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Posts from the ‘Mastermind’ Category

14
Feb

Nothing says ‘I’m serious about buying this house’ like a huge deposit

meetingI had to laugh. A few months ago I bought a property in the country. Knowing the Toronto market like I do, I was prepared to shell out $50,000 as a deposit with my offer. Before I wrote the cheque I thought I would just ask the listing agent what an appropriate deposit would be. His response…$5K should do it! The experience highlighted the differences between our two markets. One, a fast paced, come hell or high water environment where a big deposit means business, and the other, gentle simplicity where trust is the underlying currency.

The reason I bring this up is that many years ago, at the start of my real estate career, deposits were never really that high. It was always impressed upon me, when I was starting out, that the deposit should at least cover the commission but that guideline was seldom adhered to. Today, the deposit amount plays an intricate role in the purchase of a house. A big deposit, in the form of a bank draft will beat out a small deposit written on an uncertified personal cheque every time. In fact, nothing says ‘I’m serious’ like a deposit of 10% of the property value when offering. With big money on the line, buyers need to know the implications….on the off chance that something goes wrong. Clearly its a lot of money to leave on the table.

What I am inferring here is that the buyer interview just got a whole lot more important. We are long past taking a buyer’s word that they are approved to buy a house. A responsible Realtor needs to do a deep dive during that initial buyer meeting and be prepared to ask some often difficult questions. Buyers have to know that their deposit might be at stake given the fact that there are so many places where things can go south. It’s not just buyer’s remorse anymore, we are seeing deals fall apart because banks are changing financing terms on the fly.

So what can you do to help Betty Buyer? Ask more questions and offer more advice. It’s no longer good enough to ask if she has talked to a bank. Get Betty to provide a letter of commitment from the bank OR get her to talk to YOUR guy. Talk to Betty about the perils of not closing. Explain what happens if the house doesn’t appraise out. Ask if there are sources for her to find more capital (like the bank of Mom and Dad). Talk about closing costs and various taxes she will need to pay. Its time to take the buyer interview to the extreme vetting stage! For some agents it will be a difficult conversation. For others it will be instinctive. But at the end of the day it is not just about all saving you grief and heartache when the deal goes south, its about going the extra mile for your buyer client. As the listing agent, there is extra onus on you to ensure that the buyer is QUALIFIED to buy the home. This means asking the buyer agent questions about their buyer; how long have they been associated? Have they done offers before? What steps did the buyer agent take to ensure the buyer has money to close? I am reminded of a deal I did many years ago that went sideways after an accepted offer. I asked the buyer agent what they new about their buyer and was shocked to hear that they met them at an open house, and didn’t have time to properly qualify them. Hey, not all deals will go according to plan but if you ask the right questions first you eliminate problems down the road.

Mark McLean is the Broker/Manager at the Bosley Real Estate Queen St W office, the Immediate Past President the Toronto Real Estate Board and a director at the Ontario Real estate Association. The opinions expressed here do not reflect the opinions of TREB, OREA or Bosley RE.

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9
Feb

The dangers of not including a status certificate condition on a condo purchase

toronto-condosToday’s Mastermind meeting focused, yet again, on the fast paced downtown Toronto real estate market particularly with respect to condo purchases. As mentioned in previous posts, condominiums have experienced unprecedented price growth over the last year. This is due to a perfect storm of low interest rates, employment growth, a wide choice of condo sizes and styles, and lack of inventory in the freehold sector. As the Manhattanization of Toronto continues, supply in the condo market is likely to tighten which in turn will increase competition and drive prices up even further.

An offer on a typical condo usually includes a Status Certificate clause which, in the simplest terms, allows a potential purchaser some time to review condominium documents that include budgets for future improvements or repairs to the building, but also specific accounting information on the unit being purchased and what the unit holder is responsible for as far as maintenance fees. A typical clause would specify that the buyer would instruct the seller to order the status certificate from the management company as soon as the offer was accepted and the seller (or seller’s agent) would have 10 days to deliver the certificate to the buyer (or buyer’s agent), who would then have 2 days for their lawyer to review the documents and make recommendations if necessary.

Today market conditions warrant a new approach. Offer holdback dates and bully offers are becoming the new normal. An astute agent will order the status certificate (about $100-$125) well ahead of time. It is important to know however that there is a limited shelf life on status certificates and if the listing extends longer that a month, it is recommended to get an updated version. Many management companies now have the capability to deliver the certificate digitally which will also shorten the 10 day time period for delivery. The reality is that not every agent is ordering a status certificate ahead of time. Buyers are submitting clean offers (no conditions) knowing full well that a seller will favour their offer over any offer with a condition, unless it is for substantially more money.

So what could go wrong? If you can imagine it…it can go wrong. For the most part, very little can go sideways if the unit owner owes back maintenance fees or taxes because proceeds from the sale would pay those off on closing, but illegal uses or unapproved renovations could put a buyer in serious jeopardy by requiring them to return the suite back to the previous condition. Recently I had heard about a buyer who bought without a status review only to find out later that the unit had suffered a serious fire. While the unit had been completely restored the buyer was deeply traumatized by this information because of a major fire in her home growing up. The craziest story I have heard was of a condo owner who used a concrete saw to open up a load bearing wall in their condo! Many years ago I delivered a status certificate to a lawyer on behalf of a buyer I was working with. The Lawyer came back quickly with this recommendation…”I would not buy in this building even if you gave the unit to me for free”. The small boutique building was deep in debt, had a couple of lawsuits pending and required extensive window replacements and as a result a special assessment was being considered. In another building, the management company had stolen all the reserve funds which hadn’t been caught because the company hadn’t provided yearly audited statements as required. Other buildings have class action lawsuits against Kitec plumbing, other condos have special assessments to top up their reserve funds or do elevator replacements or underground parking resurfacing. These Special assessments are not limited to older buildings in need of updates or repairs either. Occasionally new buildings quickly realize that the maintenance fees needed to effectively run the building are not sufficient. Higher fees have a considerable impact on value of the units as well as financing qualifications for purchasers.

Moving forward, agents need to explain the ramifications of not including this clause in an offer. There are extra things you can do, like google the address, call the agent of a recent sale and ask them if the certificate revealed anything, ask neighbours, and dig as deep as you possibly can. Even then, that may not be enough.

Mark McLean is the Broker/Manager at the Bosley Real Estate Queen St W office, the Immediate Past President the Toronto Real Estate Board and a director at the Ontario Real estate Association. The opinions expressed here do not reflect the opinions of TREB, OREA or Bosley RE.

20
Dec

Agent Wants to Know If You Had Any Offers On Your Listing?

whisperingHow much are you willing to say about a previously turned down offer on one of your listings? This was the topic of last week’s Mastermind meeting at our office and it created considerable debate. Here is the scenario…. You have a listing that has been around for nearly two months. In that time you have entertained two offers. The first one came on offer night but it was much lower than the Seller’s expectations. Just after the third week, you terminated the listing and relisted it at a higher price. (This tactic has limited success but, depending on the time of year and a bunch of other factors, can help sell the property). Within days you received your second offer which was lower that the first offer. Now you are cruising in on month two. You are still getting lots of showings and agents are asking questions…why hasn’t it sold? have you been getting interest? AND… have you received any offers so far?

We had a rather entertaining debate at the office and on the local real estate Facebook group. One thread suggested that the listing agent has a duty, according to REBBA 2002, to say absolutely nothing. I find the logic incorrect on this. While our duty is to inform agents about the number of competing offers we are bound to keep the contents of competing offers confidential, but once an offer is rejected and expired, is it still our responsibility to keep the contents private? If you agree with that logic than you would have to agree that an expired offer is still, technically, an offer. I don’t believe that is the case. Plus I find it hard to imagine an agent responding to my question about other offers by saying “I can’t tell you”. In my mind that is a loaded response that immediately puts any possibility of a new offer off the table.

Another thread suggested that it was okay to divulge certain information about expired offers, such as price and terms (like conditions or closing dates) provided the Seller has given his permission. Generally this is not a bad answer but I don’t think it ticks all the boxes either. Essentially it suggests that the Seller is directing the listing agent to say something like “the Seller is hoping to get $1M and the last offer was only for $850k”. Clearly the agent is acting on the direction of the Seller but is he advancing his listing in any way?

While I recognize that we work under a strict code of ethics and the law, I believe there are a number of responses that work without implicating your Seller in a position of greed or being unrealistic. “We had two offers. One came really quickly and wasn’t what we were looking for, and the other had some conditions that the Seller was uneasy with” or how about “we were back and forth but in the end the parties just couldn’t come to an agreement”. and end the conversation with “we are still getting plenty of showings and traffic is high at open houses”. No lies, no disparaging comments. Simple truths. What you don’t want to say are things like “The offers didn’t meet my clients expectations” or “both offers were below market value” or “my clients expectations are too high” or ” my client is looking for $X (even if directed by your client to say so)”.

I am reminded about the saying that a good agent will say more by not saying. That’s a valuable lesson to be learned. I believe it is alright to say that you had two offers, but, if pressed about the contents it is okay to be vague. Don’t fall into the trap of saying too much especially if you are asked about price. Simply direct the potential agent to do their own research on comparable solds in the area and let them determine value. 20 years ago our market was much different. Properties stayed on the market for months so naturally agents would ask about previous offers and yes, we would speak the truth. There was true kitchen table negotiating with candid discussions while not giving away too many details. My advise, strike a balance between saying something and not saying anything. That may sound strange but the reality is that human nature should be your guide. People want what others have or want. If you say that there has been interest and offers then potential buyers want in on that action.

Mark McLean is the Broker/Manager at the Bosley Real Estate Queen St W office, the Immediate Past President the Toronto Real Estate Board and a director at the Ontario Real estate Association . The opinions expressed here do not reflect the opinions of TREB, OREA or Bosley RE

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