McLain Ward won the Grand Prix title for a record fourth time at the Hampton Classic. Several up-and-coming riders also competed.

Brian Madigan LL.B.

A real estate professional, that is, a brokerage, broker or sales representative is obligated to follow the Code of Ethics passed pursuant to the Real Estate and Business Brokers Act, 2002.

Those registrants who choose to join “organized real estate” are also subject to the CREA Code of Ethics as established by the Canadian Real Estate Association.

These standards are intended to impose an even higher standard of professionalism than required by law, that is, the statutory Code of Ethics set out in the Real Estate and Business Brokers Act, 2002.

Reproduced here is a copy of sections 20 through 28 in the Code of Ethics of the Canadian Real Estate Association:

STANDARDS OF BUSINESS PRACTICE

20. Respecting ContractualRelationships

The agency or other contractual relationship of a Registrant shall be respected by all REALTORS®.

Negotiations regarding an offer or the acceptance of an offer with any party who is exclusively represented shall be carried on with the Registrant representing the party except with the consent of the Registrant.

20.1 A REALTOR®, when negotiating on behalf of a Buyer, shall not use the terms of an offer to Purchase to modify the Listing broker’s offer of Compensation to co-operating brokers, nor make the submission of an offer to Purchase contingent on the Listing broker’s agreement to modify the offer of Compensation.

20.2 A REALTOR® should not in any manner, by specific direction or suggestion, advise a party to a contract that the party should attempt to breach the contract.

20.3 Prior to the expiry of an existing listing/buyer agency agreement, a REALTOR® may enter into a Listing agreement with a seller for the same property or a buyer agency agreement with the same buyer provided the following conditions are met:

(a) Any communication with the seller/buyer:

(i) may be initiated by the seller/buyer; or

(ii) if initiated by the REALTOR® must comply with Board Bylaws/Rules concerning solicitation and any applicable provincial or federal legislation or regulation; and

(b) any new Listing agreement for the property or buyer agency agreement with the buyer shall not commence until the expiry of the current Listing/buyer agency agreement.

21. Principal (Broker) Responsibility

The principal of a brokerage is required to supervise and control the activities of the REALTOR® and other personnel for whom he/she is responsible.

21.1″Principal” means the individual designated as the representative of the firm, either for the purposes of the provincial real estate licensing legislation or with regard to the relationship between the brokerage and the local real estate Board/Association.

21.2 In determining the adequacy of supervision, all relevant factors may be considered, including, but not limited to:

(a) whether the brokerage had established written policies and procedures which were provided to all REALTORS® and other personnel;

(b) whether office activities were regularly reviewed and updated to ensure that the policies and procedures were current and were being properly implemented;

(c) whether the principal had undertaken all reasonable steps to ensure compliance by all REALTORS® and other personnel;

(d) whether each transaction was reviewed by the principal, including trust deposits, sales record sheets, Listing and sales contracts and

(e) whether the principal took remedial action when a violation by a REALTOR® or other personnel was discovered.

(f) whether the brokerage regularly informed or updated the firm REALTORS® and other personnel on changes in legislation, rules and regulations or other relevant issues.

22. Cooperation with Board/Association

Should a REALTOR® be asked to co-operate in any way in connection with a disciplinary investigation or proceeding, the REALTOR® shall place all pertinent facts before the proper Committee of the real estate Board or Association to which the REALTOR® belongs.

22.1 A REALTOR® who is being investigated for alleged unethical conduct should provide the appropriate Committee, upon request, with all materials and information in the REALTOR®’s possession in connection with the matter being investigated.

22.2 Where a REALTOR® is asked to assist the appropriate Committee in connection with a disciplinary investigation or proceeding involving another REALTOR®, the REALTOR® should provide all relevant materials and information in that REALTOR®’s possession, and be prepared to testify at any hearing of the matter. Such assistance should not be deemed a “controversy” within the meaning and intent of Article 25.

22.3 Where a REALTOR® has reasonable and probable grounds to believe:

(a) that another REALTOR® has apparently breached the Code of Ethics and Standards of Business Practice, and

(b) that a person will likely suffer serious damage as a consequence of the apparent breach, the REALTOR® should immediately report the apparent breach to the appropriate Board in writing with the reporting REALTOR®’s name, address and telephone number. The report should be made bona fide without malice or ulterior motive.

23. Arbitration

In the event of a dispute between REALTORS® associated with different brokerages of the same local Board/Association regarding the Compensation earned or to be earned in connection with a real estate transaction, the dispute shall be submitted for arbitration in accordance with the By-Laws, Rules and Regulations of their local Board/Association.

23.1 A dispute between REALTORS® which is properly submitted for arbitration pursuant to this Article should not be deemed a “controversy” within the meaning and intent of Article 25.

23.2 Where a REALTOR® fails to submit a dispute to arbitration in accordance with the applicable By- Laws and Rules and Regulations, this Article may be pleaded as a defence in any other action or proceeding.

23.3 This Article does not require REALTORS® to arbitrate when all parties to the dispute advise their Board/ Association in writing that they choose not to arbitrate before the Board/Association.

24. Inter-Board and Inter-provincial Arbitration

In the event of a dispute between REALTORS® associated with different brokerages and belonging to different local Boards/Associations, regarding the Compensation earned or to be earned in connection with a real estate transaction, the dispute shall be submitted to arbitration in accordance with the By-Laws and Rules and Regulations of the appropriate Provincial/Territorial Association. Should the REALTORS® belong to different Provincial/Territorial Associations, the dispute shall be arbitrated in accordance with the By-Laws and Rules and Regulations of The Canadian Real Estate Association.

24.1 Interpretations 23.1, 23.2 and 23.3 also apply to Article 24.

25. Avoid Controversies

The business of a REALTOR® shall be conducted so as to avoid controversies with other REALTORS®.

25.1 Any REALTOR® who is aware of or involved in a controversy with another REALTOR®, resulting from the alleged misconduct or impropriety of that other REALTOR®, should place such matters before the appropriate Committee for resolution in order that the matter may be resolved in accordance with the Rules and Regulations of the Board, Association, Society or Council to which the REALTOR® belongs.

25.2 “Controversies,” as used in this Article, does not include aggressive or innovative business practices, which are otherwise ethical and disputes over Compensation or the division of commissions/fees.

25.3 A REALTOR® should not disrupt or obstruct a disciplinary investigation or proceeding relating to the alleged misconduct of another REALTOR®.

25.4 A REALTOR® should not make any unauthorized disclosure or dissemination of allegations, findings or a decision in connection with a disciplinary investigation, hearing or appeal.

25.5 A REALTOR® should not intentionally impede a disciplinary investigation or proceeding by filing multiple complaints based on the same event or transaction.

26. CREA Trademarks

A REALTOR® shall only use the trademarks of The Canadian Real Estate Association in accordance with CREA’s rules, regulations and policies.

26.1 A REALTOR® shall not challenge the validity of CREA’s Trademarks.

26.2 A REALTOR® shall not use any of CREA’s Trademarks in domain names, e-mail addresses or metatags unless specifically authorized to do so by CREA policies.

26.3 CREA’s Trademarks are not to be used as hypertext links in Internet websites.

26.4 A REALTOR® shall not use, display, or attempt to register as trademarks any word, phrase, term, initials or design marks that incorporate, or are confusingly similar to, any trademark of CREA.

26.5 A REALTOR® shall not incorporate into corporate or trade names any trademark of CREA or any confusingly similar mark.

27. Intellectual Property Rights of Boards/Associations

REALTORS® shall respect the intellectual property and other ownership rights of other REALTORS®, Boards, Provincial/ Territorial Associations and CREA.

27.1 REALTORS® shall only access and use the websites and other databases of Boards, Associations, CREA and other REALTORS® in accordance with the policies for use established by the owner of the site.

27.2 REALTORS® should not infringe the copyright or other ownership interest of another REALTOR® in his/her Listing.

27.3 A REALTOR® shall not use the trade names or trademarks or confusingly similar trade names or trademarks of any firm, franchise, or other organization other than those with which the REALTOR® is affiliated or otherwise authorized in writing to use. This restriction includes but is not limited to, unauthorized Internet uses such as domain names, e-mail addresses and metatags.

28. REALTOR® Acting as Principal

A REALTOR®, when acting as a principal in a real estate transaction, remains obligated by the duties imposed by the REALTOR® Code.

28.1 A REALTOR® is acting as a principal when he or she is buying or selling or attempting to buy or sell an interest in the property either directly, on his or her own behalf or through any entity which the REALTOR® holds any direct or indirect interest.

COMMENT:

You will notice that the above provisions contain slightly more detailed descriptions of some of the events set out in the Code.

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

Brian Madigan LL.B.

A real estate professional, that is, a brokerage, broker or sales representative is obligated to follow the Code of Ethics passed pursuant to the Real Estate and Business Brokers Act, 2002.

These obligations are imposed in order to protect the consumer. In part, they raise the standards of the real estate industry to a “professional level”.

The problem for vendors, is that such legislation is not of any direct benefit to them, and may be contrary to their own interests. Vendors may question why certain matters need to be disclosed, when such disclosure exceeds their obligations at common law.

Nevertheless, real estate professionals face a challenge trying to meet vendors’ expectations and balance their own ethical duties. It is important to note, that for these professionals, ethics is not simply a moral platitude, it’s the law.

Throughout this article, there are excerpts from the Act, and my comments appear in italics.

Real Estate and Business Brokers Act, 2002
ONTARIO REGULATION 580/05
CODE OF ETHICS

Business records

30. In addition to the records required by Ontario Regulation 579/05 (Educational Requirements, Insurance, Records and Other Matters) made under the Act, a brokerage shall make and keep such records as are reasonably required for the conduct of the brokerage’s business of trading in real estate.

Both the brokerage and the sales staff (brokers and sales representatives) are obligated to maintain records. What records? Obviously, the important records. What records are important? Clearly, any record which documents a duty, the performance of a duty, the execution of a duty, the waiver of a duty, or the compliance of a duty specified under the Act.

In essence, a full and complete file should be maintained. The file should speak independently. Someone other than a participant in the file, should be able to read it, and follow it through step by step, without asking one of the participants to explain it.

Current forms

34. A registrant shall ensure that forms used by the registrant in the course of a trade in real estate are current.

There are some standardized forms that are used in practice. They have been developed for use in the industry by the Forms Committee of the Ontario Real Estate Association (OREA). They are available for use, whether a registrant is a member of OREA or not.

When it comes to disclosure the most important form is the seller property information statement (SPIS). This form has been amended from time to time, so the old form in the filing cabinet may not be up to date.

Advertising

36. (7) A registrant shall not include anything in an advertisement that could reasonably be used to identify a party to the acquisition or disposition of an interest in real estate unless the party has consented in writing.

(8) A registrant shall not include anything in an advertisement that could reasonably be used to identify specific real estate unless the owner of the real estate has consented in writing.

(9) A registrant shall not include anything in an advertisement that could reasonably be used to determine any of the contents of an agreement that deals with the conveyance of an interest in real estate, including any provision of the agreement relating to the price, unless the parties to the agreement have consented in writing.

Here, the issue of disclosure relates to:

There is a specific duty: keep quiet! If you must tell, then you need everyone’s consent.

Inaccurate representations

37. (1) A registrant shall not knowingly make an inaccurate representation in respect of a trade in real estate.

(2) A registrant shall not knowingly make an inaccurate representation about services provided by the registrant.

This provision seems clear enough. Make sure statements are accurate. If a registrant is about to make a statement or representation concerning a property or a transaction, then such statement must be accurate.

Specifically, the registrant should be guided by the seller when disclosing matters relating to the condition of the premises. If the seller declines to sign the SPIS, then, the registrant might review all of that same information that appears on the form and make careful notes. That does not mean the seller has signed the statement, but it does give the registrant a complete checklist to follow.

Error, misrepresentation, fraud, etc.

38. A registrant shall use the registrant’s best efforts to prevent error, misrepresentation, fraud or any unethical practice in respect of a trade in real estate.

This is the precise provision which gets many registrants in trouble.
Now, no one wants to encourage error, misrepresentation, fraud or unethical practice, but a seller-client who wants to follow their common law duties is not guilty of any crime here.

That’s important to know. Most lawyers will advise their clients to disclose only what they are obligated to disclose at law, and nothing more.

Unprofessional conduct, etc.

39. A registrant shall not, in the course of trading in real estate, engage in any act or omission that, having regard to all of the circumstances, would reasonably be regarded as disgraceful, dishonourable, unprofessional or unbecoming a registrant.

Generally, it would appear that this section is an extension of the previous section.

Abuse and harassment

40. A registrant shall not abuse or harass any person in the course of trading in real estate.

While it may be difficult to imagine that anyone in the business would be abusing or harassing anyone, it does happen. I suppose it could occur in the context of what to disclose in a transaction.

Duty to ensure compliance

41. (1) A brokerage shall ensure that every salesperson and broker that the brokerage employs is carrying out their duties in compliance with this Regulation.

(2) A broker of record shall ensure that the brokerage complies with this Regulation.

This provision is designed to ensure that there will be proper supervision. And, liability will follow the failure to supervise.

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

Brian Madigan LL.B.

A real estate professional, that is a brokerage, broker or sales representative is obligated to follow the Code of Ethics passed pursuant to the Real Estate and Business Brokers Act, 2002.

These obligations are imposed in order to protect the consumer. In part, they raise the standards of the real estate industry to a “professional level”.

The problem for vendors, is that such legislation is not of any direct benefit to them, and may be contrary to their own interests. Vendors may question why certain matters need to be disclosed, when such disclosure exceeds their obligations at common law.

Nevertheless, real estate professionals face a challenge trying to meet vendors’ expectations and balance their own ethical duties. It is important to note, that for these professionals, ethics is not simply a moral platitude, it’s the law.

For this article, we will look particularly at the specific obligation of the registrant concerning the seller property information statement (SPIS).

My comments appear in italics

“Real Estate and Business Brokers Act, 2002
ONTARIO REGULATION 580/05
CODE OF ETHICS
OBLIGATIONS OF REGISTRANTS

Seller property information statement

20. If a broker or salesperson has a seller as a client and knows that the seller has completed a written statement that is intended to provide information to buyers about the real estate that is available for acquisition, the broker or salesperson shall, unless the seller directs otherwise,

(a) disclose the existence of the statement to every buyer who expresses an interest in the real estate; and

The seller property information is very much at the centre of the issue of disclosure in many lawsuits.

Just what is a seller property information statement? There is a Form that has been prepared for use by the Ontario Real Estate Association (OREA). But, this reference has wider meaning. It can be any statement provided that it has been “completed” by the seller. Such a reference would then exclude any documents in the possession of the seller that were prepared by someone else, ie. title documents, and letters, approvals, reports from the municipality, prior owners, neighbours or inspectors

(b) on request, make the statement available to a buyer at the earliest practicable opportunity after the request is made.

This obligation seems quite clear. Once the registrant has indicated its existence to the buyer through the buyer’s representative, then the statement must be made available. You will see that it doesn’t say that a copy must be delivered to the buyer. It simply says that the statement must be “available”.

What are the obligations of the registrant concerning the due and proper completion of the SPIS document. Is the registrant to provide advice, information and an opinion about the questions?

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.

Here is the latest report from the Toronto Real Estate Board:

GTA REALTORS® Report August Mid-Month Resale Market Figures TORONTO, August 18, 2009 –

“In the first two weeks of August, Greater Toronto REALTORS® reported 3,832 sales – up 27 per cent compared to the first two weeks of August 2008. The average price for these transactions was up three per cent year-over-year to $383,796.

The results for the first half of August indicate that many households in the GTA remain confident in their ability to purchase and pay for a home over the long term,” said TREB President Tom Lebour.

Year-to-date sales, at 54,303 are up slightly compared to 54,138 in 2008. Average price, at $385,603 is down by less than one half of one per cent.

Strong resale housing demand will contribute to broader economic recovery as each transaction results in substantial spin-off benefits to other sectors of the economy,” explained Jason Mercer, TREB’s Senior Manager of Market Analysis.”

Summary Of Mid August Sales Volumes and Average Prices

Note: August 2009 are shown with August 2008 in brackets

City of Toronto (“416″)

Sales: 1,465 (1,192)
Prices: $ $391,252 ($394,563)

Rest of GTA (“905″)

Sales: 2,734 (2,128)
Prices: $379,174 ($353,257)

GTA

Sales: 3,832 (3,019)
Prices: $383,796 ($373,844)

That was the full TREB report. But remember, TREB compares statistics annually, while the actual factual information is available bi-monthly.

So, which way is the market going? Up or down?

For a correct answer to that question we have to look at the average price of a single family home in the GTA. As of 15 June 2009, two months ago, that number stood at $407,716. Obviously, that was the height of the market.

Let’s have look at the average prices over the last few weeks:

$383,796…..15 August
$395,414…..30 July
$394,750…..15 July
$403,972…..30 June
$407,716…..15 June
$395,609…..31 May
$385,601…..30 April

The average price now compares favourably with the end of April. The average price has dropped $23,920 in two months, which is about 5.87% off the June 15th high.

What does this mean? Maybe nothing! Remember that TREB compares results annually, so that smoothes out the bumps over the long haul. The market is “up” from last year. But, this year, the market had been rising until June 15th, then it tipped over and has been in slight decline since then.

It is also important to remember that average sale prices do not have the same meaning as the price of a stock traded on a public stock exchange. Each common share in a company is absolutely identical, so you can track the prices accurately over time. However when it comes to real estate transactions, we are simply talking about averages. No two properties are the same. Every property is different. So, the averages become more and more accurate with larger volumes. A yearly number might average out almost 100,000 properties, but a two week period may report only a few thousand. So, be careful in terms of over analyzing!

It is noteworthy that the overall sales volumes are now slightly ahead of last year. That means that deals are being done, and the demand is being satisfied. Going forward, there will be fewer buyers in the market. This, of course, means that there may be some excellent opportunities out there.

The annual highs are usually reached in May each year. Then there are cyclical declines in the summer months and a resurgence in the Fall. The October figures frequently match the May numbers. This may simply be in motion again.

Longer term, real estate has always proven to be a good investment.

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

Brian Madigan LL.B.

A vendor may have some degree of limitation on the obligation to provide information and disclose facts about a property, but, if something goes wrong, how is the unfortunate purchaser to frame his lawsuit?

The first piece of advice he will likely receive from his lawyer is sue everybody. The reason for that, is that at the outset of the case, it may be difficult to determine who is at fault. Throw everybody into the lawsuit, and then let them out, “one by one” as the case develops, appears to be the preferred strategy for most plaintiffs.

Let’s consider a fact situation involving a faulty foundation, a dual agent, and a Seller Property Information Statement completed and provided as part of the transaction.

Potential Responsible Parties

The purchaser who unwittingly acquires the property with the faulty basement is going to consider suing the following:

• The seller
• The seller’s sales representative
• The seller’s agent (the brokerage)
• The purchaser’s own sales representative
• The purchaser’s own agent (the brokerage)
• The home inspector
• The home inspection company
• The builder
• The foundation contractor
• The consulting engineer
• The consulting engineering company
• The builder inspector
• The municipality

That’s the potential list. Now, in any given case, who is actually still around who can be sued? Also, it’s important to determine whether any of the parties carry insurance, and whether there are any limitation periods that may have expired in terms of the potential claims.

It is also important to consider that some claims will be founded in contract, and others in tort.

Contractual Claims

From the perspective of the purchaser, there is a contractual claim against:

• The seller
• The purchaser’s own sales representative
• The purchaser’s own agent (the brokerage)
• The home inspector
• The home inspection company

A contract is a legally enforceable binding agreement between two parties. It may contain limitations of liability which must be considered, since such matters are part of the negotiated arrangement between the two contracting parties.

Tort Claims

From the perspective of the purchaser, there is a tort claim against:

• The seller
• The seller’s sales representative
• The seller’s agent (the brokerage)
• The purchaser’s own sales representative
• The purchaser’s own agent (the brokerage)
• The home inspector
• The home inspection company
• The builder
• The foundation contractor
• The consulting engineer
• The consulting engineering company
• The builder inspector
• The municipality

You will notice that list is the same as the first list. Just because you have a contract, it doesn’t mean that you cannot institute proceeds in tort.

Tort Defendants

Naturally, there is also a group that are tort defendants alone. There are no contracts in place, so the sole and only basis of liability is in tort.

Here is the list from the purchaser’s perspective:

• The seller’s sales representative
• The seller’s agent (the brokerage)
• The builder
• The foundation contractor
• The consulting engineer
• The consulting engineering company
• The builder inspector
• The municipality

A tort is a civil wrong. It is an assault, battery, libel, slander, wrongful act, negligent act, interfering activity of some nature which causes another individual harm, personal injury or financial loss. The fundamental difference between it and contract is the lack of consent to the arrangement or activity.

The next step will be framing the action in contract and/or tort against the selected defendants.

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.

Life estates are relatively straightforward; they are simply estates “for life”. So, if Robert leaves an estate to James for his lifetime, then when James dies, it is longer part of his property or estate.

It is the original donor, Robert who gets to decide once more who gets to enjoy this property. This gives Robert a lot of power and he could theoretically repeat this giving and taking for thousands of years. And, why not, after all it was his property?

Well, this might have been the case were it not for the basic concept of “taxes”, the other part of the “death and taxes” certainty. In this case, there are multiple deaths over thousands of years, but no taxes? Nobody is going to let that happen!

Taxation in feudal times was not that sophisticated. It was a simple inheritance tax. When real property was transferred to the next generation it was taxed. However, even in those days tax avoidance lawyers were hard at work. They came up with the concept of trusts and the transfer of the property several generations out. As long as actual “ownership” did not change, there would be no tax.

Naturally, this predicament didn’t sit well with the King, and in 1681 the Statute of Uses was passed. In addition, there was legislation which established the rule against perpetuities. In essence, the rule is as follows:

“no interest in real or personal property is good unless it must vest, if at all, no later than twenty-one years after a life in being”.

What the new rules were designed to do was render void any perpetual transfer. The rule made them void ab initio (meaning from the beginning). It was not necessary to wait several generations to find out; the gift simply failed, and the donor died intestate in respect to this property. That meant that it could be taxed by the King, and these rules were not an exercise in imaginative legislation, they were about money.

Although the rule itself seems simple enough, it becomes quite puzzling at times in terms of its application. The actual facts in any given case are ignored. What is important is the theoretical and philosophical analysis of whatever might be imagineable. In other words, is there any theoretical possibility that the vesting might take place beyond the 21 year limit? If so, the gift failed, the trust was not established, the proposed use was terminated, the donor died intestate in respect to this property, and most importantly, it was taxed (which indeed was the purpose of this whole exercise in the first place).

As centuries passed, the rule against perpetuities produced some unfortunate results. So, there were some case law exceptions, and with each exception the law become more complicated. In fact, sufficiently so, that the failure on the part of a lawyer to understand the rule was not considered professional negligence.

Exceptions included the Mortmain and Charitable Uses Act which was designed to allow religious communities to flourish without taxation. Mortmain was the “dead hand”, and the social policy concern was how much credence do we really give to someone who died hundreds of years ago. Seriously, why do they get to decide?

Modern taxation codes take a different approach, they simply state that the tax will apply in certain circumstances notwithstanding the legal mechanism used. So, the issue of taxation was one step removed from the law (that is the law of property or the law of trusts), and it was not longer necessary to follow the tax lawyers and their various schemes to avoid taxes, just simply say there’s going to be a tax, and there’s no way out no matter what you do.

With that approach, and the general lack of success from the tax avoidance perspective, the rule against perpetuities was relaxed somewhat.

Life interests can be bought and sold. If Robert leaves his property to John (for John’s lifetime) and then to William; who is going to buy out John’s interest? Probably William, who else? What is the price? You would obtain an actuarial valuation of John’s interest. What is his expected lifetime? The future value of his interest in the estate at the time of his death will be zero. What is the value now? What is the value of the expected stream of income over John’s lifetime? Then, William should offer that amount, acquire John’s interest. Now, he owns both the life interest and the future (or capital interest) and so he can sell the property in its entirety and give good title. Otherwise, neither John nor William had interests that were marketable when you are talking about real property.

For other interests in the form of income streams, they are saleable to insurance companies who are likely the only purchasers for this type of property. Most of the time, they sell annuities, but they also buy them.

Here’s the short version:

1) John can sell his interest

2) William can sell his interest

3) neither however can sell the property

4) John and William can sell the property together, or

5) James can buy each interest separately and then, put them together and own the “property”

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.

Here is the “ORES REAL ESTATE INDEX” which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). It also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index.

In addition, the stock market indicies for Toronto, and the three largest US markets are also compared

For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the four year average used as a standard benchmark comparison in the mutual fund industry. Actually, it runs for 55 months or four years and seven months.

As of 31 July 2009, [the last two months] and (the highs):

Real Estate

122.37…..[125.01/122.43] (125.01) GTA single family homes (average prices)
128.51…..[124.31/116.96] (128.51) All condos in GTA (average prices)
131.64…..[127.32/108.97] (149.83) Downtown Toronto Central Condos
119.49…..[123.26/123.88] (125.80) East condos
133.97…..[119.77/115.93] (134.70) North condos
125.47…..[125.46/125.12] (128.23) West condos

Other market comparisons

219.52…..[218.45/227.94] (231.09) gold (price per ounce)
157.55…..[158.83/150.84] (320.88) oil (price per barrel)
122.37…..[125.01/122.43] (125.01) ORES Index single family homes
117.20…..[112.72/115.21] (158.90) TSX index
95.93…….[88.98/88.67] (130.99) NASDAQ index
87.43…….[80.52/83.14] (132.47) Dow Jones index
83.59…….[79.82/74.29] (131.16) S&P Index

Using the Index

Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of July, the index stood at 122.37. That’s a 22.37 increase in 55 months. That means the increase is 0.4067% monthly, or it could also be expressed as 4.8804% annually. The performance here is shown without annual compounding for the sake of simplicity.

The same index was 125.01 at the end of June and 122.43 at the end of May. That demonstrates a recent peak at the end of June. The next number, in square brackets is the all-time high since 1 January 2005. That number is 125.01, so the recent June figure is the all time high.

The other statistics are reported in a similar fashion for the ease of comparison.

Observations (on the Index)

As we use index, there are several notable comments:

• Commodity prices are just commodity prices

• There is no other “extra return” for commodities

• The same is true for the CPI

• The CPI is a benchmark to see whether you are keeping pace with inflation

• For a realistic performance goal, you should aim for CPI plus 3.5% annually

• Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indicies

• The stock market Indexes only measure the survivors. So, this year both GM and Chrysler would be dropped due to the bankruptcies

• If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes

• Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself

• Actually, I should have mentioned that if you held gold bullion, you could sit in a room, count it, and enjoy that experience too. I’m not quite sure how to measure that. You’ll have to ask King Midas or Goldfinger!

Comparative Observations Using the New Index

• Gold was the best performer

• Oil was the most volatile, (yes it dropped in half)

• Real estate was the most stable

• East, West and North condos performed reasonably well

• Downtown condos are starting to suffer in performance

• Our own stock market posted reasonable gains

• All three US stock market indicators show negative numbers

Conclusion

For steady, predictable, measured gains pick real estate. It’s a solid performer with lower risk (less volatility) and generally moving in a positive direction.

And remember, when it comes to real estate, it’s never “wiped out” completely, like GM or Chrysler stock. So, unless you’re sitting on the edge of a tsunami, you’ll still own something when the storm is over.

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.

So, what do you think about the garden on Mississauga Road? Is it worth saving?

Most rational people would think so. But, there are some bureaucrats who think otherwise! And, like most bureaucrats you might inquire what have they been doing for the last 30 years or so. Nothing! Absolutely nothing!

What’s the big rush? Well, a local neighbour got jealous and complained, and of course that started the ball rolling.

Frank and Carmela Loconte have lived on Shawanaga Trail for over 30 years. The southerly boundary of their property runs along Mississauga Road. The Locontes are legally bound by the municipality to maintain a strip of property between their property and the paved portion of Mississauga Road. It’s the boulevard. The same rules apply to just about all the homeowners in Mississauga: maintain the boulevard.

What did they do? The Lacontes maintained the boulevard. It came with grass, but being avid gardeners and naturalists, they planted beautiful flowers, plants and grasses. This cost thousands and thousands of dollars. It would cost a small fortune to hire someone to plant and maintain such a beautiful garden over all these years. The Lacontes did this for free. Their time was donated and they paid all the expenses. For three full decades this little garden on Mississauga Road was a sight for everyone to enjoy.

Just in case you are wondering about ulterior motives and squatters’ rights, they don’t apply. The property is owned by the City of Mississauga and continues to remain property of the City of Mississauga. The Lacontes do not acquire any ownership or possessory interest in the property. They are just doing it for the love of the garden and the City. Over such a long period, they literally have had thousands of compliments and best wishes about this little garden.

So, what’s the problem? A jealous neighbour, called Mr. Scrooge wants it to come to an end. You can’t just say that out loud, people would think you were crazy. So, you raise a safety issue. You say that you can’t see around the corner. This garden blocks the view of oncoming traffic. And, naturally, you don’t have enough smarts to pull your vehicle forward a few inches.

However, in came the “good guys” to investigate and resolve this treacherous safety concern in Mississauga. Actually, it turns out that Bell Canada had upright metal boxes to conceal some of their switching equipment. To protect the public from such an unsightly metal box in the middle of the garden, the Lacontes planted a cedar bush to camouflage the Bell apparatus. At, the request of the City, the cedar was removed and the real safety culprit: the metal box from Bell was exposed.

Now, if you are Mr. Scrooge, you will not be satisfied with this. You will want to press on and ensure that everyone is as unhappy and miserable as you.

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.

You might be interested in the components that go into an appraisal of your property, when the appraiser uses the Cost Approach. Sometimes, the result is significantly different than the result obtained using the Direct Comparison Approach. That method, of course, simply compares your property to other properties.

However, the cost approach is relatively straightforward when you are a builder and you have just finished your project. You simply add up all your costs, and you’re finished.

But, it’s a little more difficult to figure out the costs if you are a homeowner and your house is 15 or 20 years old. In fact, the older it is, the more difficult it is to apply the cost approach in terms of coming up with a sensible value.

So, what you have to do is add up the 3 components of the real estate:

Formula: Building + Improvements + Land = Total Value

Step One: determine the cost of the building

Building

Get current value of building
Take away depreciation

This is a little different method. You might think that you would take the old costs and add them up. That could work, but that’s not the method that is commonly accepted in the real estate industry. The theory is that current costs are easier to obtain and verify.

And, there are three ways to figure out the current building costs:

Building Cost New

1) Cost services method….. use recognized manual

2) Building cost abstraction method… take away everything else

3) Local contractors… get three estimates

Local building contractors and local real estate boards will both publish manuals with established and recognized costs. That’s not a bad method. It’s a little casual at times. Fortunately, it is updated annually. One of the real difficulties is its use and application by non-professionals.

The building abstraction method should rarely be used. This is only available as an approach when all else fails. The methodology is that you arrive at the value of the building by taking away the value of everything else already on site.

I’ll simply say one thing, I have never (ever) in 25 years of real estate experience seen this particular method work accurately to the exclusion of the other methods. Somehow, appraisers are always able to get this method to “confirm” their opinion derived from using another method.

The third and by far most accurate method is to have it priced out by a building contractor. But, if you are not having one built, because it’s already standing on your site, what builder is going to give you a value? Basically, you’ll have to pay for it. Then again, it is by far the most accurate number.

Building Depreciation

Now, you come to the next step in the process. How do you figure out depreciation? Basically, you guess! I’m sorry, that’s just what you have to do. You take a wild stab at it. It’s a 20 year old building, so there has to be some depreciation. We can all appreciate that. But, there is really no scientific method to figuring this out.

So, the real estate industry has come up with a methology here. This is a simple way of guessing and having it look a little more accurate and a little more scientific in a report.

You deal with two concepts: the effective age and the economic life. Now, neither of these concepts have anything to do with how old the building really is. For our example, the building is truly 20 years old. It was built with “new” and “up to date” materials, 20 years ago.

Next, you have to figure out how long the building will last. Most appraisers will say 50 to 60 years. That’s the total lifespan of this building. But that’s just the first step. The second step is to figure out the effective age of the building. No, don’t jump to conclusions; it has nothing to do with the real age of the building. That is a fact, and we know that it is 20 years old.

So, here’s where it gets interesting! We estimate the effective age of the building at a certain number. We could say it’s 10 years old, it’s 20 years old or it’s 30 years old. Then, we have to take that number and divide it by the economic life.

Our results would be:

10 = 0.1667
60

20 = 0.3333
60

30 = 0.5000
60

Of course, this means that the depreciation is either 16.7%, 33.3%, or 50%.

Now, could we have come up with a rough guess in the same way without all the scientific mathematical theories and calculations?

In fact, as time goes by, let’s say 60 years and the building is still there and will last some period of time, appraisers will give it another 60 years or so. So, in effect, it has another (its second) economic life. For all I know, maybe the limit is 9, just like cats.

Effective age = depreciation
Economic life

Step Two: determine the cost of the improvements

Improvements

The improvements include anything added of value to the property that is not the actual main house. This would include the garage, landscaping, swimming pool, gazebo, shed, driveway, and site services (that were not included anywhere else).

Get current value of improvements
Take away depreciation

Again, you figure out depreciation in much the same way as for the building.

Step Three: determine the cost of the land

Get the land value. There are two ways here. First, comparative sales; that means looking at the sales of other similar lands. The second method is abstraction.

Land value

1) Comparative sales method
2) Abstraction method

If you need to be accurate, then you will have to use the comparative sales method. This is preferred. The correct methodology is to get three comparables, but you could get more. The theory is to go with your three best.

You choose the comparables based upon: time, location, and physical proximity (the closer the better).

With the abstraction method, you have figure out the value of other items, the building and improvements and you are left with the square foot cost for the land. This isn’t the best route, but in difficult circumstances it may be your only choice.

Summary

Formula: Building (less depreciation) + Improvements (less depreciation) + Land = Total Value

Then, round to closest 500, and now you have your opinion of value based upon the cost approach.

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