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Archive for December, 2013

What to expect when you’re extending

By Robert Hof

Buyers often need to request an extension to their closing date. The main reasons are as follows:

  • The buyers have not yet sold their current home; or
  • The buyers’ financing has fallen through or the buyers have not complied with all of the lender’s requirements;

The main lesson for everyone is that no buyer is automatically entitled to an extension. If a buyer can’t close, the seller can take the position that the buyer is in default, sue for the deposit and any loss that they may suffer in the re-sale of the property.

Real estate agents are divided as to whether you should buy first and then sell your existing home or sell first and then buy. No solution is risk-free. Buyers also need to remember that just because you are approved for a loan, you still have to fulfill all of the lender’s requirements, such as proof of income or debt repayment, before they will give you the money.

When you ask for an extension, here are the terms that you can expect to face from a seller. Remember, your bargaining position is not good.

  • The seller will likely request an additional deposit, equal to the initial deposit, to be held by the seller lawyer in trust;
  • The buyer will have to pay the seller’s interest costs on any mortgage that cannot be discharged; so for example, if the seller has a $300,000 mortgage and interest accrues at 4% interest or $33 per day, then the buyer has to pay this cost for the full extension period;
  • The buyer will pay the seller’s legal fees to do the extension, which can range from $250 – $500, plus HST; and
  • The buyer may have to pay additional costs, depending on when the extension was requested; – for example, if the extension is requested on the closing day, and the seller has already packed up the truck, the seller may request payment of all of their additional moving costs as a result of the request.

One of the main considerations for the seller in agreeing to give an extension is whether they need the money from the sale for their own home purchase closing the same day. This is what occurred to a buyer client of mine who required an extension at the end of October, 2013. Their seller also needed to close a purchase the same day. This seller was able to negotiate an extension of their own sale, but expected my client to pay all of their extension costs as well. Thus my clients had to pay the seller and the seller’s seller a total of $2,500 to get a one week extension. This was still a good result for my client, as they could have forfeited their deposit and faced a lawsuit if the seller did not agree or was not able to arrange the extension.

If you know that you are going to need an extension, do not wait until the last minute to make the request. Let your lawyer or real estate agent know as soon as possible and make the request, so that no unnecessary costs, such as moving arrangements, are entered into.

There is also closing protection insurance available to home buyers and sellers in Ontario. One such company who I work with (full disclosure) is Canadian Home Shield at www.canadianhomeshield.com . They offer insurance coverage for $99 for home sellers and buyers so that if their sale is delayed or cancelled and it is not their fault, they can claim for costs of up to $25,000. I have had several clients take advantage of this policy to collect damages such as increased moving costs as a result of delayed closings.

Click here to read the article:

http://www.thestar.com/business/2013/12/29/what_to_expect_when_youre_extending.html


November resale market on a par with last year’s results

The snowy month of November brought with it a slower than average resale market in Ottawa. Members of the Ottawa Real Estate Board sold 891 residential properties in November through the Board’s Multiple Listing Service® system, compared with 928in November 2012, an increase of four per cent.  The five-year average for November sales is 939.

“The number of residential properties sold in November, excluding condos, was only down by five units compared with this time last year,” says Tim Lee, President of the Ottawa Real Estate Board. “Sales for the first eleven months of the year are at 13,267, just slightly below the year-to-date sales for 2012”

The average sale price of all residential properties, including condominiums, sold in November in the Ottawa area was $356,675, an increase of 1.9 per cent over November 2012. The average sale price for a condominium property was $258,118, no change from November 2012.

The average sale price for a residential property was $380,593, an increase of 1.2 per cent over November 2012.

Single level condominium apartments: November’s figures showed 87 sales for the month, compared with 98 in November 2012. The average price in November 2013 was $284,982, an increase of 5.6 per cent over the previous year’s November.

Two story condominium townhomes: November’s figures showed 71 sales for the month, compared with 87 in November 2012. The average price in November 2013 was $225,094, a decrease of 6.8 per cent over the previous year’s November.

“Keep in mind that market fluctuations do occur, and the Ottawa market remains in stable territory,” explains Lee. “It is important for buyers and sellers to talk to an Ottawa area REALTOR® for more information about the housing outlook in their neighbourhood, or the neighbourhood they want to live in. Ottawa continues to be a great place to buy and/or sell a home.”


Meaningful change coming to home inspection industry

By Robert Hof

Happy Holidays to all of my readers. Thank you for all of your emails and good wishes throughout the year. I wish all of you and your families good health and continued success in 2014.

Today anyone can call themselves a home inspector in Ontario. That is a scary proposition since most consumers depend on the opinion of a home inspector before making one of the biggest purchases of their lives. There are over 1500 home inspectors operating in the Province yet there are no mandatory training or technical standards for them to meet. The results are often a leaky roof, cracked foundation or outdated electrical wiring or plumbing that was missed and which ends up costing unwary consumers thousands of dollars to repair after closing. In extreme situations, consumers have lost their homes. Many inspectors do not carry errors and liability insurance, meaning that if they make a mistake, even if you win a lawsuit, you may recover nothing later.

The Ontario Minister of Consumer Services formed a panel of industry experts to make recommendations to change the home inspection industry, which included home inspectors, educators, a Realtor, a lawyer, educators, engineers and an insurance broker.

Their report is aptly titled “A Closer Look: Qualifying Ontario’s Home Inspectors”.

The main goal of the recommendations is consumer protection. This is proposed to be achieved through the following main principles:

  • Home inspectors should be regulated and called “Licensed Home Inspectors”;
  • There will be minimum qualifications to become a licensed home inspector, including a written exam, a field test and experience requirements. Ongoing professional development and education will also be required so that home inspectors stay up to date;
  • Increasing consumer awareness by providing information as to what service is or is not provided by a home inspector; for example, some inspectors may provide additional services such as energy audits, new home warranty inspections, chimneys, well, septic, mold, drainage or termite testing, while others may not. Home inspectors should not be required to enter any area of a home that is unsafe or not readily accessible.
  • Access to a centralized registry of licensed home inspectors;
  • A code of ethics that outlines expected behavior of home inspectors, including disclosure of any referral fees or incentive programs.
  • Mandatory errors and omissions and general liability insurance to be carried by any licensed home inspector;
  • A complaint and dispute resolution process for consumers; and
  • A delegated administrative authority, similar to the Real Estate Council of Ontario that regulates real estate agents, overseen by the government, to license and regulate home inspectors; For example, the code of ethics referred to above would be written by the government, but the administrative authority would enforce it, with the power to penalize or suspend any home inspector who violates the code of ethics. This authority would pay for itself through the fees charged for licensing and education.

The goal is to move to this new regulatory environment within the next 18 months, to permit home inspectors to become licensed.

I spoke with Graham Clarke, an experienced home inspector with Carson Dunlop who was on the panel. As Graham indicated, almost everyone involved with the home building and selling business, from real estate agents, lawyers, mortgage brokers, lenders, builders and appraisers are all regulated by the government in some manner. It is time for the home inspection industry to become similarly licensed and regulated.

The government is also asking for feedback. If you go to the government website at

http://www.ontariocanada.com/registry/view.do?postingId=14645&language=en

then scroll down, you can get a copy of the form to complete.

If you have your own views on this important issue, send in your feedback to the government now. Change is coming to the home inspection industry, and the consumer should be the winner.

Click here to read the article:

http://www.thestar.com/business/personal_finance/2013/12/22/

meaningful_change_coming_to_home_inspection_industry_weisleder.html


CMHC Comprehensive Report on Housing in Canada

By Robert Hof

OTTAWA, December 18, 2013 — Canada Mortgage and Housing Corporation (CMHC) today released the 2013 Canadian Housing Observer, its detailed annual review on the state of housing in Canada.

“The Observer is unrivalled in its detailed analysis of housing conditions and developments that influence housing finance and housing markets in Canada,” said Douglas A. Stewart, Interim President of CMHC. “The Observer provides insight into Canadian residential mortgage practices and other key trends, while underscoring the important role of housing in Canada’s economy.”

The 2013 Observer examines important housing highlights including:

  • According to the recently released 2011 National Household Survey 19% of condominium owners in Canada were under the age of 35 and 29% were seniors 65 or older. Women made up 65% of condominium owner-occupants who lived alone including 76% of those aged 55 and older (see attached backgrounder for additional information on the condominium share of the homeownership market for selected centres in Canada);
  • Households in Canada continue to get smaller, shrinking from an average of 3.5 persons in 1971 to 2.5 in 2011.  People living alone accounted for 28% of households in 2011, more than double their share in 1971;
  • Household formation is the principal driver of the demand for new housing construction.  By 2036, between 3.6 million and 7 million new households are projected in Canada.
  • The inventories of completed and unoccupied housing units per 10,000 people, at 4.7, remained close to the historical average of 4.6, suggesting that the housing market is not oversupplied at the national level;
  • The rate of Canadian residential mortgages that were three months or more in arrears continued to trend downward; declining to 0.31% (below one-third of 1%) in June 2013, compared to the average of 0.41% in 2011.

In addition to a feature article on condominiums, the Observer provides analysis of housing finance, housing markets, demographic and socio-economic influences on housing demand, recent trends in housing affordability and core housing need, and sustainable housing and communities – industrialized housing.

The Observer alsoenables readers to access a wide array of online statistical information on housing conditions from national, regional and local perspectives.

The online publication and data are available at www.cmhc.ca/observer.

As Canada’s national housing agency, CMHC draws on more than 66 years of experience to help Canadians access a variety of quality, environmentally sustainable and affordable housing solutions. CMHC also provides reliable, impartial and up-to-date housing market reports, analysis and knowledge to support and assist consumers and the housing industry in making informed decisions.

Backgrounder

Condominium share of homeownership market, Canada, CMAs*, CAs, and other areas, 2011

Geography

Owner-occupied condominiums as a % of owner households

Canada 12.6
All CMAs 17.3
All CAs 6.4
Small towns & rural areas 1.8
Vancouver 35.1
Abbotsford – Mission 25.7
Victoria 22.0
Toronto 21.1
Kelowna 19.9
Calgary 18.8
Edmonton 17.8
Montréal 17.1
Ottawa 16.3
Saskatoon 15.6
Hamilton 15.2
Guelph 14.1
Québec 13.9
London 13.6
Regina 10.9
Kitchener – Cambridge – Waterloo 10.4
Winnipeg 8.4
Gatineau 7.9
Halifax 6.9
Brantford 6.9
Sherbrooke 6.8
Windsor 6.5
Oshawa 6.4
Barrie 6.2
Kingston 6.2
St. Catharines – Niagara 5.7
Trois-Rivières 4.3
Peterborough 4.2
Saguenay 3.9
Moncton 3.8
Thunder Bay 3.5
St. John’s 3.4
Saint John 3.0
Greater Sudbury/Grand Sudbury 1.1

*A Census Metropolitan Area (CMA) is an urban area with a total population of at least 100,000 and an urban core population of at least 50,000. A Census Agglomeration (CA) is an urban area that is not a CMA and has an urban core population of at least 10,000.

Quebec and Ontario portions of Ottawa – Gatineau are shown separately.

Source: CMHC, adapted from Statistics Canada (National Household Survey


Canadian Housing Market Remains Solid as Economy Continues to Improve

By Robert Hof
Genworth Canada Releases Autumn 2013 Metropolitan Housing Outlook

TORONTO, Nov. 19, 2013 /CNW/ – While housing starts have slowed since their burst from 2010 to 2012, there is still room for future growth and the Canadian residential market remains solid, according to the Conference Board of Canada Autumn Metropolitan Housing Outlook commissioned by Genworth Canada (the report).  The report notes that this stability is due in part to housing supply continuing to be in line with demographic requirements, which will allow average new and resale prices to continue to grow, albeit moderately, in the foreseeable future.

“The housing market has transitioned back to a more sustainable pace and data suggests that it will remain stable,” said Brian Hurley , Chairman and CEO of Genworth Canada. “This means a healthy market with reasonable growth, which will enable Canadians to have more confidence in both home ownership and its relative affordability.”

The report confirms Canada’s continuing economic recovery, with GDP and employment both forecast to grow in all regions across the country over this year and next.  While the Conference Board predicts mortgage rates to rise gradually, employment and personal income gains should allow consumers to adapt to the anticipated increases.  The report also notes that while new home mortgage approvals grew in 2012, the total number of new and resale mortgage approvals is expected to be lower in 2013 by 2.3 per cent.  However, even though new home mortgage approvals are expected to continue to decline in 2014 because of only modest growth in the new home market, resale mortgage approvals are expected to rise again in 2014 by 2.9 per cent.  As a result of growth in prices for new and existing homes, the dollar volume of mortgage approvals is also expected to rise through 2014 in both the high-ratio and conventional markets.

“In short, Canadian housing markets should land softly,” said Robin Wiebe , senior economist, Centre for Municipal Studies at The Conference Board of Canada.  “A crash would require a significant negative surprise like an interest rate spike or employment collapse.  Since no such shock is in the cards in Canada, a housing crash like the one in the U.S. is nowhere near a possibility.”

Regional Highlights

  • Atlantic Canada is expected to see a sharp drop in housing construction, but with the exception of a slight decline in existing home prices in 2013, new and existing home prices should enjoy consistent growth over the next several years
  • Quebec housing starts should continue to decline, after reaching a peak in 2010, in order to better match demographic requirements
  • Ontario housing starts are expected to fall in 2013 for the first time in four years, but are forecast to recover in 2014 before increasing much more significantly through 2015 and 2016
  • The Prairies are expected to continue to enjoy healthy population growth, which will help sustain housing demand and allow housing starts to stay high
  • Despite the negative impacts from the floods in southern Alberta this past Summer, the province will exceed the national average for both GDP and population growth this year, keeping housing demand and price growth high in the region
  • British Columbia appears to be reaching the end of its pricing correction and housing starts will stop declining and post moderate and sustainable growth beginning in 2014.

Metropolitan Resale Price Highlights

Resale prices have been stronger than previously anticipated in Canada this year, with the national average price expected to increase 3.1 per cent in 2013 up from the anticipated 0.9 per cent rise in the previous Housing Outlook released in the spring.  Prices for existing homes are expected to rise each of the next three years in all nine cities covered in the report. The most notable change is the end to Vancouver’s market correction.  According to the Conference Board of Canada, Vancouver sales of existing homes rose sharply at the end of the second quarter of 2013 and exceeded their year-earlier volume for the first time since the third quarter of 2011.  Vancouver will remain the most expensive city, with the average resale house price forecast to reach $769,468 by 2015, an increase of more than 4.4 per cent from 2013. Once again, Calgary is expected to see the largest increase in housing prices in percentage terms between 2013 and 2015, with Edmonton and Winnipeg close behind.  The rest of the metropolitan areas will experience more moderate growth, in line with the national average.

Average Resale Housing Price by City: Forecast

City 2013   f   2014   f   2015   f  
Québec   City $267,821 4.5% $272,743 2.6% $281,566 2.5%
Montréal $323,253 1.6% $331,303 2.5% $340,986 2.9%
Toronto $533,035 2.4% $543,546 2.0% $554,737 2.1%
Ottawa $333,746 1.4% $339,771 1.8% $346,665 2.0%
Winnipeg $263,529 3.3% $273,446 3.8% $285,115 4.3%
Calgary $431,760 4.7% $451,798 4.6% $473,470 4.8%
Edmonton $346,581 3.7% $362,609 4.6% $378,281 4.3%
Vancouver $737,162 1.0 $750,861 1.9% $769,468 2.5%
Victoria $486,225 0.4   $492,802 1.4% $502,600 2.0%
Italics indicate percentage change from previous year.Sources: The Conference Board of Canada; Canadian Real Estate Association; Québec Federation of Real Estate Boards.

 

The Metropolitan Housing Outlook, which is produced twice a year, is commissioned by Genworth Canada from the Conference Board of Canada. The report reviews a wide range of housing statistics and offers in-depth analysis of the trends in the housing market for Canada, the Provinces and nine metropolitan areas: Québec City, Montréal, Ottawa, Toronto, Winnipeg, Calgary, Edmonton, Vancouver and Victoria. A copy of the report is available at http://www.genworth.ca/en/pdfs/Metropolitan_Housing_Outlook_Autumn13_EN.pdf.

About Genworth Canada

Genworth MI Canada Inc. (TSX: MIC) through its subsidiary, Genworth Financial Mortgage Insurance Company Canada (Genworth Canada), is the largest private residential mortgage insurer in Canada. The Company provides mortgage default insurance to Canadian residential mortgage lenders, making homeownership more accessible to first-time homebuyers. Genworth Canada differentiates itself through customer service excellence, innovative processing technology, and a robust risk management framework. For almost two decades, Genworth Canada has supported the housing market by providing thought leadership and a focus on the safety and soundness of the mortgage finance system.  As at September 30, 2013, Genworth Canada, had $5.6 billion total assets and $3.0 billion shareholders’ equity. Find out more at www.genworth.ca.


Be clear about rental items in real estate contracts

By Robert Hof

When you sell your home, if you expect the buyer to take over any of your rental obligations, be clear, or you will end up paying for it yourself later.

Here’s why:

A seller sold his home in Niagara Falls on July 19, 2012. The deal closed on August 17, 2012. About 18 months before the sale, the seller installed an alarm system with Reliance Protection in his home and signed a 3 year contract for monitoring the home, at $39.95 per month plus HST of $5.19. When he sold the home, under the chattels included section of the real estate contract, it said “Alarm System and equipment.” Later, under the rental item paragraph, it said that the buyer agreed to assume the rental contract for the hot water tank. No mention was made of the buyer assuming the monitoring contract associated with the alarm system.

The alarm system included a working modem, which continued to activate communication with Reliance after the deal closed and resulted in the original owner continuing to be billed the monitoring charges after the deal closed. He thought that the buyer was going to take over the payments after closing and when he learned that she wouldn’t, he sued, claiming that she was getting the benefit of the system after she moved in. The real estate agent who prepared the contract testified that it was his understanding that the buyer would take over the contract but that was clearly not what the contract said.

The buyer testified in court that she knew nothing about the modem and never agreed to assume any of these payments. She expected to receive the alarm system equipment with the understanding that if she wanted to activate it later, she would call someone at Reliance to arrange this. She said she knew nothing about the monthly payments being charged or the modem. In a decision dated September 11, 2013, Deputy Judge Terry Marshall of the Welland Small Claims Court preferred the evidence of the buyer that she was unaware of the ongoing monitoring charges and dismissed the claim. It was clear to the judge that the alarm system should have been listed as a rental contract, so the seller’s claim was dismissed.

More and more consumers are taking advantage of offers in the marketplace to buy home equipment on rental contracts, including hot water tanks, furnaces, air conditioners, water softeners and alarm systems. When it comes time to sell a home, sellers must be clear as to which contracts must be assumed by the buyer and should disclose the details of every contract, so that the buyer can make an informed decision.

If the listing for a home does include several rental contracts that need to be assumed, buyers should consider making any offer conditional on their reviewing and being satisfied with all the terms of the rental contracts, especially if there are any penalties relating to cancellation of the contract before it ends. By being clear and prepared before signing any real estate deal, there will be no unwanted surprises or unanticipated charges after the deal closes.

Click here to read the article:

http://www.thestar.com/business/personal_finance/2013/12/06/be_clear_about_rental_items_in_real_estate_contracts.html


The perils of helping kids buy a home

By Robert Hof

As a result of the high prices in the real estate market, parents are assisting their children with the purchase of a home. Depending on the type of assistance provided, care must be taken in how the deal is structured so that the parents, kids and the bank are all informed and protected.

Sometimes parents assist with the down payment. Questions need to be asked if this is intended as a gift or a loan. If it is a loan, there will likely need to be a second mortgage registered on title to protect the parents. The bank will have to be notified about this and approve.

When the kids cannot qualify for the mortgage payments because of their income, parents are offering to include their own income in the equation and guarantee their kid’s mortgage. This would be a good solution, however, many lenders are now requiring the parents, either one or both, to be on title to the property and sign the mortgage, even if they are holding just a 1% interest. Apparently lenders feel more secure if the parent is on title as opposed to a guarantor, although most lawyers could not explain the difference.

However, taking even a 1% interest in the title means that the deal must be carefully structured. How is the 1% supposed to come back to the kids, if that was what was intended? Stephen Pearlstein, a lawyer from Minden Gross in Toronto, recently gave a seminar on this point to several hundred lawyers and many questions arose. For example, if the parents try and transfer the 1% interest back to the kids, without telling the lender, this will actually cause the mortgage to go into default, because the standard terms of a mortgage typically state that the mortgage becomes due at the option of the lender if someone sells their interest. It is worth explaining that even if the parents do transfer their 1% share, they are still responsible if the kids don’t make the mortgage payments, since they signed the mortgage originally.

Alan Silverstein, another lawyer speaking at the same event, noted that if the person assisting with the loan and taking a 1% interest is not the parent of the buyer, but perhaps an aunt or uncle, who is not moving into the home, then it could jeopardise the kids’ eligibility for the HST new home rebate, if it is a new home or condominium. This could cost a buyer up to $27,000 if investigated by the income tax authorities.

It was suggested that the parents just leave their 1% share to the kids by doing an amendment to their will, so the kids would end up with it later. Without a will, problems could arise later if the parent dies and the other beneficiaries do not wish to co-operate and want to sell the home to get their share paid for.

Sometimes it may be necessary for one of the kids or even the parents to have a different lawyer advise them, as there may be conflicting interests.

As you can see, it is not simple. The best thing is to make sure that before parents make any offer to assist with any purchase decision of their children, they get legal advice in advance to make sure that everyone is properly protected.

Click here to read the article:

http://www.thestar.com/business/personal_finance/2013/11/30/the_perils_of_helping_kids_buy_a_home_weisleder.html

Mark Weisleder is a Toronto Real estate lawyer who articles are published in the Toronto Star.