For Sale by Owner? or Not to FSBO

Ottawa caps CMHC insured Mortgages at 25 years, effective July 9th

 

June 2012 - “Finance Minister Jim Flaherty has outlined new rules aimed at reigning in a hot housing market and ensuring Canadians aren’t taking on more debt than they can afford”.   The most significant of these changes is the reduction of the maximum amortization from 30 years to 25 years which was the maximum amortization available in 2006.    It’s hard to believe but we are still feeling the ripple effects of the “US housing melt down” from 2008.   Although the average Canadian carries considerably less debt than the average American, Jim Flaherty is still cautious and concerned that Canadians avoid the American pit falls.

So how does the new 25 year amortization affect mortgage holders?   A mortgage of $300,000 at today’s best 5 year rate f 3.09%, on a 30 year amortization results in a monthly payment of $1,433, at 25 years $1,276.   Should this have a significant effect on our market?   Sure some buyers may have to redefine expectations perhaps by adding a cosigner or reducing credit card/consumer debt slightly before entering the market.   Should this stop any one from buying today?  NO!  Calgary pricing is still well below the height of 2008.   Look at today’s interest rates; it just doesn’t get any better than this.   Ultimately this short amortization benefits consumers resulting in huge savings in interest over the life of there mortgage.

Other changes, high end homes, refinances and debt servicing

Home buyers in the $1,000,000 plus bracket will no longer be able to get an “insured mortgage”.  A $1,000,000 home will now require a conventional mortgage with 20% down or $200,000.  This is considered to have a large impact on a small segment of the market.   This will result in market “dislocations”, essentially a listing at or slightly above $1,000,000 will priced at just under $1,000,000 to attract buyers needing mortgage insurance.  The reason given for this is that this will allow insurers to focus on the average Canadian.  I am very skeptical as to whether or not this segment will be affected.   I have never done a mortgage of this size that was not conventional.  Obviously some one in this market segment has more ability to save or access cash.

Once again as with previous changes, restrictions have been placed on refinances.  A mortgage on refinances will be restricted to 80% of the value of the home.   The last change in regulations restricted refinances to 85%.   Lenders generally associate a level of risk on any refinance or debt consolidation.   This measure is hoped to curb living on a home’s equity, and once again curb consumer debt.

A further curb on debt is now in place by the reduction in total debt servicing (TDS) from 44% to 39%.   This will limit how much debt a consumer can take on as a percentage of his income.

Conventional Mortgage

Conventional mortgages (those with at least 20% equity), considered a mortgage segment with less risk are going to be untouched by these new regulations.   Until we are told otherwise it looks like lenders will be continuing to offer a 30 year amortization on these products.   These mortgages need only an approval from the lender and not an insurer.   Banks will have more latitude in terms of exceeding standard debt ratios.

These new regulations may in the short term result in a flurry of activity………….and the market will return to normal.   Ultimately the consumers benefit from this measure.   Home ownership is still an easily attainable goal.

Greg Gullekson, Mortgage Broker
Dominion Lending Centres Westcor
403.244.9133
www.greggullekson.ca

To FSBO, or not to FSBO, that is the question:

June 2012 - FSBO is an acronym used to identify ‘For Sale By Owner’ properties.  You’ve likely seen these signs on people’s lawns - WeList, ComFree, Property Brothers, little fluorescent red signs from Home Depot. Is a FSBO truly a cheaper alternative to using the services of a professional REALTOR®? An owner may reason that they are saving real estate commission fees, but in reality is that cost saving being extended to a buyer?  Is the house priced correctly, is it marketed properly, what legal issues should the Seller and Buyer consider?  More importantly, will the property actually sell?

My experience is that most FSBO properties are priced incorrectly, usually they are overpriced.  Buyers, knowing they’re dealing directly with the owner expect a better price, but in reality they can pay an inflated price.  Owners may feel that since there is no commission to a REALTOR® they’ll just absorb this into the list price and the money will be theirs.  Is the buyer getting a deal?  Not really.   Then there are all the intrinsic problems that can result from a private sale.   This can include non disclosure of defects, initial deposit issues (where does that go?), land title review (are there caveats or encumbrances), real property report (is there one, is it current?) and a host of other potential issues.

This isn’t to say that FSBO’s don’t sell.  At times they do.  More often than not though, these properties stagnate on the market because they’re priced right out of the market.  Without the broad exposure found on the MLS system, advertising, open houses or professional photos an owner usually gives up.  Their first call?  To a REALTOR®.

Of course, listing a property with a REALTOR® is not a guarantee that the property will sell.  It’s not even a guarantee that the REALTOR® will do a good job.  Which is why choosing the right REALTOR® is so important.  No doubt you’d agree we up our chances for success when we use a professional to do what they do best.  I have found this to be true with a hairdresser, doctor, mechanic, plumber, insurance agent.   Why would it be different with a REALTOR®?   We’re licenced, insured, bonded, finger printed, governed, trained, experienced and have a multitude of resources at our fingertips.

To FSBO, or not to FSBO, that is the question.  I coin this line from Shakespeare’s famous soliloquy, where Hamlet passionately expresses ‘To be, or not to be, that is the question’.  It turns out this line, written into a play over 400 years ago still has a place in our vocabulary.  Interestingly, this speech explores the idea of consequences. So the real question?  When selling your home, what are the consequences of doing so on your own?  Will a REALTOR® be your best answer?  I believe so.

What’s happening out there right now?

According to the latest available statistics from the Canadian Real Estate Association, residential sales saw a gain of  4.84% in the MLS Home Price Index, secondly only to Toronto.    This increased the index to the highest level since 2008.  According to the Calgary Real Estate Board** the benchmark price for a single-family home in the city was $427,500 in May, up 6.6 per cent from a year ago while the townhouse price of $277,000 was up 3.0 per cent year-over-year. The benchmark price for an apartment was $245,400 which rose by 0.8 per cent from May 2011.  In Calgary, demand continues to outpace supply, keeping supply in seller territory.  This has resulted in buyer’s making quicker decisions.  This has reduced the amount of time homes stay on the market with seller’s getting figures closer to their list price.

Jacqui Williamson, REALTOR
Century 21 Bamber Realty Ltd.
403.244.9133
www.jacquiwilliamson.com