Today’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.
One thing about our Mastermind sessions; they are never boring. This week we were happy to share our learning with some agents from our Merton office. So, if you didn’t make it, you missed an interesting discussion on a house’s shelf life, our new responsibility to first time buyers and asking for business.
We all think about it, but for the first time the notion of a property’s shelf life has been vocalized in Mastermind. How many times have we had to gently explain to potential sellers that their house, their pride and joy, is probably going to be gutted out by the new buyer. Shocker. The best discussion is to let them know that how we live in our homes has changed. The new reality is that properties outlive their functionality. Need proof? Think about Regent Park. For decades it was known as the city owned low-income, low density and high crime public housing neighbourhood. With the help of the private sector it is now neighbourhood on the rise. The once badly maintained two and three-story walk-ups have been replaced with stunning glass condo towers with a mix of fair market value condos and assisted living. Sellers need to understand that houses also outlive their functionality. Families are smaller, so four and five bedroom homes with small closets and one or two bathrooms are being renovated into three bedrooms with multiple bathrooms and finished basements, rec rooms or apartments. Getting people to understand that this shift is less about their decorating style and more about how the world, or at least our little corner of it, is living differently.
In our last Monday meeting, we were fortunate enough to have Joe Sammut, from Mortgage Architects, sit in and give us an update on the ever-changing world of mortgages. As we all know, there is a lot of talk about 2.99% interest rates, bidding wars, and multiple offers. But Joe wanted us to be especially vigilant when talking to our clients. A good agent’s job is to be less about finding houses and more about being the “trusted Advisor” to the buyer. During Mastermind, we touched on the topic of what information we should give to potential first time buyers. Despite talk about a potential housing bubble, people are still buying homes. We all believe that our job should go beyond the negotiation process. We should help buyers make smart decisions. That means making sure they will be able to weather any potential financial storms. Sammut brought up a very valuable point that we should be telling all our clients; pay down your mortgage as fast as possible. Pay your mortgage twice monthly, double up on payments when you can, and also consider adding as little as $200 each month to your mortgage. With the interest rates being so low, if you put $200 in the bank every month you decrease your mortgage amount by $2400 per year which, in reality, will net you a better, tax-free, return than any bank will give you.
Finally, we talked about asking for business. Here is the back story; An agent showed a client a downtown condo . The client really liked it but thought it would be prudent to look at a few other places just for comparison. Those few other places turned into about 25 other condos and a month of the agent’s time. The agent was feeling a little exasperated by the time spent and needed a little guidance. Another agent in the group asked if he had suggested to the client to write-up an offer. He had not, so we all agreed that the next time he took the client out he was to say to him ” alright, we have looked at a lot of comparable properties but you still keep coming back to the one we saw a month ago. Lets put an offer in on it”. In simple terms, you have to ask the buyer “would be sad if, tomorrow, you woke up and the place that you liked was sold”? If the answer is yes, then get the deal done NOW. If you don’t ask…you don’t get. The end result was that the agent texted me that night with the simple message “Mastermind Rocks”. He took the client out to look at one more condo, then asked him to sign an offer. The client did and the offer was accepted. Ah, my work here is done!