Just a note of a personal nature describing the Montreal housing market. I think that prices have clearly increased too much, too fast. We have to ask ourselves why home prices have increased for the last 10 years at an abnormally high rate.

The fundamental reason for this rapid increase is government policy to lower and maintain low interest rates. Furthermore, banks have relaxed lending standards in Canada and come up with unconventional financing methods which make it easier for buyers of questionable financial worthiness to make a purchase. Banks have been able to fuel this credit expansion because their risky mortgages are being backstopped by the CMHC (the Canadian equivalent to Freddie Mac/ Fannie May). With the CMHC insuring most mortgages, banks are free to take on more eager purchasers without taking any risk. In the event that things go bad, the CMHC, which is a government organization, is left holding the bag.

This policy if passing the buck to the government will eventually harm all Canadians, from the most conservative savers to the the most extravagant debt and credit card fiends. We will all suffer the burden of a ballooning government deficit and debt as the housing bubble bursts. This will lead to deflation, a weak dollar (this is not a good thing since Canada is becoming a net importer), and increased taxes.

While it is almost impossible to call when a bubble is set to burst, I do think that May 2010 marked a turning point in Canadian real estate. We are seeing an strong increase in listing volume and a sharp drop in purchases. While prices still remain strong, these will soon start a downward trend. May is showing a reversal from other months in 2010 and will soon be showing year over year declines in sale volume and numbers.

Also, today, I organized, and participated in, a mass protest against the OACIQ, which is the equivalent of the Quebec real estate association governing body. The organization has just increased broker licensing fees by over 100% and they have ushered in new regulations and procedures to drastically chance the way real estate is sold in Quebec. These kind of protests and changes frequently occur at market peaks, and more often than not are excellent contrarian indicators. It is when the governing bodies become most emboldened that the crumbling starts.

So today, I stick my neck out and call the top. The Canadian real estate market has peaked and the bubble popped, today, May 26, 2010.

Time will tell,
Mario Rizzi

Since the average commission rate in Montreal is 5%, you will automatically be saving at least 1%, and, if I am the only agent, you will save at least 3%. That’s huge. On a sale of $400 000, you will save $12 000 plus the associated GST/PST tax. Now that’s a deal.

Call me, NOW. What are you waiting for? Price in Montreal are sky high, the market is completely insane. Do you seriously think that prices will continue to increase. Forget it. They will only drop from here. SELL NOW, take the money and RUN. And with me, you’ll be able to save!

Mario Rizzi

514 967 9827

Top reasons why you shouldn’t wait to sell your house:

Perfect Time to Sell as Home Values are at their peaks:

* Spring is approaching which is typically when most Buyers start looking to buy. Interest rates are low now making purchasing more affordable, but how long will these interest rates stay low?

* Low inventory of available homes which make it a Seller’s Market

* Starting April 19th, 2010 the Federal Government will introduce New Tougher Mortgage Restrictions reducing the number of Buyers

* Time to cash out when the market is ripe and buy back when prices are lower.

Home Values Will Plummet

Home prices couldn’t be more disconnected from fundamentals. In many areas, individuals who make the median income can’t afford a median priced home. For this reason alone, current home prices cannot be sustained.

So, sell your house now! And if you list your house for sale with me, you will only pay 4% commission, and if I am the only agent involved in a sale, you pay only 2% commission.

http://www.rizzihomes.com/

Mario Rizzi
514 967 9827

Well, the answer is very simple: The price is too high! Read that last sentence over and over again until you finally understand. It’s that simple. You may think that your house is fairly priced, you may think that it is a mansion, you may think that anybody in their right mind should buy it in a heartbeat. You are wrong. If your property has been on the market for a few months (think 2-3 months) and it has not sold, then the market is telling you that the price you are asking does not justify the value of the property. It’s not your agent’s fault, it’s not the overall market, it has nothing to do with newspaper ads, photos, descriptions, etc… it’s the price.

What can you do about it?

There are three things you can do to correct the problem.

1) Don’t sell. Take the house off the market. If you think your house is worth so much, why bother selling it at all. Just hold on to it. It’s an investment, right? It will keep increasing in value forever, right? Sure it will.

2) You can reduce the asking price. Get aggressive and chop the price. CHOP IT! Take off 20k or 30k. Get the price a bit below what other people are asking for a similar property. This will make buyers take notice. Don’t think that buyers will just make you an offer even if your price is way above market; they won’t. Get the price in line with the market.

3) Increase the value. If you want to stick to your guns and keep your price high, then you will have to justify it by increasing its value. Sorry, a splash of paint won’t do anything. Tidying up and de-cluttering will not increase the value. It may make the house look better, but buyers are not dumb enough to pay you an extra 20k for it. You will have to renovate a kitchen or a bathroom. Install new hardwood floors, fix your leaking roof, repair the cracked foundation… nitty gritty stuff. You can’t expect to sell a dump for a fortune.

According to the statistics, the average time it takes to sell a property is about 70 days. But this is a false statistic since it does not take into account all the homes that never actually sell. Only about 30% of homes actually sell each time they are listings, the others just expire. Some are re-listed, others just never sell. Basically, if you want to sell your home, you should be able to sell it in about 6 weeks (45 days). If it takes longer, then the market is telling you something. A wise real estate agent once said, “there is nothing that price won’t fix.”

1) You are not buying a repossession from an individual homeowner. The property has been repossessed by a bank or other lending institution and you are now buying the property from them. Usually, since the lending institutions do not have the facilities or desire to manage the repossession, the property is being sold by a bailiff or as we say in Montreal, a Huissier de justice acting on behalf of the institutions.

2) You must check the background of the property. If a property is sold as a repossession it means that the previous owner was financially stressed and for one reason or another stopped making the necessary payments to continue holding the property. Because of the financial distress, it is obvious to assume that the previous owner also neglected to do necessary repairs to the property, pay annual taxes on the property or neglect to pay workers who may have made renovations on the property. There may be outstanding liens on the property, outstanding taxes, structural problems associated with the property, etc…

3) Does the property have a clean title? Sometimes it may be unclear as to who the actual owner of the property is. Make sure the Huissier de justice and/or the lending institutions can show you proof that they are the actual and only owners of the property and they the previous owner has no ability to contest the sale or the ownership.

4) Certificates of location, soil tests, evaluations, inspections, sale documents, mortgage documents, taxes…. it’s all on you. You have to pay all the costs to get these documents and to make certain that they are up to date. This can easily add another 3 to 4 thousand dollars to the sale price. It is likely that the lending institutions will not have any of these documents, and really, even if they had some of the documents, would you trust them anyway?

5) The deposit! The lending institutions will almost always require that you submit a deposit along with any offer. You will be required to give the deposit with the offer, not after! If the offer is rejected, you get the deposit back. Usually the deposit is about 5% of the price that you submit. If you do not submit the deposit, your offer is immediately rejected.

6) Conditions in the offer – Usually, when you make a promise to purchase on a non-repossession property, you can make you offer conditional to certain clauses. You may want a property inspection, inspection of co-ownership documents, conditional to the sale of you own home, evaluation reports, financing… in a non repo case, you can make the offer conditional to almost anything. However, with a repossession, the more conditions that you put, the less chance that you have of actually getting the place. The lending institutions or Huissier de justice will not want to waste time on “conditions” they just want a quick sale. Usually, they will gladly accept an offer that if a few thousand dollars lower than other offers if the buyer is paying cash (no financing conditions) or not requesting and inspection.

7) Get ready to wait! Once you have made an offer on a repossessed property you can expect to wait a while before getting a response. Usually a promise to purchase must be open for at least 7 days before the bank will even look at it. The banks do this in order to get more than one bid for the property. So, you make an offer, after 7 days that bank looks over it, then the bank either makes a counter offer or accepts or refuses you offer. However, the acceptation itself can take a few weeks since there are various layers of bureaucracy which the offer must pass through. Have patience.

8 ) Sold without legal warranty! Any property which you purchase through a repossession will be sold without legal warranty at the risk and peril of the buyer. This means that the seller is not liable for any defects or deficiencies associated with the property. Foundation cracked, too bad. Roof leak, too bad. Mold problem, too bad. A quote taken directly from the ACAIQ website “should the buyer discover a defect of which they were unaware, they will have no recourse against the seller, unless they can demonstrate that the seller acted in bad faith by purposely hiding a defect of which he was aware.” Buy at your own risk. Do an home inspection, but know that the risk is always there.

Are there some repossession deals out there? Yes, but not many. Just because a property has gone into foreclosure and is being sold as a repossession does not guarantee a cheap price. Once a homeowner stops making payments a bank or mortgage holder can take recourse and eventually repossess the property. The mortgage holder is responsible for selling the property at the best possible price in order to recoup the outstanding balance of the mortgage, with any profits after expenses to be divided among the secondary creditors or the previous homeowners.

Sometimes the properties will be listed at a very cheap price, but this is simply done in order to encourage a bidding war. Actually, just yesterday I came across a revenue property being sold as a repossession on Parc Avenue which had received over 45 offers. That property is sure to sell way over asking price.

So, is it worth making an offer on a repossession? I would say, usually not. If there are other bidders, I say forget it. Not worth the hassle. The only time I would make an offer on a repossession property is if the property has been lingering on the market for several months without any bids. Then, if you visit the house and see some potential, you can make a low offer with very few conditions, and you have a good chance of getting a deal. This happens, but is a rare occurrence. In my next post I will write a bit about the process of making an offer on a repossession.

So, you’ve been looking for a place to buy and you’ve finally found one. You’re all set to make an offer… what do you do? Well, your friends are telling you to send in a low- ball offer, something ridiculously low, just to see what will happen. Should you do it?

The Montreal real estate market is still relatively strong, so if you are planning on submitting a ridiculously low offer on a place, I would not seriously expect it to work out. For example, if a condo has an asking price of 250k, and (this is important) comparable condos have recently sold for around that price, then there is really no sense in putting down an offer for 200k, or even 225k. No seller will ever fall for it, ever.

From the sellers perspective, when somebody puts in a low ball offer, the listing agent will immediately get excited. The listing agent will call every other interested buyer who has visited the condo in the past and will tell them that the condo is in play, and that somebody has put in a low ball offer. The listing agent will usually be able to entice at least a few other buyers to put in competing bids, and before you know it, your low ball offer is left in the dust, and you now have to compete against other buyers.

The listing agent will use your low ball offer against you and to his advantage. So beware, usually low ball offers as a complete waste of time for the buyer.

But, there are several occasions when I would suggest for you to offer substantially below the asking price. For example, if a condo is asking a ridiculously high price compared to other similar places on the market, then for sure, go in there with a lower offer.

Also, low offers are useful on revenue properties, where the ultimate price of the property can be calculated based on the amount of income that it generates. In Montreal, a typical revenue property will sell at about 14.5 times net income, maybe 15.5 times net if it is in a very good location, but not substantially more than that. If you have a seller who is asking 16 times net, then don’t be shy about giving him a lower offer, perhaps 12.5 times net…

Also, with revenue properties there is usually less emotional attachment to a property, so if you low ball an offer and it doesn’t go anywhere, you will probably not feel too badly about it. Whereas if you lose your dream home because you listened to your cousin Ed and low balled, well… sucks to be you.

Over the last 7 years, prices have increased at a huge rate, and every seller wants to sell their home for a little bit more than their neighbor. This is to be expected in a strong real estate market.

However, a problem arises when a seller tries to list a home way above all other comparable listings in the area. In many instances a seller will say, “Let’s just list it high and then wait for offers” with the expectations that buyers will naturally negotiate the price down anyway.

This technique is not recommended at all. When a buyer sees a house priced way above its comparable market value, in most cases the buyers won’t even bother to visit. If they do visit they will simply think that the sellers are being unreasonable, or greedy and they will either wait for the asking price to be reduced or forget all about the home.

Furthermore, by listing a property way above comparable values you are making all other listings in the area look comparatively cheaper, and you are thereby driving buyers towards the other listings in your area. Your neighbors will certainly be happy… your high price is actually helping them sell their home.

Don’t expect buyers to simply make an offer. Even if your agent tells them that you are open to reasonable offers, or that you are willing to lower your price, the buyers will be put off and will simply look for another listing in your area where there is less negotiating issues.

In summary, my advice is to list your home at a reasonable price… a bit higher than your neighbor if you would like, but be reasonable, or expect your listing to linger for months with very little buyer activity.

My clients are happy because they get to keep more money in their pocket. I am happy because I get a lot more business than most other agents. The only people who are not so happy are some agents in Montreal who would prefer to keep all commission rates as high as possible. Well, too bad for them.

You are currently on my blog site where I post regular updates about the condition of the Montreal real estate market. If you would like to get more information about my services and how I can help you sell your home quickly and save you lots of money, you can contact me here Contact Me