Tuesday, May 29, 2007

“Subject to sale” clause requires a reality check

It’s been a ball, hasn’t it? The real estate market has been so hot for so long, we can hardly believe what houses are selling for these days. Everyone’s got a story about a friend or neighbour who got some fantastic price for a home. However there are some down sides to an up market. Among other things, buyers and sellers with stars in their eyes don’t always act rationally. We all want to believe that we can strike a big win in a hot real estate market. And sometimes we do.

But when we pin those hopes to a ‘subject to sale” clause in an Offer to Purchase, those hopes need to be accompanied by a solid reality check.

Here’s what can happen if you’re the buyer: You’ve found the home of your dreams, and while they’re asking a pretty penny for the place, you’re not really worried because your current home is also expected to sell very well. After all, the neighbours are still talking about how much the family around the corner got for their place last year! You put in a great offer on the house of your dreams, and use a “subject to sale” clause to give yourself a few months to nab a good price for your own place. Sure, you could have offered the vendor a lower price, but you can’t “go cash”, and you want to offer a price that’s attractive enough to make it worth the vendor’s while to wait for you, while you hope it all works out.

You might both be lucky: the home you’re buying might be worth what you’re offering, and your own home might be worth what you hope. And the banks might agree with your assessment of the value of both. But that’s a lot of “might”s. If you don’t get the price you want for your own home, are you prepared to honour your Offer to Purchase? Or will you need to scramble financially or plead with the vendor to negotiate a lower price? And what if the vendor is similarly counting on the offered price to purchase his or her next home? When your high hopes are disappointed, the result can be a nerve-racking and even ruinous game of financial dominoes that leaves lenders, brokers and several sets of homeowners in a cold sweat.

What if you’re the vendor? A buyer has paid you the compliment of a very attractive offer on your home – “subject to sale” of their own home, of course. Usually, an offer which contains a “subject to sale” clause requires a longer completion date so the buyer has a reasonable amount of time to capture a good price for his own home. The immediate result, then is that your home will be generally considered “off the market” during this period of time, and other buyers
will look elsewhere for a home which is clear of existing offers. Sure, you can entertain other offers, but an existing offer always puts a damper on interest – particularly if the offered price seems a little high.

The result is that your perfect buyer may not even get through your front door. And while it’s flattering to get a great offer on your home, keep in mind that you don’t have the money in your hand yet. A buyer who has unrealistic expectations about what his own house may sell for, could also have offered you an unrealistic price for yours. If he is disappointed on his own sale, you can expect to be disappointed on yours. Your buyer may either be forced to collapse the Offer to Purchase. or come back to negotiate for a lower price – after you’ve spent a few months of missed opportunities with other buyers.

These “subject to sale” clauses don’t need to be an obstacle to a smart and realistic transaction. But in a strong real estate market, optimism sometimes overcomes good sense. Before either offering or accepting a “subject to sale” clause in an Offer to Purchase, do a reality check. An independent mortgage broker can explain the consequences for both buyers and sellers, and help you chart the best course for your own financial situation.


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Thursday, May 17, 2007

One in four Canadians aim to buy a recreational property

The un-official start to the cottage season is here, and as Canadians look for ways to make the most of their summer, many are looking to the country's hot recreational property market to maximize their seasonal enjoyment. And, even as prices continue to rise and more people turn to a mortgage provider to realize their vacation property dreams, consumers still want to pay down their mortgage as quickly as possible.

According to a recent poll conducted on behalf of Mortgage Intelligence Inc. and GMAC Residential Funding of Canada Limited:

> One in seven Canadians (14 per cent) currently own a vacation property and one in four (28 per cent) would like to purchase a vacation property in the future.
> Forty-one per cent of vacation property owners are over the age of 55, while 47 per cent of those who wish to purchase are between the ages of 35 and 54.
> Fifty-four per cent of Canadians would like to pay down their vacation property mortgage in 15 years or fewer. This is particularly true of retirement-age Canadians, with 83 per cent of those aged 55- plus preferring to pay down their mortgage within this time frame.
> Significant regional preferences exist for the types of recreational properties people wish to buy:
> Consumers in Quebec prefer to purchase chalets (39 per cent).
> Forty-nine per cent of people in Ontario wish to purchase a waterfront property.
Waterfront properties are also most popular in British Columbia (39 per cent), Manitoba / Saskatchewan (47 per cent) and the Atlantic Provinces (30 per cent).
People in Alberta prefer all-season properties (32 per cent).
> Most people in Alberta (69 per cent), and many in Manitoba/Saskatchewan (40 per cent), Ontario (39 per cent) and Quebec (45 per cent) plan to use 11 to 20 per cent of the purchase price as a down payment for their recreational property, while 47 per per cent of people in British Columbia and 54 per cent of people in the Atlantic Provinces plan to use more than 20 per cent.

"A growing number of Canadians are factoring a vacation property into their retirement planning and are looking for flexible mortgage solutions that will enable them to buy the property they want and retire with financial peace of mind," says Stan Falkowski, President, Mortgage Intelligence Inc. "These are hard-working Canadians who want to enjoy their retirement without making mortgage payments for years on end."

In the past, financing for a recreational property has been more challenging than for a principal residence, as traditional lending institutions have found second homes to be a less than desirable investment. But as the recreational property market continues to grow across the country, fuelled by affluent Baby Boomers preparing for their retirement years, consumers are finding they have other options that provide the flexibility and payment options that will help them pay down their mortgage faster. With a recreational property mortgage like irelax, consumers can purchase a vacation property with as little as 15 per cent down and take advantage of up to 20 per cent prepayment and up to a 20 per cent increase in payments annually.

"Vacation properties are more than just a financial investment for most Canadians. They quite often become the spot where families come together," adds Falkowski. "While recreational property mortgages are still relatively new to the market, a product like this provides an easy and affordable way to start a whole new string of family traditions."

The poll was conducted by Angus Reid Strategies between May 9 and May 10, 2007 among a representative sample of 1,046 adult Canadians. The results are accurate to within plus or minus three percentage points, 19 times out of 20.


For more information click here for the Ontario Mortgage Team Professional nearest you:

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Thursday, May 3, 2007

Stability in the money market

Here is some historical data on Canadian Prime Rate I thought you'd find interesting.

If the Prime Rate remains the same for the next two weeks, it will have been 6.00% for a full year. The last change was May 17th, 2006.

The Prime Rate has not been that stable (over a 12 month period) for 34 years, not since April 1973.

Other periods of note where the Prime Rate has been stable for periods of up to 11 months.
1983 - 1984 Rate - 11.0%
1989 - 1990 Rate - 13.5%
1996 - 1997 Rate - 4.75%
2004 - 2005 Rate - 4.25%

The record, which is in very little threat of ever being broken, is 4.50% from November 1944 to March 1956. That's 11 year and 5 months following the war.

For more information contact the Ontario Mortgage Team Professional nearest you

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