budget went up.

Conversely, even if the budget was frozen, your taxes could still change if your property value went up by more or less than everyone else's, or if the mix between residential and other property types changed. Commercial property taxes are higher than residential, for example, making commercial development important to lowering residential tax rates in the long term.

Unfortunately, it is rare that either the budget or the values remain fixed, so what is causing increase tax bills is a bit of a moving target, but good fiscal management at city hall is going to be a good starting place when it comes to keeping our tax bills down.

For those interested in delving into property taxation in more details, the City of Hamilton website has plenty more [information on understanding municipal property taxes].

Monday 21 September 2015

"Location, location, location" and public transit

"Location location location" has long been the mantra in the real estate industry.  In recent years, there has been some shift in what actually constitutes a desirable location, with transit becoming a more prominent key factor.

In 2013, the National Association of Realtors (NAR) in the US released a study where they looked at the impact of transit on residential property values.  They found that  residential properties in areas well-serviced by transit like light rail out-performed other areas by an average of 41.6%.  If you love reading statistical analysis or need some help getting to sleep, [the full report is available online].

Interested to know what the common person thought at the gut level, I did a small informal opinion polling, and only about 10% felt being close to transit was a bad thing. The other 90% felt being close to transit was a good thing, but they were split down the middle on whether it was absolutely positive or only positive as long as it was not "too close". Doing a similar informal polling of local real estate agents, not one said it was a negative. Some agreed that it was better if it was not "too close", but no one said it was an outright negative.

As a personal home-buyer, transit may or may not be important to you. My business requires use of a car most days, so transit is not a regular part of my life.  However, I do sometimes find myself wishing for better transit when I have an all-day event to go to downtown (such as the annual real estate trade show), because I will leave the car home and take the bus.

The closure of schools by the public school board could also be a factor that makes transit more important to families in Hamilton, with fast and effective fast public transportation becoming a necessity as high school students travel further to get to school.

At any rate, while there can be lots of debate about what kind of transit and where and when, it is pretty obvious that most people value investment in an effective transit plan. As such, it's not a bad idea to know what transit routes and options are near your home because buyers may want to know.

Wednesday 9 September 2015

August 2015 Housing Starts in Hamilton CMA

TORONTO, ONTARIO--(Marketwired - Sept. 9, 2015) - Housing starts in Hamilton Census Metropolitan Area (CMA) were trending up at 1,822 units in August compared to 1,701 units in July, according to Canada Mortgage and Housing Corporation (CMHC). The trend is a six month moving average of the monthly seasonally adjusted annual rates (SAAR)(1) of housing starts.

"The trend in Hamilton CMA total housing starts increased in August 2015, marking three consecutive monthly increases. This month's increase in the trend measure was broadly based, with starts of all dwelling types trending up. This suggests there has been a general recovery from the decline seen during the first half of the year, particularly for multi-unit housing. Strong job creation and relatively low mortgage rates continued to support housing demand. Specifically, this August marked the sixth straight month of growth in Hamilton's total employment," said Abdul Kargbo, CMHC's Senior Market Analyst for Hamilton and Brantford CMAs.

CMHC uses the trend measure as a complement to the monthly SAAR of housing starts to account for considerable swings in monthly estimates and obtain a more complete picture of the state of the housing market. In some situations, analysing only SAAR data can be misleading in some markets, as they are largely driven by the multiples segment of the markets which can be quite variable from one month to the next. The multiples segment includes apartments, rows and semi-detached homes.

The standalone monthly SAAR was 1,889 units in August, down from 2,615 units in July, following four consecutive monthly increases. This month's decline in the SAAR measure could be transitory due to the volatile nature of apartment starts. Improving employment conditions coupled with low mortgage rates will translate into higher housing starts in the coming months.

(1) All starts figures in this release, other than actual starts and the trend estimate, are seasonally adjusted annual rates (SAAR) - that is, monthly figures adjusted to remove normal seasonal variation and multiplied by 12 to reflect annual levels. By removing seasonal ups and downs, seasonal adjustment allows for a comparison from one season to the next and from one month to the next. Reporting monthly figures at annual rates indicates the annual level of starts that would be obtained if the monthly pace was maintained for 12 months. This facilitates comparison of the current pace of activity to annual forecasts as well as to historical annual levels.

Thursday 3 September 2015

Hamilton real estate sees new sales record in August

Accord to information released by the REALTORS® Association of Hamilton-Burlington (RAHB), the hot Hamilton real estate market has done it again, with another new sales record.  BUT this time it is only a record for the month of August, not an over all record.

Sales in August saw a 7.9% increase over the same month last year.  At the same time, news listings in August increased by 16.7% over last year.  This increase in listing activity is promising, but has not yet overcome the loss of inventory from slower listing months - with end-of-month listing inventory still 9.5% lower than the time last year.

It remains a strong sellers' market, with many properties still profiting from bidding wars, as demand continues to outpace supply.  Sellers will continue to hold their strong position in the market unless this month's increased listing activity carries forward into the fall.

[Click here] to read the full RAHB press release in PDF format.

Wednesday 2 September 2015

When you offer over list price and it's "too low" to accept

Through the second half of the summer, sales numbers slowed down a bit, but the pace has picked back up and there is certainly still some froth. 

The other day, I viewed a house with a buyer client.  We saw the house in the morning and they were reviewing offers that evening.  When we went through in the morning, there were five offers and my buyer decided not to enter the competition.  I heard through the grapevine that by the time offers were presented, there were eighteen!  Naturally the property sold far over asking price.

Unfortunately, this market is giving some sellers unrealistic expectations.  We went through another house.  At the time we saw it, offers were being held off for another four days, until the Friday.  Inquiring with the listing agent, I learned there were no offers at that time, but there had been one bully offer (trying to push through early, before the offer date) that had been rejected. We decided to make an offer and register for Friday.  But just five minutes after my buyer told he wanted to put one together, I got an email from the listing agent they had an offer.  And then it turns out to be another bully offer, being presented that night.  So we rushed to get ours together and sent.  We were "only" going in $10,000 over list price so I wasn't sure what to expect.  Bully offers are usually high and firm - they have to be to entice the seller to accept immediately rather than waiting for the offer date.

But, much to my surprise, the listing agent informed me later that the sellers were rejecting BOTH offers as too low.  We don't know what the other offer was, but our offer at $10,000 above list price was "too low".  And the sellers were no longer going to look at early offers. 

Obviously, they're playing the market, listing where they think is a low price to build up interest and hopefully a bidding war.  But with two bully offers - and one of them in competition - not yielding acceptable offers, they may need to review their thinking, in my humble opinion.

Yes, competition is good for sellers and it can yield great results. But there is never any guarantee, even in this market.  They may succeed yet, but trying to force it can backfire.

And of course if you're buyer, I would continue to urge calm and rational offers, not giving in to sellers demands - some of whom may not be entirely reasonable.