Special Report: Year in Review and 2012 Forecast
We have finally completed our annual "Year in Review and 2012 Forecast." We will be emailing it out to subscribers and fans tomorrow (Jan. 24) afternoon. Don't miss out - subscribe or like us today!
The Difference Is? Calgary VS Edmonton
I always like to tease my Calgary counterparts. When I was on the Real Estate Council of Alberta as a council member, the pre-meeting banter would always include some sort of comment welcoming the Calgary members from their carbon monoxide filled commute. They would counter with a humourous comment about Edmonton and on and on it went. My favorite joke was about a friend who left a pair of Flames tickets on his dashboard, and after a few minutes parked at 7-11 found his window was smashed. Their faces would give that expression of understanding and empathy, and then I would fire away with: “and he found two more Flames tickets on his dash."
Seriously though, it has often amazed me that even though Edmonton and Calgary brokerages are governed and regulated under the same Act, the way business is transacted in each city differs in a number of ways. Now I’m not trashing one city over another (besides Edmonton is clearly better) I'm just pointing out a difference in practice. The Calgary Real Estate Board recently decided that members no longer have to report pending sales, whereas in Edmonton we haven't had to report pending sales for quite some time. (When a conditional offer has been accepted by all parties it is considered pending). Once the conditions are removed then it's unconditional.
So whats the big deal?
Well, like many things it depends on perspective. If you are trying to sell your property and it's reported as pending, then it will not show up when agents search for properties unless they search for active and pending listings. In many cases a buyer might not be interested in viewing a property where the seller has the leverage of another deal, or they might not want to get emotionally invested in a property that already has a potential deal in place. So there would be a good chance your property would receive reduced activity. I say good chance because I can’t prove it definitively, but our experience shows it will not receive the full attention of the market place.
From the buyer's perspective you may want to know about all the homes on the market, whether they are pending or not. You could actually be looking at a pending listings and not even know it. If the seller is cautious that it is not a done deal, possibly because of the terms, or the buyer, or buyer's agent's credibility, or just a hunch, the seller may instruct their agent not to disclose other offers.
Whatever the case may be, this is one of those areas where Calgary and Edmonton have operated differently until now. Some other differences between practices in the two cities include:
- In Calgary it is quite common for buyers to have a walkthrough prior to closing on resale properties. This is unheard of in Edmonton. In fact, when I have had lawyers from Calgary handling the conveyancing they have questioned the lack of a walkthrough on the contract. My simple response is that you would have a hard time getting an offer accepted with a walkthrough (unless you are dealing with a private seller).
- In Calgary they regularly use the CBS codes on their keyboxes. This is an additional code that the buyer's agent must obtain from the sellers agent in order to open the keybox for a specific property. When I have used the CBS code here, not only have I had to teach every agent how to use the code, I get a fair bit of negative blowback on that extra step and in some cases miss out on showings.
These are just a couple of minor examples. I can’t even say one association is more proactive than the other; at times Edmonton has blazed the trail adopting new technologies and practices, and at other times Calgary has led the way. No matter what, it's still fun to tease my Calgary counterparts.
What’s in a title?
So, you're buying a condo and it comes with a parking stall, better yet two stalls. That’s fantastic, but are they actually going to be yours? Did you include the stalls in your offer?
There are two common types of parkings stalls: assigned and titled. Titled stalls are individually titled just like a house or condo, and if they are not included in the purchase contract or a separate purchase agreement you may be parking on the street.
In addition you should review the titles of any titled stalls, before you make an offer to make sure there are no surprises on those titles. We've seen titled stalls that aren't actually owned by the person selling the condo and stall. In one case our client was considering buying a condo in foreclosure, but the bank forgot to forclose on the parking stall so we moved on. You should also ensure that the stall you think you're getting is the one you are actually getting - there are often stalls that are smaller or in less desirable locations - so go look at the stall. Or Park my words you will rue the day you didn’t.
Buyer Brokerage Agreements
A reader asked me to comment on our blog about an article on Garth Turner's blog discussing Buyer Brokerage Agreements (or Buyer Representation Agreements as they are referred to in Ontario). While he hit some important points in his article, he obviously left a few out, or perhaps just doesn't know the history behind it enough to have included them. In any case, I think the commentor on our blog was looking for our point of view on it. Frankly, Mr. Turner's commentators, through lack of understanding or just rabid faith made a big deal out of nothing.
What is a Buyer Brokerage Agreement? It is a contractual agreement between a real estate brokerage and a buyer where both parties agree to the type of representation, services that will be rendered, and the fee for those services, for a specific period of time. Similar to a listing contract, it is in essence an employment contract.
I think the first time I used a buyer's representation agreement in Edmonton was in the late 90's. Currently I use them very sporadically, and the use of them in my office is also very low (less than 1%). Most of our business is relationship based, and if it's a issue of trust we just won't work with that person. However, there are circumstances where I may use them and I'll explain how and why we use them in a bit.
In Mr. Turner's article he suggests that these agreements have recently come about because of recent changes in the real estate industry, namely limited service brokerages (often referred to incorrectly as discount brokerages). The reality is, buyer brokerage agreements have been around for years (at least in our market place), and for a considerable time before that in The States. When I entered the real estate industry in the late 80's it was common for commercial buyers to have their own representation which was set out in a buyer brokerage agreement.
Are more buyer's agents using these agreements more today? Yes. Recent changes to CREA's rules allowing mere postings is more akin to the U.S. model of real estate. In my opinion, when these changes were sought by the Competition Bureau (who modeled their case around the American model) they knew full well these agreements would become more commonly used.
For example, in our market the REALTORS® Association of Edmonton has allowed the mere posting of listings for some time, but has always required that the seller's brokerage offer some form of compensation to the buyer's brokerage. Currently the minimum amount that can be offered to the buyers agent is set at 1 cent (precisely the amount the vast majority of these 'mere postings' are currently offering). In many cases the seller or their posting company has decided the buyer's agent isn't worth paying, or that they should be compensated by the buyer and not themselves. So the reality is that if an agent is to take the whole market to their client, that includes these properties, and if they trust they will be compensated then they will do that, if they don't they may ask to formalize an agreement in writing. I don't think there is a single business model that could sustain itself on a penny per transaction. Long ago I forecasted that more buyer's agents would look to formalize their relationship as these listings became more common.
When you look at an actual transaction it's a chicken and egg argument when it comes to who pays the buyer's agent's commission: the seller pays the commission out of the proceeds of the sale, but the buyer is the one paying the seller for the home. I do know that without a buyer there is no sale.
One thing that struck me in the discussion is the dangerous assumption that a REALTOR® owes you fiduciary duties when working with you, and that we all provide the same level of service or disclosure. In reality a mere posting company does not owe the sellers any fiduciary duties (or at least the courts have not established that they owe them a fiduciary duty). Instead of being clients these sellers become customers. This applies on the buyer side of the transaction as well. For example, the buyer could decide to be a customer and therefore no fiduciary duties would be owed to them by their agent (for all you legal beagles out there this of course does not stand up if an implied agency relationship is created, but for simplicity's sake and brevity we will leave that out here). This means that various levels of service are available, and not all buyer's agents are required to, or will, offer the same services that you have traditionally come to expect.
One commenter suggested that there should be some incentive to sign one of these agreements. In fact there are some real estate companies that offer incentives and inducements for buyers to sign up with them. Some traditional full service brokers may offer an incentive or an inducement as well.
In my business I use buyer representation agreements infrequently today. I have relationships with most of my clients and with that comes a level of trust. If I don't know someone we will not start out in a brokerage agreement, not until they get to test drive me first and vice versa. In general it is my client, who after working with me, reviewing the documents, and discussing them with their lawyer, requests a buyer brokerage agreement. A couple of exceptions to that rule for me are:
- The buyer is coming from out of town for a number of days on a house hunting trip. These trips are intense, and require a significant amount of time, energy and resources, and limit my ability to do any other business. I can easily spend six days with someone educating them on the market, negotiating offers, and showing them dozens of properties, only to find out they bought a property completely outside the criteria they'd given me (or I would've shown it to them), or went directly to the seller to cut me out because we don't have a formalized relationship. There is also the possibility they will decide to buy a home where the seller is offering an amount of compensation that does not make it financially feasible for me to dedicate that much time and effort to them. This is something I explain to the client long before they get here, so they can decide if they'd like to work with me or find someone else.
- The type of property the buyer is looking for is so specific, or their criteria is so unique that it may take a require extra time, effort and resources to fulfill our obligations.
A buyer brokerage agreement can be for any length of time, and the terms of the agreement are completely negotiable. The shortest agreement I have signed was for three days, and the longest (after 4, 90 day renewals requested by the client) was 6 months. I am also approached by sophisticated investors on a regular basis offering to sign a buyer brokerage agreement as an incentive to work with them.
Are there benefits and drawbacks to signing a buyer brokerage agreement? Potentially yes, both on the part of the client and the agent, but those change depending on the parties and their particular issues.
I will close by clearing up some myths and facts about buyer brokerage agreements:
- Myth - A buyer must sign a buyer brokerage agreement. I'm pretty familiar with Alberta's rules, so I will only speak to them. A buyer absolutely does not currently have to sign a buyer brokerage agreement. An agent may work in a brokerage where the agreements are mandatory, but if the buyer doesn't want to sign one there they can choose another brokerage. I am only aware of one such company in Edmonton, and and I'm not certain of their position on this to be honest.
- Myth - Compensation on buyer brokerage agreements is fixed. They are totally negotiable and so are the terms. Both parties have to agree to any changes to the contract. If someone is not comfortable with the terms they should not sign it. This includes industry members as well.
- Fact - Agency disclosures are compulsory. Not to be confused with a buyer brokerage agreement, this disclosure outlines what your status is with the agent you are working with. Are you a Client or a Customer? It details the fiduciary duties, if any, owed to you. It is mandatory that your agent present this to you and get your informed consent. Signing this does not constitute any obligations on your part in Alberta. Reviewing the document prior to signing is highly recommended - you should make sure a disclosure is all you are signing and not a brokerage agreement. I always allow people ample opportunity to review what they sign before I ask them to sign anything.
- Myth - Buyer representation agreements are new. Many agents have been using them for years. It is far more common in the States than it is here, but that seems to be the direction Canada is heading in based on the recent changes.
- Myth - that under a buyer brokers agreement you would owe a commission even if you don't buy. That entirely depends on the contract as some buyer brokerage agreements may require retainers. However, our standard buyer agreement in Alberta does not provide for compensation if the potential buyer does not purchase a property.
- Myth- every agent provides the same level of service, knowledge, experience and background information when buying. Even prior to recent changes there were many different business models in our market. People will often hire someone without doing their research, or merely because they like the person, or because the agent has offered an incentive such as a rebate.
The reality is these agreements have been in place for some time and I look at them simply as employment contracts. At present if a buyer does not want to sign one there are plenty of buyer's agents out there who don't require one signed. So all in all I don't see the big deal here, and I understand Mr. Turner is just fanning the flames as that's what he does.
A new way to research the home you’re thinking of buying
I had a mind blowing experience the other night. Seriously mind blowing. I was showing a home in the Westmount area - by any standards a decent and desireable mature area in Edmonton. While we were looking at and discussing the home, my client started listing off some very significant and specific information about the property.
Now, I have always encouraged my clients to do their research when they're interested in a property; talk to the neighbours, review the current title we provide, consider the property history and so on. I knew this client was very thorough, and wasn't surprised to learn she had done her research, but I was blown away by what she'd discovered! She told me that the owner's fiance hated the property, that they had recently spent thousands of dollars on new pipes for this "money pit," and among other issues they had already bought and moved into a new home.
I assumed she must have spoken with the neighbours, and that they were more gossipy than most, but she assured me she hadn't. "Facebook!" she laughingly cried! My jaw dropped: "No way!." She then detailed how she got the seller's name, and proceeded to look him up and found him on Facebook. His privacy settings prevented much of a look but she found his fiance was an open book. Lo and behold the fiance had been complaining about the home on Facebook for months on end, detailing every issue they faced with the aging property.
Before the private detective work my client was very interested in the property, but there is no way to put Pandora back in the box, and why would you? This is the type of information that is priceless. This same client has since discovered tidbits of information from Facebook about some of the other homes we've viewed, including the reasons homeowners are selling.
So, before you decide to dish your property on Facebook make sure you have secure privacy settings, or better yet don't post it online at all. I certainly know that I'll be checking Facebook for information for my clients in the future.
More Improvements to Edmontonrealestate.pro
In our continuing effort to provide the best MLS® search experience in the Edmonton area we have just launched some new search functions on Edmontonrealestate.pro. The advanced search now allows you narrow your search down to much more specific results.
This first change you'll notice is you can select more than one search criteria, so if you're considering Edmonton and St. Albert you can do that with a control-click instead of starting separate searches. You can also search by property type and style such as bungalows and/or 2-stories, and townhouses and/or low rise apartments.
I know many people will consider homes with 1.5 or 2.5 bathrooms but when you search for 2 or 3 bathrooms you miss the homes with half bathrooms so now you can search by full and half baths. Finally we've added the ability to search by basement type, so you can limit your results to finished basements or suites for example.
We've also added more details to the listings themselves including:
- Total bedrooms and bedrooms above grade
- Total bathrooms, full bathrooms and ensuite bathrooms
- Fireplaces
- Zoning
- Flooring types
- Basement type
- Front exposure
Enjoy!
New home upgrades worth paying for, Part 6: Closets
This may be hard for some of our male readers to believe, but closets sell. A few years ago one of our clients (a guy) bought a home and renovated it to flip it. The workmanship was impecable. He built a mechanic's dream garage in the backyard - it was huge, heated, insulated, had it's own electrical pannel... the works. Sheldon and his dad evaluated the home and were impressed to say the least. When I went to photograph the home, I noticed something that all the men seemed to have overlooked - there was not a single closet in the entire home! No coat closets, linen closets, bedrooms closets, broom closets...no closets! When walls were removed and rooms were added, closets were forgotten. Luckily we were able to find a single father who overlooked the lack of closets in favour of the killer garage.
Ok so back on target... Over the years closets have grown in size, number and complexity in new homes, and today's buyers love having lots of places to store stuff. Think "Carrie Bradshaw" (if you don't know who that is refer to the paragraph above). On occasion I've seen a floor plan gone awry, with too much square footage taken up by closets - so what if the master bedroom has a walk in closet if you can't fit a single bed in the kid's bedrooms?
The point I'm trying to get at though, is it's not just the size of the closet that matters, but what's in the closet. A single wire rack or wooden shelf with one bar for hanging clothes on does not come close to maximizing the space.
Which closet screams "bring me your clothes, shoes, and accessories!" to you?
If you're unmoved by the above photos ask your wife, girlfriend, sister or mom for their opinion. The fact is, many new homes come with huge closets with only a single wire rack. Some builders have caught on and are putting custom closets, pantries and back entries - I can say from experience these "wow" buyers regularly.
New Home Upgrades Worth Paying For, Part 5: Green Upgrades
The jury is still out on the value of many "green" upgrades. There is simply not enough data to definitely say which green upgrades offer the best return on your investment. As building codes and government regulations change, something that was considered a green upgrade a few years ago may be required today. For example, if you replace a furnace in Edmonton today, it must be a high efficiency furnace, where 5 years ago everyone recommended a mid-efficiency furnace. We recently had a 65 year old home inspected that had wood chips for attic insulation, rated about an R8, where the building code today requires a much higher rating.
From personal experience only, I can tell you different buyers definitely place different values on green upgrades. A $40,000 geothermal system will be worth every penny and more to some buyers, and nothing to others. When you get right down to it, if two houses were identical in every way, except one had $50,000 of green upgrades, it is very unlikely that the upgraded home would would sell for $50,000 more than the other (all other variables being equal). When the average buyer looks at a resale home they see what's in front of them, not what is hidden in the walls, and the decision to buy comes down to price and a comparison of all the homes they've looked at.
So, what green upgrades are worth adding? In general the value of the home will determine the threshold for green upgrades. Putting triple-glazed, low-E, windows with UV coating on a $1 million home will get a higher ROI than they will on a $350,000 home. If you're considering green upgrades, the most important aspect to consider is the value it has to you. If you're planning on living in the home for many years, the ROI on your upgrades may be realized in energy savings, and the resale value will be less of an issue.
What is a holdback?
- A Mixed Martial arts move.
- A football play where the quarterback fakes a handoff.
- What middle age men do with their stomachs when they enter a room.
- A real estate term indicating money will be held back until certain items are completed.
If you guessed the answer is D then you are correct. Holdbacks are very common in real estate transactions although not all offers ask for them. Some common reasons for holdbacks are:
- The buyers have asked for, and the seller has agreed to provide a Real Property Report with evidence of municipal compliance and on possession day it wasn't available for whatever reason. In this case the lawyers will generally work out a reasonable comprise with the buyer's lawyer holding back some of the proceeds unitl they receive what’s needed.
- A delay in the registrations of the title at land titles. A similar situation to the above will occur.
- The seller has promised to complete, repair, do or remove something and a holdback of a certain value has been agreed to in advance on the offer to purchase. A few examples are:
- The seller is in the process of renovating/finishing the basement and a holdback is agreed to so that the buyer is protected that the work will be done properly by a certain time.
- The seller has a lot of crap on their property and the buyer wants to make sure it all gets removed. If it's significant enough a holdback may be in order.
- The property in question is a new property or one that is still under construction and want to ensure that the work is done to a certain standard, by a certain time.
There can be problems with holdbacks:
- If the amount of the holdback is not significant enough the seller may not be enough incentive for them to do what they agreed to do.
- If there is no deadline on the holdback the seller can take as long as they want and the money will remain in the buyer's lawyer's account.
- If the holdback agreement is worded poorly the outcome may not be clear or it could be written to favour one party over the other.
This is another one of those times when the experience of a good agent can be hugely beneficial to their client. Keep in mind the seller has to agree to the holdback; some builders will not even entertain the thought of a hold back in the purchase contract, no matter how much work is outstanding at the time of the agreement.
Paperwork Rant
Most of the problems I see related to potential agent misconduct, from outright fraud to simple mistakes, is almost always exacerbated by the client or injured party not having copies of the documents they signed. These agents know who they are and if I could boot them out of the industry I would. Sometimes it’s a matter of them wanting to save time (I’ve blogged about this before) so they’ll get their client to sign a blank amendment form, offer or whatever, and fill in the details later. Sometimes it's more surreptitious than that and people will sign completed documents but never receive copies of the final product.
Now, there is a small percentage of slime that conducts business this way. As in any industry you have those that steadfastly hold true to maintaing their clients best interests. There are in fact far more conscientious agents in the industry but this is a rant about the other guys. At the same time I ask myself WHO signs blank forms, and WHO executes offers or management agreements and is ok without getting a copy?Trusting people that’s who.
In just one recent instance a trusting buyer bought an investment property from a friend sight unseen based on certain financial specs. The seller also indicated they could and would mange the property but made no disclosures about the condition of the property. When the investor finally came to town to see the property he discovered hoarders were living there and that it had to be gutted from top to bottom, including replacing all the floors, most of the drywall and some ceilings. When he went to review his contracts he realized he didn’t have final copies (the seller ran the deal through his mortgage broker).
It is interesting from my persepctive how people treat their purchases differently depending on the type of purchase. Be it an investment property, vacation property, recreational property or their primary residence. People are often very diligent and involved when buying their home, but when it comes to buying properties in the U.S. or investment properties, for some reason that level of involvement drops. In and of itself completed the paperwork correctly and getting a copy will not prevent a problem, but generally it is good to have as it can establish the breeches that have occurred.
So all I’m say is a competent professional in my industry won’t have a problem with doing the following:
1. Taking the time to explain and complete the paperwork correctly so that you are not signing blank forms where anything could be added.
2. Providing documents for you to review in advance of signing.
3. Providing you with copies of all signed documents immediately.
If you suspect or know that you’ve dealt with the very small percentage who has not followed this methodology you should contact either the REALTORS® Association of Edmonton or The Real Estate Council of Alberta.
A very good way to avoid that situation is to:
- Deal with reputable practionshers who have been referred to you.
- Deal diligently with all your real estate acquisitions
- Verify information provided to you (honest and competent professionals will have no issue with you doing this because the information they are providing will stand up).