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Posts tagged ‘status certificates’

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.

10
Apr

Let Me See Those Cats

catsYeah, I know, that’s a weird title for a blog, but it will all be clear by the end. I promise. Years ago I heard about a buyer who had a very unusual way of purchasing a property. Now, this was back in the days when multiple offers were few and far between but her methods are worth mentioning. She would put conditional offers on over 5 properties then start negotiating with each seller until there was only one left. Strange approach but there was some method to her madness. First she could judge the motivations of the sellers and take advantage of the weakest one. It was a strategy that worked even if it burned out a few agents along the way.

In a round about way, I’m telling this story to illustrate a problem that we will face in our careers. No, I’m not just talking about high maintenance buyers, I’m talking about buyers who will use conditions to get out of deals. As agents we need to remind buyers that when they put the pen to paper they should be prepared to purchase. This is not just an opportunity to waste time.

Case in point, a buyer buys a condo through his agent, conditional on the status certificate. The lawyer reviews the documents. As time is of the essence, the listing agent calls the buyers lawyer to get an update and is told that everything is a-ok. At the same time, the buyers brother is trying to convince him to get out of the condo deal because a sweet income property just came on the market. The buyer calls his agent and tells him to use the status certificate to get out of the deal. Sorry, no can do. The seller’s agent knows everything is good and threatens legal action. As you can imagine, the deal firms up.

So what does any of this have to do with cats? It’s not just a catchy title. there was a story in our office about a deal that fell apart because of a status certificate. Apparently the buyer had 3 cats and the building only allowed two. The Sellers didn’t ask for verification but could you imagine a different time when that could happen? “Yes, sure. I will just need some verification that you do indeed have three cats”.

Someone once said that if you put a little effort into it, you can get out of any real estate deal. There are enough places to make mistakes in a typical agreement if you look close enough. Examples of discrepancies include wrong frontages and depths or mutual driveways and other easements, wrong maintenance fees, taxes and, of course, time limits. It is in our best interests to make sure our offers are bullet proof. Changing your mind is not an excuse and your clients can’t hide behind a condition. Like wise, please don’t tell your clients they can use a condition to get out of a deal. A recent RECO complaint resulted in an $8,000 fine to an agent for leading a buyer to think he could use a home inspection to get out of a deal.

mark mclean is the Broker/Manager at the Bosley Real Estate Queen St W office and President-Elect for the Toronto Real Estate Board. The opinions expressed here do not reflect the opinions of TREB or Bosley RE.

5
Nov

Why The Deal Fell Apart And Other Horror Stories

trusted teamLet me ask you a question. Have you ever lost a deal because of something somebody else did or say? If you’ve been in the business you probably have. We’ve all lost deals because the house failed it’s home inspection or because the client didn’t get financing or because the status certificate revealed deficiencies in the reserve fund. Sometimes it’s just unavoidable. That’s just the nature of the game. What I’m talking about is when somebody says something during the course of the negotiation that cost you the deal. Case in point, last week an agent in my office was negotiating on a house and suggested to the client that they have a termite inspection because the house was in a termite area. The inspector who came said the front porch had termites and said that his company could rectify the problem for about $6000 and then suggested that the buyers renegotiate the sale price via an abatement to cover the cost of the repairs. My agent felt a little weird about the inspector’s comments so she decided to pay for another inspector out of her own pocket. The second inspector spent a great deal of time looking at the house to determine that, in fact, there were no termites nor was there ever any signs of termites. The deal went firm but that first inspector will never darken the doorway again. A similar situation came out of a recent mold inspection.
Here’s another one. After weeks on the market, an agent managed to get her own offer. The contract stipulated that there was no discounting commission if she got her own offer. Upon review of the offer the seller’s lawyer instructed the seller to renegotiate her commission. I have also heard of situations where the mortgage broker has done the same. Why?
Now, I have a couple of theories on why this is happening. I wonder if people involved in the transaction think we are charging too much for the job we do. To that I would argue that good agents are worth every penny they earn. Maybe they are simply taking advantage of buyers anxious to get into the hot housing market. More likely, inspectors are being overly zealous because they don’t want to be sued at a later date. Conversely, one might argue that we are products of the HGTV generation, that being that we all think we know more than the person doing the job. If it looks easy on TV, then it probably is?
So, what can you do? Part of having a good defence is having a good offence. Build your reserve of trusted team members. If you don’t have any….ask those around you. Get recommendations and do your own due diligence. I strongly believe that just like in any other business or service, the good players outnumber the bad. The good ones get rewarded with future business and the bad ones end up in court or out of business.
If you have any stories please forward them to me as I would love to hear them.

mark mclean

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