12 Mar

The true cost of bidding wars


Posted by: Kristina Crosbie

Real estate bidding wars can drive up the price of a home.

The true cost of bidding wars

Competition can quickly drive up the price of a home, but there are steps you can take to avoid getting burned.


Derek Malcolm freely admits that the last time he got into a real estate bidding war he made some rookie mistakes. It was 2007 and the Toronto condo market was on fire. Nine people were vying for the place he wanted, but it eventually came down to him and another bidder. “Emotions took over,” he says. “And then you just keep adding $5,000, and then another $5,000.”

He got the place, but it cost him. He estimates he overpaid by about $20,000. “We were unprepared and got caught,” he says.

Last month Malcolm was back in a familiar spot. He was bidding on a house and found himself fighting 13 others for it. But this time, the magazine editor gave his top offer and left it at that. If his offer got rejected, he’d walk away. He figured the house would go way above asking, but to his surprise he had the winning bid.

“The key,” he says, “was that we were prepared leave it. We bid what we thought was a fair price, and in our price range, and we weren’t going higher.”

Bidding wars, which are still a common occurrence in some of Canada’s major markets, often force people to overpay for their homes. While it’s easy to justify increasing a bid by a few thousand dollars—$10,000 won’t have a huge impact on monthly mortgage payments—there can be consequences for paying too much.

The biggest problem is figuring out where you’ll get the extra money for that abode. Mark Fidgett, the Vancouver-based mortgage broker behind NotaPennyDown.com, says that he generally approves people for the maximum amount, but can’t do much for his clients if they bid more for a house than it is really worth.

“If you overpay, you have to come up with the cash,” he says. “You won’t get more money.” For this reason, Fidgett cautions people to not waive their financing conditions in a bidding war. Some will remove all conditions to get a better chance of getting the house, only to find out later that they can’t squeeze any more money out of their mortgage lender.

Another problem with overpaying is that if the house goes for above asking, the Canada Mortgage and Housing Corporation could send an appraiser to assess the value of the property. If the appraiser says the house is worth less than the selling price, you may not get as much of a mortgage loan as you had hoped.

Fidgett explains, people who put less than 20% down on a house have to have their place insured by the CMHC or another mortgage insurance company. The CMHC will agree to insure, at most, 95% of home’s value, based on the asking price. But if the insurance company appraises the value of the house at less than asking, your financial institution may reduce what it’s willing to give you since it will no longer be insured for the amount it originally intended to lend.

You can still buy the house, of course, but you’ll have to make up the difference. If you were only putting 5% down on a $650,000 house, the bank’s original loan would be $617,500, or 95% of the asking price—the amount it’s insured for. If the appraised value is $550,000, the bank can still give you 95% of the price, but that loan will have dropped to $522,500. If you want the home badly enough you’d have to find $127,500 yourself.

This potential mess can be avoided if you spend $400 to hire an appraiser before you bid, says Ann Bosley, vice-president of Toronto’s Bosley Real Estate. It’s less important if you’re putting 25% down, but if you don’t have any extra dough, and the house is determined to be worth less than what you’ve been approved for, then you may be out of luck. Talking to an appraiser before getting into a bidding war will also make it easier to walk away if the bids get out of control.

However, Bosley does point out that overpaying isn’t necessarily a bad thing, depending on how long you want to live in the house. “If you’re in there five years, you’re fine,” says Bosley, who points out that that home prices in the Greater Toronto Area increased, on average, 8% in 2011.

If you’re buying the home you’ll live in for 30 years then the price tag becomes even less important, she explains. “Look at how much a house cost three decades ago,” she says. “It was under $100,000.”

Of course, no one wants to be house poor, so paying too much for a home, even if it’s the one you’ll be in for years, isn’t a wise idea. As badly as Malcolm wanted to own a house, he wasn’t prepared to put his family at financial risk.

“This buying experience was a lot different than my first one,” he says. “We really liked the house, but we weren’t going to get sucked in. We had to be honest with ourselves. We crunched the numbers, did the math and went in with what we could afford.”


This article can be found on http://www.moneysense.ca/2012/03/08/the-true-cost-of-bidding-wars/ 


Before getting into a bidding war contact Kristina Crosbie for advice. Contact Kristina Crosbie, Mortgage Agent, at kcrosbie@dominionlending.ca









10 Mar

Mortgage penalty rules changed?


Posted by: Kristina Crosbie

Have the Canadian Mortgage penalty rules finally changed? 

The Federal govt announced some changes to protect Canadian Consumers… including rule changes to credit cards and mortgage prepayment information.   Here’s a link to the entire news release.

For our purposes, we are focusing more on the mortgage prepayment announcement.   Here’s a link to that portion of the news release.

There are 5 Elements to the Code of Conduct for Federally regulated institutions.  The changes must be implemented within 6 to 12 months.   In short, the new Code of Conduct rules will require these lenders to provide clear disclosure on how penalties are calculated, along with online calculators and access to knowledgeable staff that can be contacted through a toll-free phone.

The good news is that we should finally see the end of penalty calculation mistakes… and this disclosure will not make a the consumer more aware of just how much a mortgage penalty can really cost them.  (if you’re a regular reader of CanadaMortgageNews.ca, then you’ll know how openly critical I have been about the banks and their over-inflated penalty calculation formulas…. it will be great to see the Bank’s try to explain to clients why they must pay penalties of 3 to 20 months worth of interest like we’ve seen in the past few years … and how that’s a good thing).

While I applaud the Federal govt finally taking action with regards to mortgage penalty and prepayment disclosure, it’s still not giving us the mortgage penalty standardization calculation, that we were promised back in the budget of March 2010.   here’s a link to the March 2010 release.    The govt might want to look at HOW the penalty is calculated and what purpose or reason there is for a penalty, in the first place.

A little history……

Penalties should not be a profit centre for the Banks…  Penalties were brought in decades ago, as a means of compensating Lenders for early payouts.   Mortgages having an interest rate that is higher than the Bank’s current interest rate.   They used to just charge the difference between the two rates… That seemed fair.   But in late 1999 and in the early 2000′s, the battle for market share grew… Mortgage Brokers made consumers more aware of other options… consumers decided to shop around at renewal time…  it was the beginning of mortgage transfers.   Lenders were competing for your business.  Banks had to offer greater discounts, and with more frequency, than they had in the past..  the Banks decided they would charge borrowers a higher prepayment penalty.   The changes were brought in very quietly, without much notice by most Canadians…. unless you had a penalty to deal with.   And only when discounts became larger and interest rates reached record lows in 2004 and 2009, did we see a public uprising.  (penalties as high at 20 months worth of interest will do that).

Message to the Feds…. more disclosure is always good.. we welcome this…. how about working on standardizing the penalty calculation formula?   There are still several good Lenders that DO NOT use the BIG SIX bank formula for calculating penalties…. They don’t make you pay for the ‘supposed’ original discount obtained…. If these smaller lenders can do it, while still offering a competitive rate (in most cases lower than what the banks offer) why can’t the BIG SIX banks do it?

2 Mar

Condo fees explained


Posted by: Kristina Crosbie

It would be no surprise that condo fees are not understood by owners and potential buyers. 

Condo fees explained

First-time condo buyers are sometimes confused by the monthly maintenance fee that condo buildings charge. Combined with property taxes and your mortgage payments, they can add up to a hefty percentage of your total housing costs. But what is a condo maintenance fee and what does it cover? And how does it compare to the costs of owning a house?

Janice Pynn is president of Simerra Property Management, a FirstService residential management firm and the third-largest in Toronto, with interests in over 32,000 units. “Condo maintenance fees are your percentage share of the costs to run the building as a whole,” she explains. “Unlike rent, they are not a profit source for the management; in fact, each building is registered as a non-profit corporation.” 

Generally, Pynn explains, these fees correspond to the individual utility bills you pay on a home, along with maintenance work such as window cleaning, snow shovelling, housecleaning, gardeners, and so on. Fees are calculated according to the size of your unit – a two-bedroom’s fees are higher than a studio’s, for instance – and are recalibrated each year, up or down, according to the building’s annual operating budget.

A certain portion is also set aside as part of a “contingency fee,” which every condo must maintain by law. The contingency fund covers any special costs incurred as part of building upkeep, such as a new roof or repairs to heating or plumbing equipment. 

The maintenance fees for townhouses within a complex are usually slightly lower. Often townhouses have their utilities separately metered, so these are not included in the fee; but townhouse owners still pay a share for maintenance of common areas, security and other general costs. 

Beyond these basics, there’s a wide variation in the features each individual condo building offers, and the fees vary accordingly. One building might offer beefed-up security, concierge service and underground parking; another might have a fully equipped gym or pool with trainers and classes; or you may have access to special perks like a rooftop patio or guest suite. All of these are reflected in the monthly fee, and in some cases are optional.

One last area to consider is a category known as “special assessments.” These are one-time fees for repairs not covered by the contingency fee, and can be substantial, especially with older buildings and conversions; once the bill is paid off, the maintenance fee will drop accordingly.

Kathy Monahan of Forest Hill Real Estate in Toronto says one of the most important things you should do when considering a condo is to ascertain what the monthly maintenance fee covers, so you’re comparing apples with apples when deciding between two buildings. Consider whether the extra features are worth it to you, or conversely, whether your budget can handle paying separately for things that are not included. “One option I always do recommend if it’s offered, however, is a parking space, even if you don’t drive,” she says, “since you can rent it out and earn some income from it.” This is particularly true downtown.

Kathy offers some examples of condos she’s recently sold in the Toronto area, their fees and what the buyers get for them. (It’s important to note that these merely provide an idea of what to expect; your experience, even with the buildings named here, may be different.)

– Ritz Carlton Hotel, Wellington and John Streets: Two-bedroom, $2455/month, hydro extra. Thirty-plus floors. High-end suites with all the perks of a modern hotel, including 24-hour concierge, top-drawer appliances and finishes, and parking.

-TIFF Lightbox, King and John Streets: Starts under $500 for a small studio. Thirty-plus floors. Options include gym and pool facilities with trainers, access to Autoshare rental cars, and a roof deck with Weber barbecue.

-College Street, Little Italy: $795 for a two-bedroom, hydro extra. Seven floors. One of the earliest conversions in the city, a former church. Each unit is unique, but not many extras. It’s worth noting that units are heated electrically, making the monthly hydro a significant consideration.

-Edith Avenue, Yonge and Eglinton: Starts at $502 for a one-bedroom. Five floors. All-inclusive, including hydro and parking; great neighbourhood, especially for singles, but not many extras.

Both Janice and Kathy state that overall, the costs of condo buying, including maintenance fees, often work out to roughly the same as owning a house the same size, location and price. Would you rather have your own garden, or never have to shovel your sidewalk again? “Ultimately,” says Janice, “it’s a lifestyle choice, rather than a financial one.”

This article can be found on the Style at Home Website. To read the article on the website click here 


If you want to learn more about condo fees and what’s entailed with purchasing a condo please visit my website @ www.kristinacrosbie.ca or email Kristina@smithsfallsmortgages.ca