What Can Hurt a Home’s Appraisal

Owners can take steps to avoid having their home appraised at a lower value than the asking price.

“Taking the time to understand the areas that can positively influence your appraisal can help ward off the chances that your home will be appraised at a lower value than the asking price,” according to a recent article at Realty Times, which highlights ways sellers can prepare for an appraisal. 

Here are a few ways that home owners can hurt their appraisal, according to the piece.

• Leaving the home untidy. Having an unkept exterior or interior can cause an appraiser to decrease the value somewhat. Remind your sellers that curb appeal is also important for an appraisal. Overgrown bushes or an unkept home exterior could prompt an appraiser to take as much as 3 percent off the value, according to a CNNMoney article. 
• Having incomplete remodeling projects. Don’t let home owners keep a remodeling project unfinished prior to an appraisal. If they must, make sure they include details of the complete project and when it is to be finished to the appraiser. 
• Failing to list improvements or upgrades made to the home. Compile a list of upgrades and home improvements made to the home and provide it to the appraiser. While some items, like a new roof, may not help raise the appraised value, other items might. 

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Home ownership in Canada reaching new heights

The Canadian real estate industry is in a tight spot these days.

With home-ownership rates headed for record levels and the federal government tightening lending rules to cool the market, the question now is whether we have reached the saturation point.

Bank of Nova Scotia economist Adrienne Warren says that when the latest census figures come out next month she expects us to be in the elite company — depending on your view — of countries with more than 70% of households owning their own homes. Based on the 2006 census, we were at 68.4%. “It’s similar to the U.S., U.K. and Australia when they came up with the mid-decade census,” Ms. Warren said.

Ms. Warren said the biggest jump in home-ownership rates going into the 2006 census was among young people buying condominiums. Do we need another census to tell us that that group expanded or can we just look up at the cranes across the country? “It was people in their early 20s buying as opposed to waiting until they got older. It probably continued,” Ms. Warren said.Some countries, like Italy and Spain, could be as high as 80% while in others with expensive real estate, like Switzerland, home-ownership rates are more like 30%, she said.

Interestingly enough, the United States is believed to have cracked that 70% threshold before the bottom fell out of its housing market.

Already Ottawa has stuck a pin in the housing balloon with new rules, including a restriction that limits amortizations to 25 years, which ultimately increases monthly payments for consumers and limits how much they can borrow.

The Office of the Superintendent of Financial Institutions added its own rules tightening up regulations for financial institutions.

“The government is saying you should not be a homeowner if you cannot afford it,” said Benjamin Tal, deputy chief economist at CIBC World Markets Inc.

The Canadian Real Estate Association released data last week that showed home prices across the country had actually slipped 2% from a year ago to an average of $353,147.

“We are at the peak of home ownership in Canada,” Mr. Tal said. “In fact, we are probably too high and it will probably go down.”

It’s impossible to argue against the emotion of owning your home or the advantage of forced savings that comes with a mortgage — a clear edge for people with no financial discipline.It’s not that 70% is some type of threshold we can’t break through but renting is becoming that much more attractive as the gap between home ownership and renting costs widens.

The principal advantage is you can leverage your investment by putting only 5% down because the government will back your mortgage with the bank. But leverage means nothing when your investment is decreasing in value — it just compounds your losses.

If you consider that average $353,147 home with a 5% down payment, it will cost you close to $1,600 in monthly mortgage costs, even at today’s 3% interest rates with a 25-year amortization. Canada Mortgage and Housing Corp. said in June the average two-bedroom apartment in new and existing structures was $887 a month. Add in other home-ownership costs like taxes and the gap widens.

Beyond the current expansion, there’s no arguing against the long, steady price appreciation of housing, which has been going on for decades, but there is an alternative to home ownership if you want upside exposure to the market.

Michael Smith, an analyst at Macquarie Equities Research, has published a report for the past five years comparing condo returns to apartment real estate investment trusts.

“REITs win,” said Mr. Smith, adding in a report in January the REITs would have returned 31.5% over the past year compared to a condo return of 12.4% in Toronto and 6.1% in Calgary. Going back another four years, the numbers are even more in favour of the public vehicles.

“What I would say now, since I did the last study, is if anything the outlook for the REIT versus the condo is even more compelling given where the condo market seems to be correcting,” Mr. Smith said.

Sam Kolias, chief executive of Boardwalk Real Estate Investment Trust, Canada’s largest apartment owner, says he is already seeing the push back into apartments.

“If you wanted to be hedged against housing [going up], you could rent and buy stock in our company,” said Mr. Kolias, who added that occupancy rates have climbed close to 99% as house prices have risen steadily. “We’ve never been as full as we are now.”

While this may all be bad news for housing, Phil Soper, chief executive of Royal LePage Real Estate Services, still sees room for expansion.

“There is nothing magical about 70%. The U.S. rate fell from this rate because of a collapse in their financial system,” said Mr. Soper, who points out home ownership in the U.S. is still about 66%, even after “one of the worst meltdowns.”

He said one key driver of the housing market that has not changed is the rule that allows consumers in with just a 5% down payment.

“We have public policy in place that supports home ownership,” Mr. Soper said.

Okay, you can probably still get into the housing market. But with prices falling and the gap between renting and carrying a home widening, the question is do you really want to make that investment?

What Happens on Closing?

By Lorne Shuman

Whether you have bought a resale or a new home, you need to understand what happens on the day that your deal closes-or the closing day.  Many important things occur on closing.  First, you become the legal owner of the property.  Second, you receive the keys to the property.  Third, you become responsible for the many financial obligations that owning a home imposes. This column will examine these issues in more detail and give you a better understanding of what happens on closing day.  If you have bought a brand new condominium, the closing process is slightly different and some of these comments may not apply.

After many months of waiting, you are about to close your house deal.  Things happen quickly and you need to be prepared.  If you have bought a brand new house, your builder has notified you and your lawyer of the closing date.  Your lawyer will advise you to notify the gas, hydro, building and tax departments of the change of ownership.  You will need to arrange for movers as well as setting up accounts for cable and telephone. You will also need to insure the property.

Your lawyer will call you to set up an appointment to sign all the necessary papers and advise you of the required funds to close the deal. Included in this number will be legal fees and disbursements, the title insurance premium, Land Transfer Tax (you may qualify for an exemption if certain criteria are met) as well as adjustments between you and the vendor.  The legal fees and disbursements should not be a surprise.  Land Transfer Tax and closing adjustments are costs that that your lawyer should have warned you about and estimated for you when you signed the Agreement of Purchase and Sale. 

Adjustments are variable and often depend on the closing day.  Here is how they work:  If your deal is closing in February and the vendor of the property has already paid for the entire year of property taxes, there will need to be an adjustment in the vendor’s favour.  Essentially, you need to compensate the vendor for the fact that it has fully paid your realty taxes-something that you would be paying for in any event.  As such, there will be an adjustment in favour of the vendor.  Your lawyer will prepare and explain to you how the adjustments were arrived at.  The opposite analysis applies and the Vendor will need to make an adjustment in your favour if it has not paid the realty taxes.  On a newly built home, the adjustments are usually more complex.

If you have bought a newly built home, you will need to do a careful inspection of the property prior to closing.  Depending on the terms of your contract, this may not be the case for a resale home.  In any event, you need to be aware of the fact that you will not receive the keys to the property until the deal is closed.  Closing occurs when the lawyers have exchange documents, keys and funds and the documents have been registered.  Registration normally occurs later in the day.  Keys are released after closing.  If you have bought a new home, the keys are often released at the site office.  If you have bought a resale home, your lawyer will advise you as to how and when you may pick up the keys.

Closing day is the culmination of many months of preparation.  Working with an experienced real estate agent and real estate lawyer will ensure a smooth closing. 

Low-Rise Home Types Drive June Price Growth

Greater Toronto REALTORS® reported 9,422 home sales through the TorontoMLS system in June 2012. The number of transactions was down by 5.4 per cent in comparison to June 2011. The year-over-year decline was largest in the City of Toronto, where sales were down by 13 per cent compared to June 2011. Sales in the rest of the Toronto Real Estate Board (TREB) market area were comparable to a year ago.

“Buyers continue to face the substantial upfront cost associated with the City of Toronto’s unfair Land Transfer Tax,” said TREB President Ann Hannah. “Recent polling by TREB suggests that many households are considering home purchases outside of the City of Toronto to avoid paying the Land Transfer Tax. This goes a long way in explaining the disproportionate decline in sales in the City versus surrounding regions.”

The average selling price in June was $508,622 – up by 7.3 per cent compared to June 2011. The mortgage payment associated with the average priced home in June, assuming five per cent down and a five-year fixed rate mortgage amortized over 25 years, would account for approximately 35 per cent of the average household’s income in the GTA after adding property tax and utility payments.

“According to new mortgage lending guidelines set out by Finance Minister Jim Flaherty, the GTA housing market remains affordable. The share of the average household’s income going toward major home ownership payments for the average priced home remains below the 39 per cent ceiling recently announced by Mr. Flaherty,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.

“The average household in the GTA continues to benefit from a considerable amount of flexibility to account for higher interest rates moving forward,” continued Mercer.

No Breaks for Offshore Condo Investors from the Taxman
By: Mark Weisleder


Printed With Permission

There have been a lot of stories of foreign citizens buying Canadian condominium units from floor plans and then reselling them, for a profit, as soon as the building is registered. These sellers must be aware that the Canadian taxman must be paid before they get their money. In some cases, the entire deal could be delayed until this gets done. In general, you are a resident of Canada for tax purposes if you have lived here for at least 183 days in the past year. If you are a resident, and you sell any Canadian real estate, you do not have to pay any tax owing until you file your tax return at the end of the year. For instance, if you are a resident and sold a property in July 2012, you would owe income tax, if any, by April 30, 2013 — the deadline for filing your 2012 income tax return. However, if you are a non-resident, you must clear up your taxes before a real estate sale closes. This means applying to the Canada Revenue Agency (CRA) for something called a Certificate of Compliance. In general, you need to pay 25 per cent of the capital gain on your sale in order to get the certificate. If the certificate is not received prior to closing, the buyer will insist on a holdback, typically 25 per cent of the entire purchase price, until the certificate is in fact produced. (In some cases the holdback amounts to 50 per cent of the purchase price.) In more and more cases that I see in my practice, these certificates are not available for closing, owing to a backlog in processing the requests by the CRA. The reason the buyer insists on the certificate, or the holdback, is that if the seller sells without paying the required taxes, the tax burden then becomes the buyer’s responsibility. Let’s look at an example: the non-resident buys a condominium for $300,000 in 2010 and wants to sell it now for $400,000. The gain is $100,000. The tax on the $100,000 must be paid before closing in order for the seller to receive the certificate. However, if the certificate is delayed, then the sum of $100,000, being 25 per cent of the total purchase price, will be held back on closing until the certificate is delivered. If there is a mortgage on the property, this might require the seller to come up with his own money to pay off the balance of the mortgage before closing, since there may not be sufficient funds left after the holdback to do this. Even if the property is sold at a loss, the seller must still obtain the certificate or else the same 25 per cent of the purchase price will be held back on closing. The CRA may also delay the delivery of the certificate if the seller owes outstanding income tax for prior years, or if the seller has not, for example, paid the proper withholding taxes on any rental income he received from the property during his years of ownership. How is all this tracked? In every real estate deal in Canada, the seller is required to provide a sworn declaration that, on closing, he will not be a non-resident of Canada. When such a declaration is made, the seller may receive the full purchase price from the buyer and he has until April 30 of the following year to pay the taxes. However, if the seller is not a resident, then the taxes must be paid early, as described above. Real estate agents should explain this process immediately to clients selling a property in order to ensure that lawyers and accountants are aware in advance that tax filings must be made before any deal closes. If you are buying from a non-resident, you should also ask questions to make sure that there is nothing that might delay your anticipated closing. Foreign citizens might make a profit buying and selling Canadian real estate, but they will not escape Canadian taxes. In all cases, seek professional advice before signing any agreement to sell a property.

LAND BOUNDARY DISPUTES WITH NEIGHBOURS… WORTH THE FIGHT? A lot of Toronto real estate is in close proximity to one another. When fences are involved, boundary disputes can become commonplace. Toronto real estate lawyer Bob Aaron says in his most recent column that his own Toronto-area practice is beginning to see more boundary dispute cases. If land boundary issues go to court, they can be very costly. He also writes about how costly it can be if both parties don’t act reasonably and rationally in a land boundary dispute case, the court costs can be more expensive than the actual value of the disputed piece of land: “Four years ago, a heated disagreement arose between two Delta, B.C., neighbours whose rear yards are back-to-back. Colleen Burke’s house is located on 67th St. in Delta, and the house directly behind her on 66a St. belonged to Brad and Marlene Keefe. Title to the houses is registered on an 1893 subdivision plan. Originally, the rear fences of all of the houses in the block ran along the same north-south line, which was marked in the old subdivision plan. But in 1988 and 1989, Warren Barnard, a newly-minted land surveyor, surveyed some of the lots in the area. He incorrectly concluded that the rear fences did not correspond with the true boundary lines between the adjoining lots, and were in fact out by about 12 feet. It appears there was some confusion over the location of the original survey markers for the 1893 subdivision. As a result of the erroneous Barnard surveys, some of the neighbours moved their fences and some did not. At that point, the rear fences in the block were no longer in alignment.” Read the rest of his column, and the expensive conclusion, here.