By Brian Madigan LL.B.

Many prospective real estate purchasers are hesitant to obtain professional advice. They constantly seek to corroborate information that is provided by a real estate agent. They often think…”well, that agent is just trying to sell the house”. This may be true!

Certainly, over the years, real estate agents have done little to improve their image.

So, this is where a truly professional realtor comes in. Why not have someone who is acting solely in your interest? Why not have someone loyal to you? Why not have someone who will seek out the best property to suit your needs?

All of these seem fairly straightforward. But, if you’re a prospective purchaser, you really need to get your own agent.

This is where buyer’s agency becomes important. You sign an agreement with a realtor, and that individual will work exclusively for you. There should be no conflicts of interest (or at least, there shouldn’t be).

This agreement (like a listing agreement to sell a house) will be in force for a certain period of time (often 3 to 6 months) and cover a specific type of property. The price range and geographical area might also be included.

You will agree to pay your agent a commission, but most of the time this commission will simply be offset by the amount of the commission that the vendor is offering to pay to realtors in order to induce them to bring their clients to the property. So, net/net, you pay nothing!

As long as you get a good agent, you have the best of both worlds:

1) a dedicated professional working on your behalf, and
2) someone else paying the bill.

One word of caution: Choose your Realtor wisely.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

How many times have you seen this sign? Ever wondered what it means? It means nothing. In fact, it’s illegal!

Real Estate practitioners in Ontario are governed by the Real Estate and Business Brokers Act which is administered by the Real Estate Council of Ontario. There are only two categories: brokers and salespersons, nothing else. And, they are registered not licensed.

RECO does not permit salespersons to refer to refer to themselves as “agents”, nor are they permitted to use the term “licensed”. This is not something new, this has been the law in Ontario for decades.

It is interesting to note that in some States, both terms are used. But, does this excuse a registered salesperson from using these terms in Ontario?

Fortunately, most newspapers seem to know the correct terminology and will publish advertisements complying with the legislation. The question remaining is why do you see these signs, why do they appear on business cards, letterheads, brochures and websites?

For some reason, real estate practitioners never seem to have adopted use of the correct terms. You would think that the fact that they are required to carry around and produce for inspection, if asked, a copy of their “Certificate of Registration” that this might prompt some to change.

So, what does all this mean? Should you hire someone as your salesperson who refers to themselves as a “licensed agent”? At first blush, you might think not; however, if you were to exclude them all, you would likely eliminate some very capable, qualified and experienced practitioners in the field.

This terminology has crept into the vernacular and although it is legally incorrect in most circumstances it doesn’t do any harm. In any event, all qualified practitioners know that they are registered sales representatives and not licensed agents. If you are interviewing several to list your home, maybe this is a question you’d like to ask.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters
Royal LePage Innovators Realty 905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Sales are up and prices are up!

Let’s have a quick look at the numbers for the first two weeks in June:

Toronto (416)

Sales: 2,023 in 2009 (1,733 in 2008)

Average Price: $449,946 ($439,469)

The 905

Sales: 3,162 (2,641)

Average Price: $380,698 ($371,686)

The GTA (both the 416 and the 905)

Sales: 5,185 (4,374)

Average Price: $407,716 ($398,542)

Although these are not end of the month numbers, these statistics are a very good indication of where the market is going. Up! There’s really no other direction at this moment.

The average sales prices for single family homes have never, ever been higher!

Remember that there was a lot “pent-up” demand. Transactions were down by one half in January, one third in February and one fifth in March. The general business climate, the recession and the lack of financial liquidity were all factors that dampened the market.

So, the vendors who had a choice did not participate this Spring. That means fewer good quality listings and numerous buyers who would have liked to enter the market earlier.

Generally, even though this is good news for vendors and the stability of the real estate market, new listings, the Summer decline which occurs every year, and the absorption of purchasers into the market should predictably slow the market somewhat in July and August.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

For several years I have been producing a real estate index. It started effective 1 January 2004 and tracked prices monthly in accordance with an index. Everything was set at baseline 100 on the first of January 2004.

The reason was largely to provide at least four consecutive years of numbers for the purposes of comparison.

The four year moving average is the standard for comparative purposes in the mutual fund industry, so that’s why I selected the starting date.

However, that was 65 months ago. It’s now time to revamp the index and make it a little shorter in terms of the time period. So, the new staring date is 1 January 2005. That will mean that as of the end of May 2009, we are looking at the last 53 months. There’s no magic in the starting date. It could be anytime.

Here is the monthly progression over the time period for gold as measured in ounces. This particular index shows the price of gold per ounce in a unitized format based upon the closing price at the end of each month. This index permits a simple comparison with other commodities, stock market indexes and real estate over the same time period.

May-09… 227.9369
Apr-09… 216.1309
Mar-09… 219.1116
Feb-09… 214.6698
Jan-09… 204.4418…..2009

Dec-08… 181.8819
Nov-08… 170.5435
Oct-08… 205.7276
Sep-08… 186.6745
Aug-08… 213.3255
Jul-08… 219.1701
Jun-08… 207.6563
May-08… 199.4155
Apr-08… 207.5395
Mar-08… 231.0929
Feb-08… 208.9421
Jan-08… 197.9544…..2008

Dec-07… 183.3431
Nov-07… 184.7458
Oct-07… 170.8942
Sep-07… 157.1011
Aug-07… 155.6400
Jul-07… 153.0684
Jun-07… 155.8153
May-07… 157.4752
Apr-07… 153.8866
Mar-07… 156.7271
Feb-07… 152.0748
Jan-07… 149.5617……2007

Dec-06… 151.6657
Nov-06… 143.5652
Oct-06… 140.4091
Sep-06… 145.1899
Aug-06… 148.9772
Jul-06… 145.6341
Jun-06… 146.1134
May-06… 154.5295
Apr-06… 137.2297
Mar-06… 131.9112
Feb-06… 132.8463
Jan-06… 123.9041……2006

Dec-05… 116.8323
Nov-05… 107.4226
Oct-05… 108.9655
Sep-05… 102.7703
Aug-05… 100.8416
Jul-05… 101.1338
Jun-05… 97.10111
May-05… 101.8586
Apr-05… 99.85973
Mar-05… 101.3326
Feb-05… 98.39860
Jan-05… 100.0000…..2005

The indexed price now stands at 227.9369. That’s an increase of 127.9369 in four years and five months (53 months). The increase is 2.4139% monthly, or 28.9668% annually, on a non-compounded, simple basis.

You may recall that I have frequently referred to the fact that property doubles in value every 20 years. The corresponding number for single family homes was 5.0776%.

This index unitizes the price of gold. With an almost 29% annual rate of return since 2004, gold has by far been the best performing asset class. Real estate, oil and stock market returns all pale by comparison.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

For several years I have been producing a real estate index. It started effective 1 January 2004 and tracked prices monthly in accordance with an index. Everything was set at baseline 100 on the first of January 2004.

The reason was largely to provide at least four consecutive years of numbers for the purposes of comparison.

The four year moving average is the standard for comparative purposes in the mutual fund industry, so that’s why I selected the starting date.

However, that was 65 months ago. It’s now time to revamp the index and make it a little shorter in terms of the time period. So, the new staring date is 1 January 2005. That will mean that as of the end of May 2009, we are looking at the last 53 months. There’s no magic in the starting date. It could be anytime.

Here is the monthly progression over the time period. This particular index shows the average price for condominiums in the Toronto East area as measured at the end of each month by the Toronto Real Estate Board.

May-09… 123.8778
Apr-09… 112.0728
Mar-09… 112.745
Feb-09… 112.1798
Jan-09… 112.7886…..2009

Dec-08… 114.0542
Nov-08… 125.6028
Oct-08… 117.9188
Sep-08… 125.7978
Aug-08… 116.4168
Jul-08… 123.7899
Jun-08… 122.3821
May-08… 124.0497
Apr-08… 123.1982
Mar-08… 117.0275
Feb-08… 116.6253
Jan-08… 114.9599…..2008

Dec-07… 122.4387
Nov-07… 118.1755
Oct-07… 113.1287
Sep-07… 114.4360
Aug-07… 110.5556
Jul-07… 115.8742
Jun-07… 120.9835
May-07… 119.8457
Apr-07… 121.6198
Mar-07… 115.7232
Feb-07… 110.9328
Jan-07… 108.8718…..2007

Dec-06… 122.5629
Nov-06… 112.7962
Oct-06… 110.5767
Sep-06… 104.9609
Aug-06… 105.9433
Jul-06… 110.6614
Jun-06… 112.5307
May-06… 116.4206
Apr-06… 108.4540
Mar-06… 104.1259
Feb-06… 110.8637
Jan-06… 107.6794…..2006

Dec-05… 108.4789
Nov-05… 105.5292
Oct-05… 104.3312
Sep-05… 107.2798
Aug-05… 112.0564
Jul-05… 112.4103
Jun-05… 105.6847
May-05… 104.7936
Apr-05… 101.5042
Mar-05… 102.1328
Feb-05… 102.1721
Jan-05… 100.0000……2005

The indexed price now stands at 123.8778. That’s an increase of 23.8778 in four years and five months (53 months). The increase is 0.4505% monthly, or 5.4063% annually, as non-compounded, simple interest.

You may recall that I have frequently referred to the fact that property doubles in value every 20 years. The corresponding number for single family homes was 5.0776%. So, the east end condo market is close to the benchmark but just a little behind single family homes.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

This is an offer which includes a short irrevocable date, in a delayed offer presentation format. As listing agents do their best to encourage multiple offers, buyer’s agents are reacting by trying to level the playing field.

In one case, a property was listed at a price below the price that the present owners had paid when they purchased the property 3 year’s previously. And, they had done substantial renovations. So, rather than pick the right listing price, they chose a price so low that multiple offers would be inevitable.

Naturally, the agent said “no offers until Saturday”. But, along came an offer anyway, and it said that it had to be accepted “by Friday”. It was a very good offer at a very good price. Legally, the agent is under an obligation to present all offers to the principal. They can be encouraged to re-submit, but if the purchaser doesn’t agree, the offer has to be submitted prior to its expiration on Friday.

The offer was a good one, and the seller accepted it. The buyer with the “bully offer” was happy, but what about everyone else? Is this legal, is it ethical, is it moral?

Obviously, it makes a sham of the system. The Saturday prospective purchasers were all disappointed, but they had participated in a process which drove the price up for the vendor. The owner was clearly permitted to sell to whomever he chose, and whenever he chose. The agent was under a legal obligation to present the bully offer. So, what can be done?

The aggrieved Saturday purchasers might consider suing! Yes, they could sue for damages and the measure of damages would be up to the Court. This is not unlike tender situations eliciting competitive bids in the construction industry. An owner may be liable in damages for failing to adhere to the tender system. It was this tender system in the first place which allowed the vendor to secure competitive bids. The Supreme Court of Canada has made the owner liable to aggrieved tenderers where there bids have not been accepted, yet they have complied with the tender rules.

So the term “bully offer” is somewhat pejorative. The purchaser has done nothing wrong, the purchaser’s agent has done nothing wrong and yet this short irrevocable offer is referred to as a “bully offer”. By the same token, the people at risk of complaint and potential lawsuits are the owner and the owner’s agent. They are the ones who have failed to honour their obligations. Sometimes, greed gets the best of people.

All in all, this multiple offer process needs some attention and revamping in order to restore the confidence of the consumer in the system.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

The real question is: does the phantom offer really exist! Maybe, and maybe not.

A phantom offer, of course, is an offer which is make-believe, it’s imaginary, it’s simply pure fabrication. The offer exists only in someone’s mind. Now, the question is who?

When the market is hot real like we experience in Toronto from time to time, more and more phantom offers seem to be in existence.

Phantom offers have become a rather widespread and growing problem. Yes, most agents have heard of them! These are offers that come out of nowhere.

A prospective buyer views a property and decides to submit an offer. All of a sudden, they hear “there’s another offer”. So now, rather than being able to negotiate they pretty well have to come up with the best overall offer that they can. Often this means deleting any conditions they might have had regarding the purchase including financing and home inspection. There are times when this can be crucial.

So, the a couple of things happen:

1) they are told that they are in competition,

2) both offers are very close to one another,

3) they should go back, revise their offer, and then re-submit it.

It has also bee rumoured that some agents have arranged for their friends, relatives, and other agents to park their cars outside the house the evening that offers are submitted to create a frenzy of activity. Talk about home-staging, this really takes it to the next level. Stanley Kubrick and Steven Spielberg would be proud to have staged such a production.

Bidding wars have become the “norm”. However, surely not all properties are really worth fighting about.

And, of course, all these phantom offers are illegal. The present ethical guidelines clearly prevent this sort of tactic. Not only is it wrong and deceptive, it is against the law. There are consumer protection laws in the Province as well as federal legislation in the Competition Act and the Criminal Code which would prevent this type of behaviour.

If the status quo remains in place, then nothing is going to happen.

The real problem is that phantom offers although often suspected are rarely reported. Agents frequently don’t want to become involved in this type of controversy. As a result, it falls to the Real Estate Council of Ontario (RECO) to investigate. And while they will, they first need these cases to be reported.

Actually, it is a lot like “speeding”. There are already rules against speeding, but if the police never set up radar, then it’s unlikely anyone is ever going to be caught.

This is a matter of ethics, and it first should be addressed by the industry. The failure of the industry to police itself, reflects very poorly upon the industry.

In a hot market, on many occasions, there truly are second, third or multiple offers. But, surely there isn’t always a mysterious second offer that suddenly materializes the same day as the first offer, after the property has been on the market for over 2 months. And, this same coincidence seems to follow the same listing agents.

Let me suggest the following:

1) all offers shall be properly registered,
2) the broker is responsible to maintain copies of all offers submitted through his office,
3) RECO shall periodically review the files of a brokerage to ensure that offers were in existence and legitimate in multiple offer circumstances.

If this is the case, then this is like radar for phantom offers. The perpetrators are caught and punished, then this will deter others and be of ultimate benefit to the consumer.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

One of the best opportunities for investment is owning your own building. This is a great advantage for small business entrepreneurs.

If you have a location for your business that will be relatively stable over time, then you should seriously consider buying it rather than renting it. For some reason, the same people who advocate home ownership to others often miss this opportunity for themselves.

Let’s consider some of the advantages. The interest on the mortgage is tax deductible. You will be able to offset current income by taking capital cost allowance. The value of the building will in all likelihood keep pace with inflation. In fact, if you choose a good location, the value will outpace inflation. You can use the increase in equity to finance other aspects of your business. Interest charges are bound to be less than you would pay for factoring or assigning receivables. And, don’t forget that there is no tax when you remove this equity.

As time goes by, it will be time to retire and reap the profits of your lifetime of work and investments. You should consider selling the business and the real estate separately in order to maximize your overall return. Hopefully, you will have investments in RRSP’s and IPP’s as well. The real estate is a bonus. It is now just like having an additional pension. Your regular mortgage payments over 25 years have now eliminated the debt on your property. All in all, the monthly payments were not that much higher than you would have paid, simply in rent.

If you sell the property you are liable for the recapture of capital cost allowance as well as the capital gain on the property. These tax liabilities can be alleviated somewhat at the time of sale by properly structuring the transaction. Be sure to obtain proper tax advice. The liability for recapture could be eliminated by demolishing that part of the structure where the original improvements were made or by renovating or otherwise improving the premises. The capital gain might be deferred through the use of a vendor take back mortgage. Additionally, you might be able to take advantage of the small business capital gains exemption. Over a period of 25 years, you really should own the realty associated with your business.

When is the right time to consider all these pension and tax issues? Most people wait until they are ready to sell. But, truly the best time to undertake the review is at or prior to the time of purchase. Why wait?

So, when you are about to submit an offer you should consider; who should own this property, me, my spouse, my business, a new company, a family trust. If you’re not sure, submit the offer “in trust” and figure out the most beneficial method of ownership prior to closing.

Brian Madigan LL.B., Realtor is an author and commentator on real estate, Royal LePage Innovators Realty www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

For most of the twentieth century, house designs divided houses up into a number of rooms for specific purposes. In the early 1900’s, in addition to the regular rooms, parlours were commonplace and kitchens were small. The entire house would be divided up and most rooms were separated by doorways.

In the late 1950’s, the American Architect Frank Lloyd Wright became quite creative with the open concept design. He removed the walls and he designated sepcial purpose areas throughout the house. This produced a feeling of spaciousness. Parlours were gone, so were the walls between living rooms and dining rooms and even hallways.

By the 1960’s, family rooms were added to the main floorplate, and eventually the wall between kitchen and family rooms were eliminated creating the great room which became popular in the 1980’s.

Today many older homes are in need of upgrading and modernization.. If there are walls separating the house into various rooms, you might consider taking them down. If they happen to be a supporting wall, then don’t bother it’s probably too costly. However, don’t despair you might be able to remove almost all of the wall and replace it with a supporting steel post. These posts can be enclosed nicely with wooden posts and you might even consider an extra one (without the steel post) if you require some balance in the room.

New appliances, fans and windows can easily deal with cooking odours, so your kitchen can become an integral focus on the main floor.

You might remember that 1930’s vintage houses, even the largest ones often had small galley kitchens. The trend today is to open up the space. Let the sunshine in! Add windows and skylights. Use continuous floors throughout the main level. Hardwood is also “in” and works as well in the kitchen as it does in the living room.

However, when it comes to the outside, purchasers still want the traditional look. Georgian, Colonial, Tudor, Victorian or Cape Cod will all outsell the “I can’t find the front-door type” of design.

So, consider an old house and let you imagination remove some of the walls. You might be pleasantly surprised. Old traditional exteriors are in, but old interiors are out. Look for an older house in a good area, and you might find a real gem.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

And you thought squatter’s rights were abolished years ago. In part, you’re right, but you must remember that there are two systems of land registration. Under the land titles system, squatter’s rights were abolished, as they should be. However, under the registry system these rights have been preserved and accorded a rather exhaulted status.

Did you hear about the case?

Harry Hallowes a homeless man from Ireland took up residence in what he believed to be an abandoned old building in a park. Now Harry was a good judge of real estate, and he certainly knew what it meant when realtors would say “location, location, location”, so the location he chose was not that far from Buckingham Palace, in a neighbourhood known as Hampstead Heath that would be just about one of the most expensive neighbourhoods in the world. It’s filled with multi-million dollar estates in a rather idyllic, parklike setting. And, the privacy of the park is what Harry liked about the place.

Harry moved into his “residence” in the late 1980’s and lived there for 18 years. According to the Courts, that’s enough for him to be declared the “true owner” of the property.

In accordance with the old common law rules, an individual who occupies a piece of property for a period of 7 years or more may be declared to be the owner. In England, this was later changed by legislation to 12 years. In Ontario it’s 10 years. Other common law jursisdictions use other time periods, but the basic rules are all the same. The occupation of the lands must be open, that is, it cannot be secret or surreptitious in any way. It must be peaceable, that is, no one is trying to throw you off the property, either physically or through the Courts. It must be continuous, otherwise the time period starts all over again. It doesn’t mean that you can never leave the property. So long as you leave enough of your “stuff”, you are still considered to be “there”.

This ancient remedy was helpful in resolving disputes in the latter part of the middle ages. If one farmer continued to cultivate a piece of land at the back of his farm, and the neighbouring farmer did not object, then after seven years he owned it. At that time of course, it wasn’t worth much. The purpose of the rule was to regularize the boundaries of the properties. The added value of the cultivation of the property over a period of years was considered to be an investment and an improvement to the land.

After the crusades, many people had been dispossessed from their properties, and many others never returned, so squatter’s rights were a good way to redeploy the lands into active use (and revenues for the King) once again.

Dwyer Asset Managemet bought the property in 2005 and wanted to build condos. That seemed like a fine plan, until they met up with Harry. They said they had a deed to the property. He said he wasn’t moving and that he owned the property. He liked living in the woods. In fact, he was just like the “forest people” referred to the 1215 Magna Carta. The Courts agreed and Harry now has a new deed in his name.

The property is worth millions. But, Harry still doesn’t want to move. By the way, he doesn’t have doors, windows or a proper roof on his dilapidated old ruins, nor does he have water, sewers, plumbing, electricity or heating (unless he sets up a campfire).

Nevertheless, a man’s home is his castle and in this case John’s castle is worth millions.

PS. If you live on a big property, don’t forget to check the back shed to see if someone’s living there!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com