Selection may be better with a broker

Daniel Smyth

May 2012

March was yet another exceptional time for sales in the greater Montreal area. Sales were up four per cent over March 2011, mostly because of an increase in sales of single-family dwellings for the 10th consecutive month.

In Montreal, condo, single-family and plexes increased, as did the median price despite the larger inventory of listings.

Quebec City lawyer Stéphan Pagé explained during an interview that along with this increase in sales, so too are the numbers of buyers and sellers going to him with problems, and those paying for legal advice after trying to sell or buy privately.

Pagé said buyers were purchasing without completed conditions, such as financing or inspections. Because the industry is not regulated, some inspectors did not have proper qualifications or insurance.

Furthermore, buyers and sellers did not have the proper knowledge of the law and did not utilize the proper sale tools.

Situations of improper documentation, poorly prepared documents, improper certificates of location and property-related issues that could increase the cost to the buyer were not declared. Pagé advocates the use of professional real estate brokers.

Besides minimizing problems, the selection/exposure to properties is often higher when using a broker.

I searched DuProprio, a website designed to match buyers and sellers without a broker, for condos in Dorval, Lachine, LaSalle and Verdun. There were 54 choices. For the Multiple Listing Service (MLS), which is supported and maintained by brokers’ listings, there were 915 choices.

Within a one-month period, 12 properties were sold through DuProprio; there were 173 sales through MLS. Some of the DuProprio listings were also in the MLS, which suggests some sellers realized that selling on their own is more difficult and time consuming than they thought.

Whether buying or selling, brokers are available to answer complex financial and legal questions.

dsmyth@sutton.com

Destiny brought me a mentor

Daniel Smyth

March 2012

The first time I met Danielle Parent was in the fall of 2006, on the day I quit my job.

I was living in Montreal, didn’t know any French and wondered what I was going to do. Who was going to hire me? Friends invited me for dinner and drinks to help ease my mind, and Danielle Parent dropped in. She was a real-estate broker and owner her own company, Groupe Sutton-Danou Inc.

I asked for her help renting my condo because I planned to go back to Ottawa, where most of my family lived. I didn’t know it then, but she was going to be a huge influence in my life.

She introduced me to Christophe Folla, president of Sutton Quebec, the agency for which I now work. She introduced me to other brokers, including her sister, brother-in-law and many of her friends.

She helped me find the best school for real-estate agents and to study for exams. She provided me with educational material to enhance the material that I learned in the classroom, which would give me an edge over my colleagues once we all graduated. Working with Danielle, who at the time had been a broker for 25 years, made me more knowledgeable, confident and effective. I learned that it is easy to get a bad reputation but difficult to earn a good one. I learned to incorporate her negotiation skills with my own, making me more effective in getting the bottom line for my clients. I learned the importance of fairness, transparency and communication when working with other brokers and to always give half of the commission to a collaborating broker.

The importance of this last issue for the seller is so paramount, that it eventually became necessary for a listing broker to declare in writing to the seller what percentage of the commission would be given to a collaborating broker.

I will never forget how nervous I was during my first real-estate transaction. Danielle put me at ease and helped me write the offer. Her sister represented the seller; I the buyer. The transaction was smooth like silk.

Danielle taught me about the different markets, residential and commercial. Like her, my qualifications enable me to sell any type of property in Quebec.

Call it fate or destiny that I met Danielle at a time in my life when I was lost and alone, not knowing which direction to turn. I owe her a huge debt of gratitude.

Lease abandonment a financial, emotional headache for landlords

Daniel Smyth

February 2012

I received a call one morning from a client who had hired me to find her a new tenant.

Rose was in a state of panic because the tenants I had recruited were moving out with more than 16 months left on the lease.

The tenants had followed an application process. References were called, questions asked and credit checks performed. Rose interviewed the applicants before signing a lease in July 2011. They provided Rose with the first month rent to hold the apartment until August. Quebec law does not allow a landlord to collect more than one month’s rent. They abandoned the lease in December 2011.

One of the tenants called Rose to say her boyfriend was leaving the country and that she was moving to her daughter’s home outside Montreal. A moving truck was coming the next day to collect their belongings and no forwarding addresses were provided, indicating abandonment.

I explained to Rose courses of action available under the law. However, the tenants’ rights proved to be more beneficial than those of Rose. Every course of action open to Rose was going to take lots of money and time.

I drafted a letter for Rose demanding commitment from the tenants, with a deadline to respond, or legal action would be pursued. I witnessed Rose handing the letter to the tenants as proof that they had received it. Registered mail is also appropriate, but we did not have time.

We decided to file a complaint of abandonment at the Régie du logement to allow Rose to collect the rent owed to her.

However, to start this process, we needed the forwarding addresses of each tenant. Since the tenants did not provide this information, the Régie would not open a file.

We thought of hiring a professional to find the tenants; however, this would have cost hundreds of dollars with no guarantee of success; and while we had their social insurance numbers, this was not sufficient to locate the tenant who had left the country.

We concluded it would be easier to find new tenants. Perhaps this is what these tenants knew and hoped for.

Rose wishes she could ask the new tenants for a few months rent, just in case this happens again.

The law in Quebec allows landlords to select tenants based on references and interviews, but a landlord can only ask for the first month’s rent. In Ontario, tenants can be asked to pay first and last month’s rent, offering a financial buffer.

When it’s time to sell an estate, a liquidator will be assigned

Daniel Smyth

December 2011

This month, we continue our discussion on the legal implications of managing an estate.

In the case of a testamentary succession, the testator usually assigns a liquidator to administrate the succession. In the case of a notarized will, notaries generally grant full administration to the liquidator, which includes the power to sell.

If the will grants simple administration, the liquidator must seek the instruction and permission of the heirs to sell.

However, the liquidator with simple administration can clear debts against the property if they can be paid without selling.

If debts can be paid without the sale of the immovable and the liquidator wants to transfer ownership of the immovable to the heirs indicated in the will, all the liquidator has to do is make a declaration of transmission, transferring ownership of the immovable to the legatees, which is called a declaration of legacy. It is published in the land registry office and the immovable becomes the responsibility of the legatee(s). This type of transaction is best managed by a notary.

If there is no will, there will not be an appointed liquidator. All the legal heirs become responsible for administrating succession. The heirs have to agree and appoint a liquidator with full or simple administrative powers.

With simple administration, the disagreement of just one of the legal heirs can block the sale of the immovable.

It is as like having two or more owners of who want to sell but might not be able to agree on the conditions and/or the price. There is a rare situation in the law that can force a sale when agreement is never reached, but this requires legal proceedings and considerable time. Consequently, it is not often seen.

Should one of the legal heirs want to purchase the property, consent of the others is necessary.

In the presence of a liquidator with full administration, however, the heir must only come to an agreement with the liquidator.

If the liquidator has just simple administration, the heir wanting to purchase the immovable must come to an agreement with all the heirs, once again making the process more complicated and time consuming.

Once agreement has been reached, all the heirs and/or the liquidator will be mentioned as the seller(s) and the heir buying the immovable will be mentioned as the purchaser in the act of sale.

As you can see, the processes outlined in the succession of an immovable can be very complicated, especially when a will does not exist with a specified liquidator and with specific powers.

Consider simplifying the lives of your heirs in their time of grief and sorrow, because the death of a loved one is difficult enough to manage without having to think about how you would have wanted your estate managed after your death.

Succession must be determined before sale

Daniel Smyth

November 2011

The death of a family member is a very emotional and stressful time for the survivors. It may be important to consider, however, that the responsibility of managing the estate of the deceased, which could include the sale of an immoveable, has many complicated and important legal aspects. This is a good reason to have a will.

If there is no will or marriage contract, a legal succession exists, which falls under the Civil Code of Quebec. The first group of legal heirs in this situation includes: a surviving married spouse and/or the children of the deceased. If there is a married spouse and two children, then each receive one-third of the estate. If there are no children, the spouse receives two-thirds and the rest of the family (mother, father, brother and sister) receives one-third. The code does not recognize a common law spouse as an heir.

When there is no will, a declaration of transmission—a notarized act that identifies the deceased, the death, the fact that there was no will, legal heirs, and the cadastral number of the immoveable, must be made. This act is published in the public land registry office, making the heirs the owners of the immoveable. The title of acquisition passes to those indicated in the declaration. Then the immoveable can be sold.

If there is a notarized will, there is no additional step needed beyond the declaration of transmission. However, it must be proved that the notarized will was in fact the last will left by the deceased.

A non-notarized will requires an additional step because there are different methods of making wills in Quebec, which require validation. A holograph will is one that was written by hand and signed without witnesses. If a will is typed, or a fill-in-the-blanks form is used, the will must be signed before two witnesses.

With the above types, the signature must be validated because no notary was present at signing. This process is called probation.

A judgment from the courts stating that the signature and will of the deceased person is authentic is required. This requires a statement under oath from a person who knows the signature of the deceased person. Once probation is granted, which could take some time, the declaration of transmission can take place and the eventual sale of the immoveable can occur.

Next month, we will continue our discussion on testamentary succession and transfer of ownership.

Sellers can take advantage of financial headwinds outside Canada

Daniel Smyth

October 2011

Soon we will all be adjusting our clocks and getting ready for the change in time for the change in seasons. My mom always used to say: “We spring forward and fall backward” as we adjust out clocks.

Well, the real estate market is not much different. The summer has been quiet, but now that the fall is here sales activity “heats up” prior to Christmas.

In August 2011, the total number of new listings that hit the market in the greater Montreal area increased over July 2011. The same pattern was displayed in 2010. Generally, this increase in new listings, near the end of summer, demonstrates the end of the slow season and the beginning of the rise in the fall season. And as with any market slowdown, the time to sell a property increases. The average sale transaction in the summer took seven per cent longer to complete than in the later part of the winter, which is normal.

What is different about the 2011 real estate market compared with 2010 is the data for new listings, sale transactions and the number of active listings on the market. There was a 6.8-per-cent increase in the number of new listings between September 2010 and August 2011, but the number of sale transactions was 5.4 per cent lower; thus, the number of active listings on the market (all categories of properties) grew by 12.5 per cent.

Overall, there have been more active listings for buyers to choose from and thus, competition has risen.

During this year’s “slow season,” there has been an increase in the number of sale transactions over last year. Previous months (September to May) demonstrated the opposite, where the number of sale transactions was lower in 2011 vs. 2010. This is good news for owners who are looking to put their property on the market in the fall.

These new numbers demonstrate that the market is still, overall, a seller’s market in the greater Montreal area. Reinforcing this conclusion is the fact that the average price per transaction actually increased, by 6.7 per cent. However, sellers should be aware that for the past year the relative number of listings on the market is slowly increasing and understand the market in their neighbourhood.

It is expected that more new listings will hit the market in the fall and the relative number of sale transactions may not offset the competitive aspect of the market. Taking advantage of two traditional sale peaks (fall and winter) would better guarantee sale success as opposed to waiting for the winter season alone after the New Year. If more competition is expected, then what is the point in waiting for it to come as opposed to trying now when competition is less.

And for buyers, what should be of importance is that interest rates remain low, which makes qualifying for mortgages in a seller’s market attainable.

“The housing market in Canada remained on a firm footing in August when compared to volatile financial markets,” said Gary Morse, president of the Canadian Real Estate Association (CREA). “Through their actions, homebuyers are showing that they remain confident about the stability of the Canadian housing market, and recognize that the continuation of low interest rates represents an excellent opportunity to buy their first home or trade up.”

Interest rates will probably remain suppressed for some time.

“Once again, economic and financial market headwinds outside Canada are keeping interest rates lower for longer,” said Gregory Klump, CREA’s chief economist. “Those headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved.

In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market.” Buyers should be prepared to pay more for property in the months and year to come. dsmyth@sutton.com

Sales transactions keep climbing upward, especially in the condo market

Daniel Smyth

September 2011

The inventory of properties in the Greater Montreal Area increased over 13 months, giving buyers more to choose from and allowing the market to become more balanced.

However, in June, there was a five-per-cent increase in the overall number of sales transactions over June 2010, which marked the first increase in more than 14 months. Condominiums increased by 12 per cent, followed by the single family home at one per cent and the plex at three per cent. The north shore, Vaudreuil-Soulanges and Montreal increased, while the South Shore and Laval decreased. Toward median sale prices, sellers still experienced an increase across all categories of properties.

In July, there was a six-per-cent increase in the overall number of sale transactions over July 2010. Similarly modest sale increases were reported for single-family and plex buildings, but condos increased by 19 per cent, or as much as 18 per cent in Montreal.

So, do the results of June and July indicate a swing in the market toward a stronger seller’s market? Not necessarily. In June 2010, sales fell by 20 per cent compared with June 2009, so it was easier in June 2011 to demonstrate an increase over June 2010. However, year-to-date sales better represent those of 2007 and 2008, which were prosperous for the market in Montreal and favoured the seller. While there are two months of evidence indicating an increase in sale numbers, it depends on the neighbourhood and type of property. In Montreal in 2010, there were more than two times as many condo transactions as for single-family homes. Condo sales on the island of Montreal represented more than 77 per cent of the total condominium sales in Quebec, making this an urban phenomenon. Following closely behind Montreal was the North Shore at 22 per cent and Laval at 15 per cent.

Condos limit urban sprawl, reduce the number of cars on the roads and reduce greenhouse gases. They are a good investment, as they represent a lifestyle favoured by young people and the elderly who appreciate low-maintenance, hassle-free lifestyles.

Some consider investing now, retiring later

Daniel Smyth

July 2011

Last month, I discussed how the market in the Greater Montreal Area was becoming more balanced. The market continues to soften.

Sales transaction numbers in May 2011 were less than in May 2010; the number of properties for sale was higher; average sale time was greater. The average sale price increase was slightly lower.

Buyers have considerably more to choose from this year.

So what is a good investment in this changing market? Well, that depends on your goal and why you are investing. A plex, by far, is the best investment compared with other types of properties (condominium or single-family dwelling).

The average plex transaction price in Montreal is around $495,000, which includes a duplex up to a multiplex. A duplex can cost more than a half million dollars and may only generate $25,000 a year, and that is only if all units are rented. A six-plex in Verdun costs an average of $525,133, and can generate a total of $39,385 per year, which is a better return on the 20-per-cent down payment.

Condos represent a fast-growing market. Prices are attractive to first time home buyers and people looking to downsize or retire. Condo sales represented about 50 per cent of the market in 2011 and they increase in value based on market appreciation. In Lachine, there is lots of new development and property values are expected to rise. The waterfront in Lachine has been a focus for several years, as beautiful parks and reclaimed lands show.

High ceilings, beautiful views: Buyers have considerably more to choose from this year. Photo: Daniel Smyth

As an investment property, a condo may be less profitable. There is only one rent, so it could be more risky if the tenant decides not to pay. And there are expenses, as with all properties, which include mortgage, condominiums fees, municipal and school taxes, property insurance and heat/electricity (if included in the rent). Here is an example of a condominium I have for sale, which is tenant-occupied until August 2012. It is perfect for someone wanting to purchase now and have someone pay on the mortgage until it is time to move in. Let’s assume that someone wants to move in to the condo in a year or more from now. Perhaps they plan to retire in five years and they love the location and building; they would have responsible tenants paying off a portion of the mortgage until it is time to move in. The condominium is 1,200 square feet, which includes a mezzanine ($384,999). It is contained in a luxury concrete building on the waterfront in Lachine. Several of the interior walls were removed, making it into a gorgeous loft. There are lots of large windows and the cathedral ceilings are as high as 17 feet. There are amazing views of Lac St. Louis, René Lévesque Park on the peninsula and the village of Lachine.

The rent for this fabulous property is $1,500 a month and the monthly expenses total about $831. The rent is low is because the owner did not realize the potential of the property and was in a hurry to move to Toronto. This property could generate between $1,800 and $2,000.

After expenses, you are left with $669 a month toward a mortgage payment. For expenses and revenues to balance, one would have to put down $249,614 against a potential sale price of $380,000 at a 3.76-per-cent interest rate amortized over 25 years with a term of four years. Taking a variable rate of 2.2 per cent over the same conditions with a term of five years, one would require a down payment of $230,555.

One could put down less and pay the additional expenses out of pocket for a year or so. Furthermore, all of these expenses are tax deductible. Remember, occupancy is just one year away.

Navigating a transitional housing market

Daniel Smyth

June 2011

In April 2011, The Greater Montreal Real Estate Board announced that sale transactions in the Montreal Metropolitan Area were 18 per cent below April 2010. Of greater importance is that this was not an isolated observation. Indeed, April 2011 marked the 12th consecutive month where sales for the current month fell below the same month of the year before.

The board reported that the increase in the median sale price of various property types was more modest in April 2011 compared with April 2010. According the GMRB, these numbers provide evidence to support the fact that the real estate market in the Montreal area is becoming balanced.

The balance is between the supply of property by the seller and the demand for it by the buyer in a particular location at a particular time. A balanced market, also known as a transitional market, occurs when the balance between the supply of property and the demand for it reaches approximately five to seven months on inventory.

A buyer’s market occurs when the supply of property exceeds seven months of listing inventory available (buyer demand increases, while supply decreases). In a seller’s market, the supply of property available is less than five months of listing inventory (buyer demand decreases and supply increase). Traditionally, sales transactions follow a seasonal pattern, peaking between March and May, then slowing down during the summer. Sales increase again in the autumn, only to fall during December and/or January. It is like two different sized humps on a camel’s back, and the pattern is cyclical and predictable.

The market began to slow down just after January 2010. However, sales transaction numbers did not begin to shrink until May 2010. You could compare this with sprinting up a hill: At the beginning you are fast, but by the time you reach the top, you are moving much slower. At this point, the market really began to change, as inventory or properties for sale on the market began to increase relative to the year-earlier month. By September 2010, there was a greater number of new MLS listings on the market than the year-ago period.

The board commented on the modest increases in the median sale price of various property types in Montreal in 2011 compared with 2010. Average sale price transactions were examined because the data for the total region were unavailable for the median. Average sale prices continued to increase. The current monthly average is always higher than the year-ago month despite monthly fluctuations. But like the more modest increases the board reported on in April 2011, there is also a trend for more modest increases in the average sale price per sale transaction.

In the last eight months, there has been an increase in the number of properties for sale on the market this year compared with last year. This has provided more of a choice for buyers. With a larger inventory to choose from, buyers may be taking longer to choose a property and/or wait to see if prices are going to drop. Evidence to support this hypothesis is provided by the fact that the median and average sale price increases in 2011 are not as robust as they were in 2010. So properties may be taking longer to sell this year.

Between and between January and April, properties stayed on the market a bit longer and sale numbers are dropping. Thus, the real estate market in Montreal is transitioning and becoming more balanced. The shift is moving away from a seller’s market toward neutrality Sales prices are still growing, which means buyers are still willing to pay more for property than they did last year, but not as much.

It is certain that there will be transitioning markets in the next little while. In one area, the market may be balanced but in another, unbalanced. That is why it is very important to communicate with a real estate broker to determine the direction the market is taking in the area(s) you want to sell and/or buy in. Overall, however, the market still favours the seller. Furthermore, it is uncertain just how far the market will transition and depends on a number of factors, which include interest rates, buyer confidence, economic recovery and employment rates. Unfortunately, it is very difficult to predict what the state of the economy will be in six months to a year.

However, interest rates are bound to increase this year, the Bank of Canada promises. Also, interest rates have been fluctuating for months, but the general trend is up.

Quebec on top for affordability

Daniel Smyth

May, 2011

The years between 2000 and 2010 mark the most dramatic increase in the median price of single family dwellings in Quebec compared to the 1980s and 1990s.

The median price of homes in Quebec increased by 122 per cent, but in cities, prices increased by 159 per cent (Quebec City), 133 per cent (Montreal) and 131 per cent (Gatineau). Increases were somewhat less inSherbrooke, 117 per cent; Saguenay, 111 per cent; Trois Rivières, 96 per cent; Shawinigan, 74 per cent; and Baie-Comeau, 40 per cent.

To compare decades in Quebec, one must utilize the average sale price. For example, in the 1980s, prices increased by 107 per cent and during the 1990s, prices grew by only 10 per cent. It is interesting to see that inflation was highest in the 1980s at 77 per cent, but considerably less (21 per cent) in the 1990s. Inflation and average price are obviously related.

Affordability is based on property prices, income and interest rates.

According to the Desjardins affordability index, a home in 2010 is only slightly less affordable than in 2000. However, a home was more affordable in 2010 than 20 years ago.

The average price increase between 2000 and 2010 was 123 per cent but in this decade it has been more common for families to have two incomes, the demographics increased and interest rates remained relatively low compared to previous decades. Inflation in this decade, at 21 per cent, was offset by these factors. Market conditions remained tighter and favoured the seller more than the buyer, thus supporting higher average price increases.

The increase in the average sale price of a single family dwelling in provinces like Alberta (140 per cent), Saskatchewan (160 per cent) and Manitoba (153 per cent) has left Quebec far behind. But at the same time, property values in Quebec have been able to catch up, as it were, to those in Ontario (86 per cent). Overall, Quebec remains one of the most affordable provinces in Canada.

Of interest is that the single family dwelling is becoming less important in the total Montreal market. Going back to the year 2000, homes represented about 43 per cent of the total number of sales transactions in Montreal. By the year 2010, this proportion reduced to 31 per cent.

Condominiums in 2010 represented the largest percentage of total sale transactions in Montreal, comprising 45 per cent of the market. The plex market has changed little. In 2000, plex sales represented 27 per cent of the market, but in 2010, plex sales reduced to 23 per cent of the market.

First-quarter results for 2011 are in, and even more change has taken place. Condos, single-family dwellings and plexes represented 52 per cent, 24 per cent and 23 per cent, respectively, of the total sale transactions. They show an expected outcome toward a dominant Montreal condo market.

In part, this demand is based on first-time buyers and boomers or their children, who have downsized already or looking to downsize in the next while. First time buyers do not have the equity or cash to afford single-family dwellings to the same extent that they do for condos; an attractive first property would naturally be a condo. The average sale price of a single-family dwelling in Montreal in 2010 was $426,173 vs. a condo at $283,970.

A minimum down payment on the condo ($14,198) is about two-thirds of a single-family dwelling ($21,309). Considering a monthly budget, a condo makes more sense vs. a home. The monthly payment for the condo ($1,458 per month) would be approximately 50 per cent less than the home ($2,188 per month).

As children leave and a large house becomes more work, convenience and peace of mind are more desirable. This situation has also increased the demand for condos.

When considering a broker, think about the dollar value of peace of mind

Daniel Smyth

April, 2011

The Greater Montreal Real Estate Board recently announced that the real-estate market in Montreal is becoming more balanced.

First, the market eased the most for single-family dwellings in Vaudreuil Soulanges and on the north shore, while condominiums moved toward a more balanced market in the north shore and Laval.

Conversely, on Montreal Island, the market favoured sellers, both of single-family dwellings and condos.

Second, in February 2011, compared with a year earlier, more modest price increases were seen. For example, the median price of a single-family dwelling and a plex (two to five units) increased by only four per cent and three per cent respectively. Only condominiums maintained a sustained increase of nine per cent.

Furthermore, sales transaction numbers reduced in Montreal in 2011 in comparison with 2010, by seven per cent for single family dwellings and condos and 11 per cent for plexes. This was also the case in January, which was down nine per cent overall.

Finally, the number of active listings in the Multiple Listing Service increased by 13 per cent overall in February 2011 vs. February 2010. This will give more choice for buyers and may slow average price increases for various types of properties. So what does this mean for buyers and sellers? It would be beneficial to know the market conditions in any place that they are looking to sell or buy given that there are indications of market changes in various sectors and for various types of properties. Buyers and sellers would benefit from working with a real-estate broker. Recently, the real-estate board interviewed numerous consumers who were looking to sell and/or buy properties. They were questioned about their experience working with a broker and what value it brought them.

Sellers appreciated the brokers’ market knowledge in establishing reasonable asking prices.

The timing of the sale, which was based on market conditions best suited for this goal, was factored in. Additionally, management of the sale process, which included marketing, visits, taking offers and negotiating, was discussed. Peace of mind and being able to continue to lead a normal life throughout the process was emphasized.

Buyers also appreciated the negotiation skills of their brokers but added their appreciation of the research on the property conducted by the broker in finding the home and potential pitfalls with buying the home. They also noted the buying process, which included the presentation of the offer, the management of the inspection, and pre- and post-sale problems that can occur.

Buyers emphasized that using an agent does not cost a thing and even vendors stated they could sell on their own and save the commissions, but in the end, sellers questioned whether there would be a savings given that they would be responsible for marketing and selling their property with their own money and time. In the end, do you really save money selling on your own?

One seller stated that selling with a broker brought peace of mind, which is hard to place a dollar value on. Furthermore, another seller stated that they did not feel that the commissions were high. The word used was “fair.”

So, long story short, take advantage of the knowledge and expertise of a real-estate broker. It will be worth the money you pay and the peace of mind you achieve throughout the process of selling or buying, especially in fluctuating market conditions like we are seeing in the Greater Montreal area.

Transactions are dropping, but the median cost of homes in Montreal is increasing

Daniel Smyth

March, 2011

The 2011 real estate market is expected to slow down. Sales transaction numbers are expected to be more like that of 2008 and not be like the amazing year we had in 2010.

In January 2011, compared with 2010, the number of sales transaction in the greater Montreal area dropped by 10 per cent; specifically single family homes (down 11 per cent), condos (down eight per cent) and plexes (down nine per cent). Despite the reduction in sale numbers, the median price of plexes and homes in Montreal increased by seven per cent each, while condos rose only four per cent. However, compared with other areas in Canada, Montreal is still a very affordable city to live in. Just look at Calgary: The median price of a single family home there is 55 per cent higher than that of Montreal ($252,000).

Concomitant with the changes in sales, new government regulations, commencing in March 2011, are expected to have an effect on the real estate market in Canada. These changes are directed at safeguarding the Canadian economy by slowing down the rapidly growing real estate market and reducing the growing level of household debt.

These changes include: 1) the shortening of the amortization period from a maximum of 35 years to 30 years; 2) the refinancing of homes at 90 per cent was reduced to 85 per cent; and 3) lines of credit secured by homes will no longer by backed by Canada Mortgage and Housing Corporation. The first two changes will be implemented on March 18, while the last change will begin April 18.

Those most affected by these changes will be first-time home buyers. Approximately 30 per cent of these buyers in Canada use the maximum amortization period of 35 years to qualify for a mortgage. In Quebec, a smaller percentage of these buyers use the maximum amortization period, so it may not affect this province as much as the rest of Canada.

Furthermore, interest rates are expected to increase, also making it more difficult for about 10 per cent of households. However, the remaining households appear to be able to absorb an interest rate increase. Rates are expected to increase between 0.75 per cent and one per cent by the end of 2011. Existing mortgage holders or second-time homebuyers will be less affected and not every household in Canada will be reapplying for a new mortgage in 2011.

Taking into consideration that sales decreased by 10 per cent in the first month of 2011 vs. 2010 but inventory has increased by 13 per cent, it is not surprising to see signs of the market slowing down this year. It is when inventory is low that prices tend to soar with demand. Also, the anticipation of interest rate increases coupled with new government regulations to mortgages caused a surge in buyer activity prior to April 19, 2010. So the overall market in Canada is expected to soften slightly in 2011 but still favour the seller. Average sale prices in 2011 are expected to increase by about four per cent compared with 2010 but the market is expected to be more balanced.

I love my job. All of it

Daniel Smyth

February 2011

I love first time buyers because they need so much help. They are so lost and worried about their purchase. What about the market? Where is it going? Is this a good price or not? What does the inspection report say? Will we make money if we sell in a few years?

I really don’t blame them because I was no different when I bought my first place. I love having all the answers and putting my clients at ease. I am supposed to worry; they are not.

It is amazing to watch the expression on their faces after searching to find the home that they will call their own; and then again at the notary’s office, as I hand them the keys; and finally as they walk into their home as the new owners. It is priceless, it really is.

Sellers are an interesting group, too. They are so proud of their homes and renovations, always wanting the most for their property. Every owner thinks that their home is the best on the market. However, it is a delicate matter explaining to them comparables and what market demand could potentially offer. Working with sellers to bring them the value they want from the sale of their homes is very rewarding. Taking a lump of clay and changing it into a work of art and then selling that piece at auction is really amazing. After all, that is why my clients hired me. Battling at the negotiating table is lots of fun, too. It is like Clash of the Titans with a different ending each time.

You never know what is going to be the deciding factor in the negotiation. I don’t know how private sales ever work. Sometimes it is the smallest issue that can make or break a deal. What’s important is to make sure that everyone wins something at the end of the day. Even if the deal falls through, it matters to me that we all shake hands when going our separate ways.

What is really nice is when I get a call from a client I helped before, and now they need my services again. Sometimes I will receive a call from a new client who is referred to me.

It makes me feel very proud of the services I provide.

What a rewarding experience it would be to receive a call from a buyer that was the son or daughter of a client whom I helped when they bought their first home. It is not unlike when a doctor delivers the child of a woman he delivered 25 years ago. I look forward to the day this happens to me.

I worked in the pharmaceutical industry for years and was very successful. I received lots of rewards, but ethics got in the way. I felt that I could no longer perform my job. When I left that field and entered the real-estate industry, I felt liberated and that I was actually helping customers to achieve a very important goal and to protect one of the most important investments they would make in their lifetime.

Montreal’s housing market isn’t going south, and here’s why

Daniel Smyth

December, 2010

In the last issue, I defined what a housing bubble was because many of my customers expressed concern that the direction of the Canadian real-estate market was heading “south,” as in the U.S.

I will provide further evidence that there is not a housing bubble in Canada and certainly not in Montreal. If anything, sale transactions and prices are going to stabilize in the next little while.

“Supply and demand are rebalancing, and that’s keeping prices steady in many markets,” saidCanadian Real Estate Association president Georges Pahud. Canadian economic growth is moving slower than expected, but it is positive.

He added: “Canadians are focused on paying down their debts in anticipation of interest-rate increases in 2011. That means the continuation of low and stable interest rates is unlikely to cause a housing demand or prices to take off, especially since the hangover from accelerated home purchases this year is expected to persist with some momentum.”

Since the change in Canadian mortgage regulations in April, the average five-year fixed interest rate was 3.75 per cent, which increased to 4.75 per cent in May, and then dropped to 3.79 per cent by November. Interest rates have stabilized and the Bank of Canada stated that it has no intention of increasing the lending rate to banks any time soon. Interest rates will effect sales numbers, not toward bursting a bubble, but toward stabilizing prices in a recovering economy.

Fortunately, mortgage lending is conservative in Canada. People who can’t repay their loans simply won’t be approved for a mortgage and thus not get in over their heads like we saw in the U.S.

These regulations have helped to slow the market. Since April, the number of year-over-year sale transactions in Montreal has been less each month, but the overall number of transactions year-to-date is still greater (3.5 per cent) in 2010 compared with 2009. This is because of a “bulge” of buyers who purchased prior to the change.

But the Montreal market has always differed from the rest of Canada. Pahud said “local and national housing market conditions often differ, so home buyers and sellers should consult their real-estate agent to understand how sales, inventory and pricing trends are shaping up in their market.”

For example, the Canadian average home price in 2010 is approximately four per cent above last year. However, the average sale price for any real-estate transaction posted in the MLS for Montreal 2010 (January to October) revealed a 9.4-per-cent increase over last year. These numbers have been positive for a few years, something not expected in a bubble. Finally, let’s not forget what happens when the media gets a hold of a story, folks. Sensationalizing speculation just to sell papers and not printing the facts creates uncertainty and doubt. I think this, more than anything, is what we as homeowners have to fear. It is like scaring a herd of elephants and watching them stampede.

What does this all mean? The average sale price in Canada and Montreal is holding its own and will probably continue to creep up. However, it is expected that the market will stabilize and interest rates are expected to return to normal levels by the end of 2011, helping stabilize the average sale price across Canada.

For more information, please contact me. It will be my pleasure to help you to achieve your real estate goals.

Daniel Smyth is a broker with Groupe Sutton-Clodem Inc. He can be reached at 514-941-3858.

Housing bubble a mixed bowl of fruit

Daniel Smyth

November, 2010

A housing bubble occurs when buyers speculate on or anticipate a sudden and dramatic increase in sale prices in the near future.

Buyers are then more willing to pay asking prices in the hopes of purchasing a home before prices substantially increase. This causes a surge in the average sale price in the short term. A bubble is really defined when prices dramatically reduce – as fast as prices increased, they decrease, as happened in Montreal in 1989.

There are three fundamental factors associated with a housing bubble: family income, interest rates and population growth. As income increases or interest rates decrease, one is able to afford a more expensive home. However, if population growth is greater than construction, prices will increase.

It is important to compare apples with apples and not consider a mixed bowl of fruit. It is not the price of a home relative to family income that is critical, but the affordability ratio, which is associated with a monthly mortgage payment and expenses relative to the family income. A mortgage payment at four per cent vs. seven per cent produces a more affordable ratio.

In 1989, a buyer who bought a home for $100,000, with a mortgage description of 90 per cent, a 25-year amortization and a five-year term, could afford a $270,000 home in 2009 based on the average income increase and reduction in interest rates. Considering the real-estate market increase, this 1989 home would be worth about $240,000 in 2009.

Twenty years ago marked a period in Montreal’s real-estate history where the average home price spiked. Beginning in 1990, the average interest rate increased over the next two years by just one per cent; between 1992 and 1996, the average home price declined four per cent.

It is not expected that interest rates will increase by more that one per cent by the end of 2011. Furthermore, a poll conducted by the Canadian Association of Accredited Mortgage Professionals stated that 85 per cent of buyers would be unaffected by a one-per-cent increase in interest rates. The Bank of Canada has said the overnight lending rate will not increase for some time.

If house prices were to drop, it would probably be because of a cyclical pattern and would recover quickly. The drop would not be a result of a bursting bubble.

Have patience, a plan when dream-home shopping

Daniel Smyth

October, 2010

It is difficult to write about a dream home because it is very specific to each buyer.

You might not be conscious of how much your dream home reflects different dimensions of who you are. If you go beyond just the renovations, you will discover psychological, sociological and physical dimensions that are interconnected and vary in importance.

Psychological: There is a sense of pride to owning a home. As a broker, I can really feel the seller’s pride, especially when we discuss price. A home is a reflection of the “self” and is part of a dream most Canadians share. We are aware of the advantages of owning a home and there is an investment in family, friendship and community. A home owner will express aspects of their personality in various renovations, including painting, decorating, landscaping, staging and the like. These changes suit lifestyles and interests.

However, there is more to consider than just the renovations. Other than a mortgage payment, you will pay municipal and school taxes, home insurance, heat, electricity and cable/Internet. You might have to pay condominium fees. The financial stress could be overwhelming. If not properly planned, a dream could become a nightmare. You might have to either rent your home or sell it. Neither is an attractive option. You should be comfortable with market fluctuations, but overall, property values increase with time. It is all about having patience and a plan.

Consider the burden of home maintenance. The roof, furnace, brick and terrain must be preserved to maintain property values. Also, you will have to protect your property value against the incursion of a home owner who neglects the property beside yours.

Finally, privacy is an important consideration. Your dream home might be that oasis you have always wanted, which could provide you with peace, contentment and freedom from stress.

Sociological: One cannot place a monetary value on the sociological benefits of owning a home. It is possible to confirm, however, the social consequences of home ownership, which are related to social outcomes for each individual, household and community. These consequences include feeling stable and having a need for social and political involvement.

What about the religious influence in the area you want to buy? There is the environment to consider, also. Considerations for positive child outcomes, health and a lack of crime in the community are important. You must consider the social influences around you when seeking your dream home. A good social support system can make your dream come true.

Physical: The physical dimension is easier to understand because it must at least meet your immediate, basic needs. But don’t forget about the future potential of your dream home.

Here are some examples to consider: Even if there are enough rooms for now, what about in three years? Consider the location of the property. Is it close to the services you need? What about playgrounds, parks and sports facilities?

Consider the terrain. Maybe you want a pool but cannot afford it yet. The lot is something you have to maintain and a larger lot with a pool and plenty of trees or a garden is more to manage.

What about renovations to the kitchen and bathrooms? Are these rooms sufficient for your immediate use? Can you add another bathroom or powder room in the future?

With work, a home can grow to become your dream home. Remember to have vision to see the potential of the property you are going to buy.

Your home will represent various aspects of your personality and will have to be supported by sociological and physical dimensions. Neither dimension alone will represent your dream home but the dimensions will be interconnected. Often, a dream home will not be your first purchase. It will probably come later in life or will be a work in progress.

Keep an open eye as to what your home could be. It might be worth your while to call a real estate broker and/or a contractor to help in seeing the “forest through the trees.” After all, real-estate agents and contractors see hundreds of properties a year and have access to information you may not.

Change in mortgage criteria causes increase in home sales

Daniel Smyth

September, 2010

The next surge in the Montreal real-estate market is expected to start this month and last until November. Typically, this second peak is much smaller than the first, between January and May.

However, an interesting phenomenon has occurred in the market, which began as a result of a change in the mortgage qualification criteria announced by the Bank of Canada. This caused a sudden increase in the number of sale transactions, as buyers purchased prior to the rules coming into force in April.

After the implementation of new mortgage regulations this year, the number of expected transactions decreased between May and July and continues to be less than seasonal norms despite following the usual transaction pattern. Transactions in August were less than expected halfway through the month.

Despite the reduction in sale transactions for May, June and July, year-to-date sale transaction numbers are above 2009 for all classes of residential buildings by an average of 10.6 per cent.

Average sale prices for a single-family dwelling (9.3 per cent), a condominium (11 per cent), and a plex (duplex to five-plex; 10.7 per cent to 19.4 per cent) are up compared with 2009. The 2010 real estate market to date has been very healthy and continues to support the seller.

Interest rates are rising and are expected to reach as high as six per cent or seven per cent by the end of 2010. Economists predict the majority of consumers will be able to handle the increase in the five-year fixed rate and about 10 per cent say the opposite.

Daniel Smyth is a broker with Groupe Sutton-Clodem Inc.

Purchasing a Verdun six-plex could be a profitable investment

Daniel Smyth

July, 2010

Residential six-plexes in Verdun continue to be a worthwhile investment.

If one purchased an average six-plex in Verdun in 2000, the investment would have increased 3.88 times by now. Furthermore, the relationship (r2=63.1%) between the revenue that these properties generate and their sold price is positive: The greater the revenue, the greater the sold price. It is also possible to generate between 10 per cent and 12 per cent per year on the initial down payment.

The purpose of this article is to explain typical six-plex costs and revenues to demonstrate profitability in Verdun right now and over the next five to 10 years. The minimum down payment on a $485,000 building is 20 per cent ($97,162).

It must be noted, however, that there is a huge price range in Verdun, from $400,000 to $600,000 for a six-plex. The average cost was used for the purpose of our calculations in this article.

I called a mortgage broker that I often work with, Sutton-Clodem Inc., for an interest-rate quote (4.79 per cent, five-year fixed) for a 25-year mortgage. The monthly payment would be $2,214 ($26,569 annually).

Typical municipal and school taxes average $4,259 annually. Insurance rates vary, but consider $1,500 per year with some maintenance costs, which could be $2,000 per year, depending on the quality of the property purchased.

Also, consider an annual revenue loss of five per cent for vacancies. On average, costs and lost revenues could total $36,286, leaving $2,872 per year left over from revenue generated.

Depending on the one’s income-tax bracket (assume one-third), one could net $1,914 per year. So, at the end of the five-year term, the total net profit could be $55,383, when one considers $9,572 in net revenue, plus the principle $45,811 paid against the mortgage. This amount represents 57 per cent of the initial down payment or about 11.4 per cent per year.

(Heating costs were not included because tenants pay heat and Hydro in most rental units in Verdun.)

There will be initial average costs when purchasing a six-plex: notary ($1,250); inspection ($600); and welcome tax ($6,031). These expenses reduce the profitability to about 9.8 per cent per year, but all of these items are 100-per-cent tax deductible, just like the other expenses discussed.

Revenue properties pay you through revenues, market appreciation and tax benefits. Let’s assume that the mortgage conditions, expenses and revenues do not change for the second term (another five years). The net profitability would be $115,115, which represents 11.8 per cent per year over 10 years.

These calculations do not consider annual increases in rent or expenses. They assume interest rates in the second term are comparable with the first term, that your tax bracket remains constant and that annual increases in revenue and in cost neutralize each other.

However, there may be increases in insurance, municipal and school taxes, and in renovation costs. On the other hand, there are allowable rent increases every year, especially if there are renovations.

Also, don’t forget about the potential benefits of having a vacancy. If the previous rent was below market value, then rent can be increased when the tenant leaves.

As such, it is very important for every owner to be aware of market demand and potential rent for various apartment features.

If one compares the augmentation in the average RRSP or stock price since 2000 to the average six-plex price in Verdun, it is not difficult to understand why the demand for these properties continues to grow year-after-year.

Sales have increased considerably in the past year. Adding to demand are low rates, despite recent positive trends.

But compared with 2000, interest rates are still very low. As long as six-plexs continue to be profitable, the demand to purchase these properties will exist and sellers know this.

There is much more information that goes beyond the scope and design of this article, which include: building size and dimension; desirable features that can increase revenue; revenue expectations for 3½ to 6½ unit sizes; future profitability in the market.

Help Dad earn big bucks on resale by letting the sun shine in

Daniel Smyth

June, 2010

It would be a wonderful gift to help Dad with the curb appeal of his home, especially if he wants to sell it.

The first thing a buyer sees when visiting a property is the outside, so make a great first impression by highlighting the most appealing features of Dad’s home while eliminating or minimizing those less appealing.

Usually, there are two types of buyers: Those who cannot see a home’s potential, who want the seller to provide it for them and are more willing to pay for it, and those buyers who see everything wrong and look for ways to negotiate the price of a home.

Each home is different, but there are numerous general things to focus on:

Yard clutter. Put away unnecessary garden tools and bags of fertilizer, grandchildren’s toys and bicycles, old tires and automotive parts. You would not want visitors tripping over these items as they walk around their potential new home. This includes animal droppings, so pick up all the poo.

Clean windows, rain gutters, brick and vinyl siding. If your dad’s home or sections of it are painted or stained, repaint or stain at least those areas that are fading or peeling. Remove stains on the surface of the deck and patio and on the roof and driveway. A surface-sealed laneway looks great.

The lawn. Always make sure his lawn looks healthy and is groomed. Consider fertilizing, seeding, removing weeds and watering the lawn to a lush green colour. Don’t forget to trim the grass around the edges of the laneway, around the flower beds, between patio stones and under the deck. You never know where a seed will take root and grow.

Let the sun shine in. Trim tree limbs and hedges that are near or touching the roof. Unobstruct windows to let in more sunlight. To add a contrast of colour, plant flowers around the patio and various areas of his house. Take a drive through the neighbourhood to get some ideas from the neighbours.

Fix it up. Replace or repair absolutely everything that is broken, missing or dysfunctional: a door that jams, a cracked window, a broken light or rain gutter are small things considering the overall price of his home, but these items can give a bad impression to a buyer as to how the rest of the property has been maintained.

Don’t make waves. If Dad owns a pool, consider that pools do not always benefit the sale of a home. People who know and like pools may not care as much, but those who are being introduced to one for the first time are really considering the time and expense of operating it. There is nothing less appealing than a green, slimy, tarp-covered pool.

Make a list for Dad of things that must be done, using this column, inspiration and the uniqueness of his home. Remember to stay within a budget and work with what is available. If you need help, call a real-estate agent or a home stager. The advice you receive could earn Dad thousands of dollars.

Happy Father’s Day and remember to help dear Dad with the curb appeal of his home, now that he is considering selling it.

Daniel Smyth is a real-estate broker with Groupe Sutton-Clodem Inc.

CMHC rules change, but don't panic

Daniel Smyth

May, 2010

Spring is here. The grass is riz. I wonder where my dream home is. There it goes flying by, dropping the “sold” sign in my eye. I don’t laugh. I don’t cry. I’m just thankful I qualify.

This buyer is looking to purchase a home during the peak of the real estate season in Montreal and is qualified for a mortgage at a bank. However, as of April 18, it may be more difficult to qualify for a mortgage. To protect Canada’s real estate market and strong economic foundation, the federal minister of finance announced several steps to support the stability of the housing market and prevent a “housing bubble” from developing. The government changed the rules for insured mortgages, hopefully for the better.

The rules: Borrowers will have to meet the standards of a five-year fixed-rate mortgage even if the product they are buying will be at a lower interest rate (i.e., a flex rate). This is supposed to help Canadians prepare for higher interest rates. It is probable that interest rates will increase because they have not been this low in 50 years.

When refinancing their mortgages, buyers will only be able to borrow 90 per cent of the value of their home, down from 95 per cent. This is to prevent buyers from using their home equity as a “cash cow.”

When purchasing a revenue-generating property (non-home-owner occupied), investors will have to produce a minimum down payment of 20 per cent instead of five per cent. This will put a dent in some investors’ plans and may reduce the number of investors looking to buy.

In my opinion, fewer buyers might lower demand for revenue properties, slowing the growth in the average sale price and a reduction in the number of rental properties available might cause rental rates to increase. These changes affect CMHC-insured mortgages only and not necessarily private insurers. Furthermore, most banks qualify buyers on a more stringent profile anyway and for many lenders, the rules aren’t a serious change.

Don’t panic, but here is some advice: Talk to your bank, a mortgage broker or real estate agent and ask them how this might affect your plans to buy. Be informed and never purchase in a hurry.

Maybe it is a good thing that you wait to save a larger down payment. It is only in your interest because a home may be the single largest investment of your lifetime.

Daniel Smyth is an affiliated real-estate agent with Groupe Sutton-Clodem Inc.