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Archive for June, 2012

First time home buyers: five things to remember

By Robert Hof

Buying a home for the first time can be one of the most stressful experiences for anyone, whether you are single, a couple or family. It is likely the largest contract you have ever signed up to this point, with resulting financial obligations that can last for many years. It is also about finding the right place to create lasting memories. Being properly prepared for this process can save you from making a costly mistake.

For buyers, here are the top five  things to consider when buying your first home:

1. What can you afford?

First make sure to check your credit score as this is what lenders look at. If you can raise your score by paying off or cancelling credit cards first, then do that. Visit with a professional mortgage broker to make sure you know what you can comfortably afford, based on your income. As a general rule, thirty per cent of your gross monthly income should pay for your mortgage, insurance and taxes. Do not participate in any bidding war if it means going over what you can comfortably afford. If you are renting for $1,500 a month and you figure that it will cost $2,000 for your house payment, start saving $500 a month to make sure that you will be able to afford your home as well as your other living expenses. If you need the income from a basement apartment to make your payments, make sure it is legal. You should also make a commitment to live in your home for at least a few years.

Related: Saving 20% for a down payment was worth it

2. Narrow your Priorities

What is most important to you when buying your first home? Is it the size of the home or the neighbourhood? A condominium that is closer to your work may be preferable to a larger home with a longer commute. How close are you to schools, entertainment, daycare facilities? Do you want to be next to a park or next to a power station? You can do much of this research on the internet in advance. Walk the neighbourhoods you are interested in and talk to the people in the area. Go to City Hall to see if there are any planned developments coming to this area. It could mean more traffic.

3. Conduct a detailed home inspection

The home inspection is a critical part of the process, so do your research. Ask for referrals about home inspection companies and call the buyers that have used them in the past. Now there are additional special inspections that you can pay for to check for mould, termites, video camera inspections of the drainage system and even infra- red scanners that can check whether there is sufficient insulation or moisture or perhaps even electrical problems that may be behind walls. It will cost more for this, but should result in fewer problems after closing

Related: How we paid off our home in three years 

4. Ask the seller hard questions

Ask the sellers or their agent if they have had basement flooding problems, or mould or roof leaks, even if the leaks have been repaired, or any other adverse neighbourhood conditions. Ask whether they have made any insurance claims since they owned the home. Watch how they answer. Most sellers will now refuse to sign property disclosure statements, but they are required to respond truthfully to these questions if you ask them directly. If the seller refuses to answer or acts suspiciously, then you need to discuss this with your home inspector and your real estate agent and either adjust your purchase offer or walk away.

5. Buy after-sale warranty protection

There are now many products available for buyers that will provide after sale warranty protection on your home heating, air-conditioning, electrical, plumbing systems and major appliances. Most sellers will not warrant anything after closing. Check out and ask questions about the exclusions and the deductibles associated with each policy as many of them are different. This can save you in costly repair bills after closing.

Related: How to see past a home-stages tricks 

By following these tips, you should be better protected the next time you buy a home.

– Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com


Ottawa tightens mortgage rules as authorities adjust to worsening world economic threat

By Robert Hof

The story behind Jim Flaherty’s recent announcement:

The looming damage from Europe’s banking crisis was front and centre Thursday as Finance Minister Jim Flaherty and Mark Carney, the central bank governor, went public in a joint campaign to head off runaway inflation in the overheated housing sector.

“There’s grave concern about the economic recovery in Europe,” Flaherty told reporters after announcing measures to take some of the steam out of Canada’s mortgage market. “I’m concerned, obviously, that we may get a shock from Europe.”

It was a tacit admission the economy is too iffy to allow the Bank of Canada to raise interest rates, which would drive up borrowing costs and reduce the risk of too high inflation in real estate.

The extent of the danger from Europe’s mess was evident everywhere Thursday. Global stocks fell more than 1 percent and Brent crude hit its lowest point since December 2010 following data showing manufacturing in three of the world’s biggest economies, China, Europe and U.S., had slowed further.

Despite the U.S. Federal Reserve’s promise this week to extend its stimulative “Operation Twist” program, U.S. stock indexes suffered their worst day Thursday since June 1. Gold was on track for its biggest decline in more than three months on global economic worries, and the TSX slumped 350 points, its biggest one-day drop since November.

“The genesis is Europe and it’s starting to flow through everything now. Business has slowed down,” said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

The decision on mortgage-lending follows this week’s G20 summit in Mexico, where Flaherty, Carney and Prime Minister Stephen Harper spent two days grappling with the European Union’s long-stalled effort to overcome the alarming financial breakdown on the continent.

“We just came back from the G20 meeting of leaders and finance ministers and the reality is that the European situation is very challenging, to put it mildly,” Flaherty said. “So my job is to look at our own country and look at the residential real estate market and make the best judgment that we can.”

Earlier this year, Carney warned Canadians the central bank was looking to push up their borrowing costs to head off a burst of price inflation. But a few weeks ago he changed his tone, suggesting as long as Europe’s problems continue to undermine the global recovery, he would have little choice but to keep the bank’s trend-setting interest rate at or near the current 1 per cent to spur economic expansion at home.

Still, Carney and Flaherty are worried historically low interest rates are enticing Canadians to take on dangerously high levels of debt, particularly in home-buying. So the Harper government is trying to offset the negative impact of the central bank’s pro-growth low-interest rate policy by making it harder for Canadians to take out mortgages.

In a speech in Halifax, Carney chimed in, “Federal authorities have taken additional prudent and timely measures to support the long-term stability of the Canadian housing market, and mitigate the risk of financial excesses.

“Our economy cannot depend indefinitely on debt-fuelled household expenditures, particularly in an environment of modest income growth,” the bank governor pointed out.

He noted that “Europe is now stagnating—its (annual economic output) is still more than 2 per cent below its pre-crisis peak.”

Flaherty said he acted to toughen mortgage rules for the fourth time in six years to slow the growth of a real estate bubble. He noted that the bursting of the U.S. housing bubble caused long-term damage to the American economy.

He singled out the condominium market in Toronto as the most troubling hot spot. Buyers should conduct themselves prudently he said. “Some calming of the market is desirable.”

The government is tightening mortgages by reducing the maximum amortization for a government-insured mortgage to 25 years from 30 years.

It is also lowering the maximum amount Canadians can borrow when refinancing a property to 80 per cent from 85 per cent of the value of their homes. Flaherty has complained in the past about people using their homes at ATM machines.

And government-backed mortgage insurance will no longer be available for homes with a purchase price of more than $1 million.

With files from Reuters and Canadian Press


Bank of Canada interest rate decision: What you need to know

By Robert Hof

For those keeping a watchful eye on the Canadian economy,  news from the Bank of Canada has been eagerly awaited. Bank of Canada Governor Mark Carney announced the overnight rate will again be held at 1%. This article from the Financial Post gives the key points from Tuesday’s announcement. It is speculated that the next shift in interest rates will be up, not down, further strengthening the suggestion to take advantage of mortgage rates while they are at all-time lows. The European crisis is one of the many factors causing the Bank of Canada to stay in a holding pattern for now. It is reported that household debt remains a concern for the Bank of Canada. This despite recent statistics indicating not only a significant slowdown in debt accumulation, but a large percentage of Canadians taking extra steps to decrease existing debt. Derek Holt, an economist with Scotia Capital states this news “should be encouraging to the BoC assuming the policy goal here isn’t total flatness in household lending”.

Click here for the full article from the Financial Post.


Home inspector liable for cost of removing mould

By Robert Hof

Making sure a new home is inspected is essential.

A recent court ruling found a home inspector liable for the cost of removing mould from a house. The inspector did not find any mould during his inspection, but the owner had a mould allergy and after she took possession there were problems. She sued and a judge ruled that the inspector should have suspected mould based on his review of the premises. The ruling highlights the importance of checking or identifying mould, especially in older homes.

Here is what happened:

Jane and Fred Smith (not their real name) bought an 80 year old home in Toronto in 2006. They told their real estate agent that Jane was allergic to mould. The agent referred her to a home inspector who found no evidence of a leaky roof or basement and so nobody suspected any problem. The inspector said in his report that the exterior brickwork concrete at the base of the home near the driveway needed repair, as did sections of the driveway itself, but you could probably find this in most old homes.

The report had a standard limited liability clause which meant that if the inspector made a mistake, the most the buyer could expect would be the cost of the report. This clause is common in most home inspection reports, mostly due to the fact that the inspector can’t look behind walls or under floors.

The Smiths bought the house and within three months after closing, moisture, mould and mildew presented problems for the allergic Mrs. Smith. She sued the seller, the home inspector and the real estate agent for the cost to fix the problem.

In court, it was revealed that the seller had lived in the house for six years and the house was leak-free. There was no evidence that he tried to cover anything up by building a wall or repainting the basement walls.

In a decision in January, 2011, the judge decided that the inspector should have known that the damaged concrete and driveway at the front of the home could result in leaks to the foundation which could eventually cause mould, which would be especially problematic for someone who was allergic to it. The judge decided that the home inspector should pay 50 per cent of the buyer’s loss.

Even though there was a limitation of liability clause, the judge accepted the evidence of Mrs. Smith that it was not explained to her so it had no effect. The judge also decided that the buyer’s real estate agent was 25 per cent responsible for the loss, saying that the agent should have also read the inspection report and come to the same conclusion about the possibility of mould occurring. The buyers were found to be 25 per cent responsible for not reading the report themselves. The sellers were not responsible because they did not know about any leaking.

Everyone appealed. In a decision released last month, Ontario appeal court judges decided that the home inspector should pay all of the loss. It was too much to ask a real estate agent or a buyer to make the connection that defects in the concrete and driveway at the front of the house could somehow later lead to mould. I think the buyers were fortunate in the case that the court found that the inspector did not properly explain the limitation of liability clause.

Real estate agents are not general contractors, and should not be expected to provide this type of advice to buyers. Still, agents should be suspicious if there is any visible slope in the floor, cracks in the walls or water stains. In addition, any time the seller has done recent renovations or paint jobs, it could be that the sellers are trying to hide an old problem. In all cases, buyers should be warned to conduct detailed home inspections to satisfy these concerns.

Mould is becoming a serious issue for buyers. It can cause illness if one is exposed to it over an extended period of time and costs a lot to remove. The problem was that testing for mould once cost over $1,000. Now companies such as Tristar Disaster Recovery with offices in Hamilton, Toronto and Waterloo, can conduct tests for mould for as low as $250, and can assist homeowners with removing mould as well. Since most homes for sale in the GTA are over 50 years’ old, a mould test should be mandatory for every buyer.

Note: There are several companies offering mould inspection and removal in Ottawa.  Robert.

– Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com