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felishasheats · 6 years

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Comparing property tax rates in Alberta

Housing markets in Alberta are as diverse as they come, from the oil-powered northern community of Fort McMurray to the urban economic centre of Calgary.

However, while home price, commute time and even weather conditions often top the list of considerations for Alberta buyers, there’s one recurring carrying cost that flies under the radar during offer time – the amount of property tax they’ll pay throughout the lifetime of their home ownership.

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Unlike general closing costs such as lawyer and title transfer fees, property taxes must be paid annually and theoretically – should housing values go up – only increase over time. The amount homeowners will pay also varies throughout the province, with dramatic gaps between the municipalities with the highest and lowest property tax rates.

For home buyers with the flexibility to choose their market, understanding how home values and market appreciation may impact this shelter cost should be carefully considered come offer time. According to calculations from online brokerage Zoocasa that compile property tax rates sourced from Albertan municipalities and August 2018 average home prices as reported from local real estate boards, a homeowner dwelling in Grande Prairie, which has the highest Albertan property tax rate of 1.48000 per cent, would need to shell out $4,767 more for a home that’s assessed at a value of $500,000 than a Fort McMurray resident, who enjoys the province’s lowest rate of 0.47454 per cent.

That property tax rates can vary so widely come down to two main variables: the assessment of each individual home and the mill tax rate implemented by their municipality. The first comes courtesy of the province of Alberta and is based on factors such as the home’s size, condition, land lot, upgrades and renovations, as well as the value of comparable homes in the neighbourhood. That assessment value is then multiplied by the rate set by the municipality, to determine the amount of tax said homeowner could expect to pay.

It may seem a simple calculation, but the politics behind property tax rates are often anything but as municipalities have much leeway when establishing them. The main deciding factor is the city’s budget for the year. Because property taxes are an important source of funding for services such as schools, road repair and transit – just to name a few – the proceeds from collecting them must be enough to cover those estimated expenditures.

However, cities can tweak the amount of tax they charge based on their own motivations. Those that have larger populations or higher home values typically have more wiggle room to keep property taxes low, further increasing the competitiveness of their real estate market. The opposite occurred in 2017 in both Calgary and Edmonton, to offset lower home sale prices.

Likewise, municipalities who wish to be more competitive to local businesses and industry may opt to increase property tax rates in lieu of keeping their commercial property tax rates low, or simply keep rates below inflation as part of a political campaign promise, as witnessed in the City of Toronto.

Wondering where in Alberta buyers may be taxed the most (and least) on their property values? Check out the infographic below to see what homeowners could expect to pay in each market based on sample assessments of $250,000, $500,000 and $1 million.

The post Comparing property tax rates in Alberta appeared first on REM | Real Estate Magazine.

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lenakrruger · 6 years

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Comparing property tax rates in Alberta

Housing markets in Alberta are as diverse as they come, from the oil-powered northern community of Fort McMurray to the urban economic centre of Calgary.

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The post Comparing property tax rates in Alberta appeared first on REM | Real Estate Magazine.

Comparing property tax rates in Alberta published first on https://grandeurparkcondo.tumblr.com/

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ateamymm · 7 years

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What is Title Insurance?

Today’s post is a guest blog from Corinna Stevens, attorney with the Byron and Company law firm[note]We also recommend Don Scott McMurray Law Office and Allenby Law[/note]here in Fort McMurray.

The Real Property Report, Title Insurance, and You

The standard Alberta Real Estate Association Residential Purchase Contract, used almost exclusively by all realtors in Fort McMurray, contains a term which requires the seller of a property to provide the buyer a Real Property Report, or RPR, with evidence of municipal compliance or non-conformance, as part of the Closing Documents (section 10.2). However, in Fort McMurray, this term is usually crossed out and an additional term is added indicating that the seller will pay for title insurance for the buyer instead of providing a Real Property Report. Most buyers, and even some sellers, do not even know what an RPR is, let alone what title insurance is for.

So what is a Real Property Report (RPR)?

The Alberta Land Surveyors' Association defines a Real Property Report as "a legal document that clearly illustrates the location of significant visible improvements relative to property boundaries." It is essentially a sketch of the bird's eye view of the property showing the boundaries and where the house, garage, shed, fence, driveway, and other improvements are located. RPRs are prepared by certified Land Surveyors.

What is Municipal Compliance?

Once an RPR is prepared, it can be submitted to the local government for review. In Fort McMurray, that would be the Regional Municipality of Wood Buffalo. The municipality reviews the RPR to determine if it is in compliance with all current local land use by-laws. If a property is not in compliance, the property owner has the option to seek a variance (essentially permission to be non-compliant with the by-law) or will need to take steps to remedy the issue.

What is the purpose of an RPR and Municipal Compliance?

When you are purchasing property, it is important to know in advance if there are any issues with the property that could cost you money to fix. Much like you do a home inspection to make sure the house is in good working order and is in compliance with safety codes and other laws, it is also important to make sure the property itself is in compliance with local land use by-laws. If not, you could be responsible for fixing issues, such a relocating a building or driveway, which can be very expensive. Knowing in advance what you are purchasing is important, as it allows you the opportunity to shift responsibility for remedying defects to the seller or make the decision not to purchase the property.

What is Title Insurance?

Title Insurance is similar to other forms of insurance you may purchase, such as travel insurance or home insurance. It protects you from the financial repercussions of issues with title which you are not aware of now, but may be discovered in the future.

Like other forms of insurance, title insurance is not perfect. It does not protect you from the hassle of dealing with the issue, such as relocating a building. It also does not protect you from issues that you have knowledge of (like "pre-existing conditions" for travel insurance). The purpose of title insurance is to protect you from suffering a financial loss as a result of defects with title. The insurer may choose to pay you out or fix the problem.

Title insurance can also protect you from title fraud and other issues that an RPR would not identify. It is important to carefully read your policy so that you know what you are covered for and what you are not covered for.

Why use Title Insurance?

The simple answer for why seller's offer title insurance instead of obtaining an RPR is that it is cheaper and faster. The cost of title insurance does depend on the value of the property (and mortgage), but is usually only a few hundred dollars. It is a rather straightforward application process and your lawyer can usually receive the insurance policy within days of applying. RPRs, however, can cost thousands of dollars and can take weeks to complete, depending on how busy local surveyors are. In addition, the RPR needs to be submitted to the municipality to be reviewed for municipal compliance which can also take time. With closing timelines often less than a month, most buyers and sellers would rather not wait for an RPR.

Another reason many sellers prefer to provide title insurance, rather than obtaining an RPR, is that when they purchased the property, they also were provided title insurance in lieu of an RPR. The sellers may not know if the property is in compliance so would rather not risk finding out there is a problem right before trying to sell the property.

From a buyer's perspective, it is also important to note that most mortgage lenders will require a recent RPR before they will release mortgage funds. The definition of "recent" will depend on the individual lender, but most prefer the RPR is less than a year old. The contract does not state that the seller needs to provide a recent RPR. Most lenders will accept a lender's policy of title insurance in lieu of a recent RPR. Even if the seller is providing you with an RPR, you may still require title insurance. Some lenders will even insist on title insurance, even if there is a recent RPR.

Do I have to accept Title Insurance from the seller?

The easy answer is no, you do not have to accept title insurance from the seller in lieu of an RPR and municipal compliance. The Residential Purchase Contract is a legal contract. You cannot be forced to accept any terms, or the deletion of terms, that you do not want to.

However, the seller also cannot be forced to sign a contract requiring them to provide an RPR. If you do not want to accept title insurance in lieu of an RPR, or any other term the seller may insert or delete from the contact, the seller does not have to sell the property to you and may decide to try to find another buyer.

Where can I find more information about title insurance?

For more information about title insurance, talk to your lawyer. You can also find more information on the following sources: Real Estate Council of Alberta: https://www.reca.ca/industry/legislation/information-bulletins/title-insurance.htm Insurance Bureau of Canada: http://www.ibc.ca/bc/home/home-buying-tips/title-insurance First Canadian Title: https://fct.ca/property-owners/ Chicago Title Insurance Company: https://www.chicagotitle.ca/residential/property-owner-buyer

DISCLAIMER The within blog is for informational purposes only and not for the purpose of providing legal advice. You should contact your lawyer to obtain advice with respect to any particular issue or problem. Use of and access to this blog or any of the links contained within it do not create an attorney-client relationship between Corinna Stevens and the user or browser. The opinions expressed at or through this blog are the opinions of the individual author and may not reflect the opinions of the firm or the profession. Any links provided within the blog are for informational purposes only and not for the purpose of providing legal direction or advice. The author does not guarantee the accuracy of any information contained in the within links.

What is Title Insurance? was originally published on The A-Team Real Estate Blog

#Real estate #Realtors #Talented Realtors

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ateamymm · 7 years

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How to Buy a For Sale By Owner (FSBO) with a REALTOR®

Buying a FSBO Home

It’s easier than you think!

Let’s say you’ve decided to buy a home over the next few months. That’s exciting!...

Buying a home can be a life-changing event, and your choice of home can have a real impact on finances, your lifestyle and your future. It is an exciting time, but it can also be a big deal.

It’s also true that while many homes are listed by real estate brokerages, others are listed by members of the public, and there are some that cannot be found other than by literally knocking on doors.

Now we also know that one of these homes is the best one for you.

The goal of this post is to help members of the public learn more about what it is like to buy a property that is not listed with a real estate brokerage.

What is a For Sale By Owner?

A “For Sale By Owner” (FSBO) is a home that is listed in some way by the owner, without the representation of a real estate agent. That is, any home with a sign outside that simply says “for sale” or listed on Kijiji, Facebook, etc. and when you make an inquiry, you are told by the owner that they are attempting to sell their home themselves (that’s a whole other blog).

In addition, there are property marketing companies, such as Comfree and Property Guys, which offer a range of listing options. Sometimes this involves an MLS® listing. If the property is found on the MLS®, then it is not an FBSO because this means it is listed with a real estate brokerage. In the case of Comfree, potential sellers are given the option to list on the Calgary MLS® with their own “Common Sense Network” brokerage for a fixed fee that is paid even if the home does not sell. By law, as REALTORS®, we need to treat these homeowners exactly as what they are: clients of a competing real estate brokerage.

Sometimes properties aren’t even listed for sale. You might have a friend or relative who wants to sell you their home. They tell you that the would want to sell without the help of a REALTOR®.

You might even like a specific street, and decide to knock on doors until you find someone who is thinking of selling!

So, you see, there are many different types of FSBOs and each type of seller should be approached slightly differently for best results. You can think of buying one of these homes as landing a large aircraft safely. You are currently at an early stage: you’re lining up to the runway using radar (above the clouds) and lowering the landing gear.

Any of these homes above might be the best home on the market for you.

As REALTORS®, we must follow the Real Estate Act of Alberta, which states that while we must give our clients advice that is in their best interests, we must also follow your legal instructions. That is: we advise, you decide.

As part of this, we would never encourage you to remove properties from your short-list because the seller does not have representation. Quite the opposite! This could be a really good opportunity for you and your family, if done right.

Two Well-Ordered Informed Decisions

For any quality real estate transaction, there is an order of process...the first step is representation, the second step is negotiation.

Representation: Who is representing whom? Who is representing themselves? Negotiation: What are the terms/conditions of the contract between the parties?

You may be reading this, having just found a home that someone is attempting to sell to you privately. You may be thinking “uh oh, I am on step 2 already!”.

Don’t panic.

Unless you have an agreement with the sellers of the property, you have the ability to take a quick pause while we work on step 1.

Step 1: Buyer Representation

At the earliest opportunity, our specialist buyer’s agents like to meet our potential buyer clients for a “Buyer Consultation”. We hold these at our RE/MAX® office here in Fort McMurray and it is an opportunity to share information.

Sometimes this happens years before the property search. Sometimes it happens right at the last minute, as someone finds their dream home. The earlier the better, but late is better than never!

At the meeting, our agents learn about you and share information about our amazing services (getting people incredible deals) as well as tons of helpful real estate information about the process, etc. Our agent’s role is to give you clear, quality information and you’ll have the opportunity to hire our team-member at the end (or not...that’s okay, too).

In Alberta, when you hire a real estate professional to help you buy, it’s the law that at the earliest opportunity, the real estate professional educates you about representational relationships and enters into what’s called a “written service agreement” with you. See FAQs for consumers from the Real Estate Council of Alberta (RECA) here:

Real Estate Buyer Representation Agreements - RECA

Are written Buyer Representation Agreements mandatory?

Yes. Effective July 1, 2014, if you are interested in buying residential property and are the client of a real estate professional in Alberta, you will be asked to sign a written service agreement (buyer representation agreement).

What is the difference between an exclusive and a non-exclusive buyer representation agreement?

In an exclusive buyer representation agreement, you, as the buyer, agree to only use the services of that brokerage to represent and assist you in purchasing a property.

As you can see, this agreement is designed to protect the consumer and, as such, sets out what services will be rendered. It also specifies how commissions will work (in the case of MLS® listings and FSBOs), as well as timelines, terminations, and what happens if the consumer decides not to buy during the life of the agreement. It’s a thing to be negotiated between the brokerage and the client before any real estate transaction gets started.

Our agreements are extremely friendly.

Let’s say you decide all of these things with your agent, and together, you have a watertight plan for FSBOs. This is the key:

If you do buy a FSBO, you will arrange for a fair commission to be paid to your agent from the sale proceeds of the home (not out of pocket) If you do not buy a home, you will not pay a commission If you buy a home that is listed on the MLS® through a full-service brokerage, your agent will be paid whatever commission is posted in the listing by the seller and the listing agent

Now you can truly go home-shopping, knowing that every home in Fort McMurray is suddenly available to you.

Not a Step: Seller Representation

This is the easy bit. You’re not the seller so it’s not your choice. The seller has a choice whether or not to hire a representative and they have made their choice to not be represented.

The property is probably not getting as many showings as it could be due to it not being exposed to buyers as well as it could be. Pricing can be erratic, and we outgun sellers in terms of skills (e.g. negotiation, market knowledge, contract law, etc.).

Furthermore, because the sellers are likely to be paying around ½ the commission they would be with a full-service brokerage, then their bottom line could be lower.

Step 2: Negotiation

Communication:

It’s generally best for potential buyers of an FSBO to politely hand over communication with the seller to their buyer’s agent. This way, common negotiating slip-ups won’t be made (for example, telling the seller your reason for buying “we’re pregnant” or how much you love their home).

A talented REALTOR® knows what to say, when to say it, and ultimately how to secure the property for the best terms and conditions. They also know when to advise you to walk away. Having a specialist buyer’s agent on your side is a game-changer. Especially when the seller has some experience selling homes.

One of the first things we will say to the seller is that we represent the buyer and have a signed agreement with the buyer about how commissions work.

Showings: We find it’s best to quickly see all the best options on the market (Comfree, MLS, etc.) so that you can be certain that the FSBO is at the top of your shortlist. It’s key to a productive negotiation (to have other options) and in some cases, we find that the FSBO is in fact not the best home on the market for you. This is part of due diligence.

Due Diligence:

When a property is listed For Sale By Owner, as professionals, we encourage/do even more extensive due diligence than normal.

For example, it is now the law that when professional real estate agents list homes for sale, they use the Alberta Residential Measurement Standard (RMS), which is a fairly complex and difficult way to measure homes systematically. This is not the case for private listings, so that’s something that our buyer’s agent would offer (to measure the home properly).

Presenting The Offer

The way I prefer (advise) to write offers on behalf of buyer clients in these circumstances is by including a term in the contract that says something like:

“Seller to remunerate the buyer’s brokerage $x,000 on closing for services rendered to the buyer.”

(There is further documentation with the seller that helps to enforce the agreement).

When I present the offer to the seller, I explain that the buyer has chosen representation and that they wish for the commissions to be paid from the sale proceeds (not out of their pocket) and that this term is non-negotiable. That is, if the seller wishes to sell to this buyer, then that term will remain in the purchase contract.

Typically, sellers mainly care about the size of the cheque they will receive from their lawyer on closing (the sale proceeds minus the closing costs). If the seller wants a larger cheque, they can certainly counter offer the purchase price (even above the asking price if they wish). I state this clearly, and I have never had an upset seller in this circumstance. They are usually just really happy to be receiving an offer on their home.

Happy Days

We negotiate the best possible price, other terms and conditions, and assist you by guiding you (not the seller) through a stress-free transaction. You move into your dream home. We love our job.

Important Summary

The seller’s choice of representation is their own and they are responsible for it.

As the buyer, your choice of representation is your own, and not that of the seller. Your choice of representation is independent of your choice of home.

It’s best to clearly pin down your choice of representation prior to reaching an agreement with the seller of an FSBO. Ideally, this will happen before interacting with the seller or even searching for homes.

The A-Team has a wealth of experience helping clients successfully purchase FSBOs for great prices, and we remain in contact with all of the buyers (and many of the sellers) to this day. We would love to help you, too!

How to Buy a For Sale By Owner (FSBO) with a REALTOR® is available on https://www.ateamymm.ca/

#Real estate #Realtors #Talented Realtors

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ateamymm · 7 years

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How Much Are Closing Costs for Buyers in Fort McMurray?

Buying a home should be exciting, not stressful!

We want to avoid costs, especially unknown ones.

Potential home buyers tend to focus on saving for the down payment (a huge challenge in itself), sometimes forgetting about closing costs. This blog post is designed to help you learn about these costs early in the process to avoid disappointment, or worse, a cash-flow problem.

Closing costs often pay for “due diligence” activities which protect you from risk. Read on to find out what the heck I am talking about...

Homes Are Expensive in Alberta

The average home price in Alberta is high relative to most other provinces. That is especially true here in Fort McMurray, where prices still, to some extent, represent levels of wages and employment that existed during the last boom. Here’s an interactive map from the Canadian Real Estate Association (CREA®) which shows home prices across the different provinces.

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But, there is a silver lining...

Lower Closing Costs

Surprisingly, Alberta is the cheapest province to buy a home in all of Canada.

What does that mean? It means that if you were to buy, say a $500,000 home, in each of the provinces, the closing costs would be lowest here. A range of government fees (that are usually paid through your lawyer) are lower than elsewhere, and there are no government taxes on land transfer (only GST when it applies).

One counterexample to this is the cost of tradespeople. Fort McMurray still has some of the highest labour rates in Canada (the rebuild has pushed up costs that were coming down due to the oil price slump).

What is a Closing Cost?

A closing cost is the cost of service that is required/recommended as part of the buying process. These costs are over and above the cost of the property itself.

Common Closing Costs in Fort McMurray

Fort McMurray is a city, therefore recommended due diligence for buyers is generally less extensive in urban areas versus rural ones: Most areas have municipal water supply, natural gas, wastewater systems and garbage services, etc. This removes a lot of the risks to buyers as there fewer building systems to be inspected (for example, a house on Rainbow Creek Drive wouldn’t have a septic system)!

Here are the main 7 closing costs that we tend to see most commonly here in town:

Legal Fees - Local lawyers generally charge approximately $700 to $1,400 for their services, but the final bill is usually up to double of that because they also pass on government fees. The bill at the lawyer is commonly $1,800-$2,400 when buying a home. If cost is a concern to you, we recommend shopping around. You can go out of town (stay in the province) for this, but we generally don’t recommend it as out of town lawyers don’t have the city-specific knowledge of real estate transactions here in Fort McMurray.

Property Inspection - Inspectors have different levels of certification, experience and education. Commonly, an inspection costs $400-$525, but a red seal carpenter registered with the CAHPI® of Alberta, like Brian Slaney, costs $525. The extra little bit might well be worth the money if he finds more deficiencies with the home (after all, that’s what he’s there for).

We find that for most buyers of most homes in town, those are the only two closing costs!

Condo Documents Review - These documents are usually supplied by sellers, but you may choose to have them reviewed by a company that specializes in interpreting them for you. This is a way to identify financial, management and maintenance risks associated with the condominium complex. The service is usually around $500. If you are buying a property from a bank, the onus is on you to pay for the documents themselves ($0-$800)!

WETT Inspection - If the home has a wood fireplace, then you will generally need one of these. Inspectors certainly don’t recommend you ever use a wood burning appliance without a certificate, for your safety. Sometimes the sellers will provide a recent certificate, but not always. Note that in some cases insurance companies won’t insure your home without a WETT certificate, and without insurance, your mortgage company won’t release the funds on possession. A qualified REALTOR® will be able to guide you. These cost approximately $300-550

Mechanical Inspection - Boilers, hot water tanks, sprinkler systems, etc. can be expensive if they go wrong later, and even the best home inspectors must defer to specialist trades for detailed analysis. A great plumber/heating technician usually charges $300-$500 to provide a report on all of these systems.

Sewer Inspection - Some areas of town were built quicker than others, and while the rushed parts are now somewhat tried and tested, sewers can back up because the drain under the front of your property grades up in places instead of down. There are other potential issues with sewers (penetrating tree roots, for example), so depending on the area, clients sometimes choose to have a professional plumber “camera” the drain with a tiny camera. This usually costs around $400.

PWF Inspection - Homes with wood foundations (approximately ⅕ to ⅓ of homes in upper Thickwood, Dickinsfield and Old Timberlea) have some benefits (warmer, cheaper, last longer) over homes with concrete foundations, but if not built to today’s standards and maintained properly (especially water management), can become expensive to fix when deficient. We never recommend buying a home with a wood foundation without a certificate. Generally these are supplied by sellers, but not always. If you are buying an “as is where is” property, say, from a bank, then you might choose to commission your own. This costs $1,500-$2,500.

One of our recommended mortgage brokers, Barb Pinsent, has written a great article on closing costs:

Understanding Home Buyer Closing Costs

Legal Fees

You can expect to pay legal fees to cover any legal document preparation and registration associated with the Agreement of Purchase and Sale, Title Insurance, Statement of Adjustments, and the Title Transfer of the property. Also be prepared also pay any administration fees, such as courier fees.

Statement of Adjustment

The Statement of Adjustments outlines all the debits and credits owed between you and the seller. The debits will include the amounts you have already paid up until closing. The credits however, outline what is still withstanding or was already prepaid by the seller, such as the purchase price and utilities and taxes. Any of the outstanding costs indicated will be calculated into the final closing price. read more at barbpinsent.com

Don’t Worry!

As you can see, the most common closing costs add up to about $2,300, but depending on the property and who you are buying it from, they can be higher. But remember that those costs are for services that are very useful. Doing high-quality due diligence protects us from unknown future expenses by arming us with knowledge early in the process. If we identify issues early, then we can negotiate fixes or ultimately leave conditional contracts before heading out once more to find your dream home.

It can seem a bit overwhelming, especially if you are a first-time buyer, but don’t worry, we have specialist buyer’s agents and their role is to take that stress away and help guide you carefully through this exciting life event!

The following article How Much Are Closing Costs for Buyers in Fort McMurray? Find more on: https://www.ateamymm.ca

#Real estate #Realtors #Talented Realtors

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ateamymm · 7 years

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Is Buying a Foreclosure a Good Idea?

As a Buyer’s Agent in Fort McMurray in 2017, I have become a bit emotionally dulled from viewing foreclosure listings almost every day and by, every once in a few weeks, helping a client buy one. This topic really is a tough one to write about though: Families lived in and loved in those homes, and the properties often still bear the hallmarks of those better times. When I read and see things left over from the old owners, I can’t avoid a pang of something miserable, deep down inside me somewhere.

At first, there were only a couple of this type of distressed listing on the market, but now approximately 10% of MLS® listings are owned by banks, or being sold by the courts, so they can’t be ignored.

What is a Foreclosure?

According to HOS Financial:

Foreclosure Rules in Canada

A mortgage foreclosure in Canada is a legal action the lender can take if someone who borrowed money via a mortgage stops paying it back. Foreclosure lets the lender sell or take back that person's house after obtaining a court's permission. Via homeownersoon.com

So whoever has lent the money (typically a bank, but sometimes a private individual, or investor) to the person on the property title (the homeowner) can sue the owner in court for breaching the terms of the mortgage contract. The court then gives the lender the right to sell the home or take ownership (this compensates them for some of their loss).

There are a few steps to the process: It starts with a court ordered sale (the property is still owned by the borrower). If the property doesn’t sell, it becomes the property of the bank (who then attempts to sell it). If the mortgage is insured, then after a certain period of time, the insurer (typically CMHC or Genworth) takes over and lists the home for sale.

As the listing goes from owner to owner, the level of motivation increases (and so the price decreases). This is accentuated by the current downward trend in home values.

Is it Risky to Buy a Foreclosure?

YES.

Normally, when we purchase a home from an individual or family, then the sellers who have lived in the home are happy to make certain promises (known as representations and warranties) about the state of the property. For example, they commit that the home is fully permitted and that improvements to the land are in the correct place (maybe with a letter of compliance from the local municipality).

They promise that there are no “material latent defects” (issues that are dangerous or expensive to fix, that cannot be found by a buyer using reasonable inspection).

But banks don’t make these promises.

The reason they don’t is that the bank has never lived in the property and therefore is not in a safe position to make those commitments. Banks are not willing to take on any of the risk associated with a real estate transaction, so the contracts they require are written in such a way (by bigshot lawyers) to shift pretty much any risk onto the buyer of the home.

I hear you say…

”Whether or not the section about disclosure of material latent defects is struck out of a contract or not, doesn’t the law still protect me? Don’t they still need to disclose those?”

Not if the bank doesn’t (and can’t) know about them.

When we buy foreclosures, we are buying homes that are being sold “as is where is” and we need to price that risk into the negotiated purchase price.

Aren’t They Great Deals?

10% of the stock of inventory today are foreclosures or court sales. 20-25% of sales are foreclosures or court sales.

That means people are buying them. They do this because of one thing: Price.

Not every foreclosure is an amazing deal, but a lot are.

The banks don’t want to be in the business of home ownership (they prefer to spend their resources doing what they usually do well ~ banking).

Therefore, banks set the list prices low to compensate buyers for taking on the burden of risk, and for taking on the responsibility of fixing them up (sometimes they are lovely, cared for homes, but not always).

What Sort of Homes are Available?

The majority of foreclosures are in the lower price ranges (under $300,000). There are a lot of apartments, mobiles and townhomes. This is because lower income families are more vulnerable to economic shocks like the one we are experiencing. It is really sad.

As time goes on, we are seeing more distressed listings in higher price ranges and more higher income housing types.

What Impact Do Foreclosures Have on the Market?

A few foreclosures doesn’t move the needle on home values, but when we see large numbers make up a good slice of inventory in a part of the market, their presence can significantly impact aggregate home values.

The reason is because the assumptions we normally make about balanced markets is no longer a good one. Here’s what I mean...

Normally in healthy, open housing markets around the world, if you get two sellers, then one isn’t that serious and delists his property (that’s the assumption). As long as you have one buyer, you have balance (prices don’t fall).

But if both of those sellers are banks (therefore determined to sell), they both remain listed and compete for the attention of the buyer, and prices fall. Even though you theoretically have the right ratio of new listings to sales for a balanced market (2:1), prices are falling!

When we look at the lower price ranges of the Fort McMurray market today, we see something similar. Homes are selling and coming onto the market at rates that you might expect to cause stable prices, but prices are in fact still falling steadily even in this price range despite a healthy level of demand. This could well be due to the stubborn (and growing) stock of foreclosures.

Conclusion: Anything Positive, Tom?

Yes!!

A lot of the above is more than a little bit brutal (especially if you are reading this after dark, sorry). For example: That falling markets can self-perpetuate. Who THINKS like that?

But consider for a moment what happens when someone buys a foreclosure. Think what happens to the home. Or what happens to the neighborhood. The home gets fixed up. It gets lived in again and loved, and people love each other again in it. Over the long run, they will build equity. It’s a cycle of renewal which has some real cheerfulness to it.

That’s where I’ll leave it.

The post Is Buying a Foreclosure a Good Idea? was originally seen on The A-Team Real Estate Blog

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