Trust In Your Mortgage Agent

I recently read an article about trust in real estate. There were points in it I agreed with and those that I didn't. I can bring a lot of perspective to this as a Private Sale Professional and as a Mortgage Agent.

I have written many posts about agents and their incentive to work for themselves versus you, the client. To date I haven't delved too far into the mortgage agent relationship. Where I feel the article missus the mark in this relationship is in the regulatory body of the mortgage industry. You see in the real estate transaction, real estate agents are self regulated through CREA. The mortgage industry is regulated by FSCO, a government agency that also regulates more than just the mortgage industry. Here is a snipit from their website:

FSCO's legislative mandate is to provide regulatory services that protect the public interest and enhance public confidence in the sectors it regulates.

FSCO regulates the insurance sector; pension plans; loan and trust companies; credit unions and caisses populaires; the mortgage brokering sector; co-operative corporations in Ontario; and service providers who invoice auto insurers for statutory accident benefits claims. FSCO is accountable to the Minister of Finance.

You see, we in the mortgage brokering business have a higher power to answer to. We don't just get to pick a mortgage to sell you based on what we get paid. We have a dual responsibility to both our clients and the lenders. To the clients we have to prove that what we offered them was in fact, the right product for them. If we have not done our due diligence we can be held accountable for it. We are also responsible to the lender to ensure that the person applying for the mortgage is who they say they are and that the information they provide is accurate. We are the first step in stopping mortgage fraud.

Another area that the author missed the mark is where he said "it wasn't revealed until I signed the mortgage papers" in regards to the brokerage being paid by the lender. We are required to have a consent form signed by the client prior to doing any work for them and it clearly advises that we are paid by the lender. So either the author didn't read what he signed or he was working with someone that wasn't following proper protocol.

So yes at the end of the day the mortgage brokerage gets paid by the lender, but we are working for you, the borrower, to ensure you are treated fairly and to find you the best mortgage for you.

The best advice is to do your home work, interview your mortgage broker/agent, don't just look at rates. 

Mike Shanks, PGPro
PropertyGuys.com
Franchise Operator
Cambridge and Guelph

Mortgage Agent Lic# M14001148

PropertyGuys.com Mortgage

Brokerage # 12466

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PropertyGuys.com - More Than Just a Website

Some website just don't translate into real life.

At PropertyGuys.com, we know that selling your home is not something that should be taken lightly and just left to some online platform or website. Over the last 15 years we have worked with tens of thousands of home sellers. Experience like that has helped us figure a thing or two out. We know people want more than a website to sell their house, why else would they consider spending $20,000+ to sell a cookie cutter home?

Being locally owned and operated, having the business owner sitting at your kitchen table to walk you through the entire process is one of our market advantages. We also rely on industry professionals like local appraisers as well as lawyers to offer you what you need when you need it. In addition we have a call answer service that books appointments for you allowing you to never miss a buyer.

When it comes to marketing we look at traditional options like the local newspaper and Just Listed postcards mailed out in your neighbourhood as well as some non traditional marketing like sponsored Facebook posts targeting buyers in your wanted demographic. For those that want to reach the MLS audience we even have real estate brokers that will get you on Realtor.ca for some added exposure.

We are more than just PropertyGuys.com. We are more than a website. We are part of your community, living and working along with you, effecting our local economy by keeping your money in your pocket, where it belongs.

M

What Does It Mean For a Home Seller If House Prices Fall?

How do you handle a drop in the market as a seller?

If we know anything about the stock market it is there is one key fundamental and two key ways to achieve it.

Fundamental - Buy low. Sell high. 

Achievement method one - Look for quick short term gains.  Under valued stock and/or companies that are on the verge of something new, big or wonderful. (Usually individual stocks) 

Achievement method two - Buy something stable and dependable now and put it away and know that in 25 years it will be worth more than it is today. (Usually mutual funds or bonds)

The housing market really isn't that different.  If you buy in a hot market you are poised to get quick returns. For the most part the big gain in housing happens over time.  If you purchased just before the market crashed in the early 90's and tried to sell after the crash, you would have lost thousands. That same house would show a total value increase today worth much more than any loss you would have felt.  Long term smooths out the ups and downs of the market with a general overall increase.

With fear starting to penetrate into the media about the "cooling of the market" people are starting to wonder what will happen. How will people deal with the news that their house they just purchased 2 years ago is worth 10 or 15 percent less then what they bought it for?  Is that even going to happen?

The good news for us here in the Kitchener, Waterloo, Cambridge and Guelph is that predictions for 2013 are to be steady through the year.  The bad news is if there is a correction in the major markets it could send a spiral through the media that will affect the market here.

As someone looking to sell a home in a market that is flat at best with potential for decline the most important factor in selling is price.  Anyone looking to buy will also be aware of the market conditions and they will be looking for homes that are more aggressively priced.  If you purchased a few years ago for $300,000 and your home has only seen a moderate increase and market value is $310,000 a $15,000+ real estate commission puts you at a loss. A $1,500 marketing package puts you at a gain plus gives you the advantage of being better priced then your competition using a real estate agent because in order to break even they end up over pricing at $320,000.

Typically in a volatile market it is best to hold on for the long term increase, specially with the low interest rates.  If you have to sell though, you really need to look at the dollars and sense (yes I meant sense and not cents).

M

New Year, Old Problems?

How do we figure out the last piece of the puzzle?

Last year turned out to be a fairly strong year for real estate (even after the doom and gloom of the "Next Great Depression"). With any good year there are still problems that exist. When we are sitting on a strong real estate market what inevitably happens is people get caught up in the dollars and feel their home is worth way more than what the market is willing to pay.

The stats for 2009 show KW had their second best year in home sales. But what do the rest of the numbers tell us? Let's have a look.

For the Waterloo Wellington area MLS sales in 2007 were 13,093 based on 19,573 listings. These means that 66.89% of the homes listed sold. 2/3 of all homes listed sold, a very strong year and a seller's market for sure. This means that as a seller you were in a stronger position than a buyer as decidedly more people were selling than not selling.

2008 showed a reverse of this seller's market. MLS sales for 2008 were 11,573 based on 20,292 listings. Less solds and more listings, not looking good. The List to Sell Ratio dropped to 57.03%. Still not a bad ratio but an adjustment of 10% year over year effects the market. This is a common occurrence after a strong market as more and more people jump in to "ride the wave" and get their piece. People see what their neighbour got and then proceed to ask more for their house (and this continues to perpetuate). As the market price pushes up buyers either become more cautious or they just can't afford the costs of ownership.

Which way did 2009 go? I still don't have the Dec numbers in but Jan-Nov show 11,325 MLS sales (sure to be above 2008) based on 18,811 listings (expected to be under 2008). So as it sits the List to Sell Ratio has increased vs. 2008 but is still well under 2007 at 60.20% (Jan - Nov).

So where does this leave us in 2010? What is the piece of the puzzle to keep a strong housing market? I believe that the increase in 2009 is directly related to the lowered mortgage rates we saw. If these rates continue through 2010 then we will see a slight increase over 2009 as the first few months of last year we were still getting our feet under us. If the rates move up with any swiftness we will see a quick spike as those approved under the lower rates will make rash buying decisions and then a stall in the market slowing sales.

All in all our 2010 looks like it should be OK. Could be worse, we could live in the US...


M

May Monthly Real Estate Statistics

It seems these days we are always waiting. Not sure it is because things take longer or because we expect things to happen that much quicker.

Guelph stats for real estate are a little slow to be posted this month. I found an alternate source that says sales are down a little over 16%. Stats for KW and Cambridge are looking a little more promising. With increases of 9.9% and 7.7% respectively it shows the first year over year increase for Waterloo Region since September 2008. This helps the YTD numbers slightly but in total MLS stats show a decrease of almost 15%.

All things have been pointing to the stop to the free fall. Low interest rates and the home buyers' plan and home renovation tax credits. Low interest rates have started to move back up. Does this put an end to people looking to buy, a halt on the pick up of the market? Anyone that was pre-approved has some time to make a purchase but anyone that does not already have the locked in rates may think twice. I would watch for a stall in the July-August time frame if nothing else changes or if the rates continue to raise.

Not to sound bleak. Just looking at what I see. It could always sound worse...


M

Do You Have IRD?

Have you checked your financial wellness yet?

Do you know whether the sale of your home will leave you in the financial infirmary? The costs of selling your home are well documented. The one that seems the most elusive though is the mortgage penalty.

It seems with the lowering of interest rates people are finding that breaking a mortgage is more than what they bargained for. Most mortgages are subject to either a 3 month payment penalty or Interest Rate Differential (IRD), depending on which is higher. With the drop in interest rates IRD is usually the prognosis.

So what is IRD? Here is a basic understanding for you. You bought your home 3 years ago. Your mortgage rate at the time was 5.99% on a 5 year fixed term. The balance left on your mortgage is $200,000. The rate your lender is charging today is 3.99%. You will take the value you have left, multiply it by the months remaining and the difference between the interest rates to get your penalty. In this instance you are looking at about an $8,000 penalty. Now this is a guideline as each lender calculates this amount in their own special way. I found a great "rough idea" calculator online for you to estimate your costs.

As with any contract, when signing your mortgage you need to read the fine print. If you are working directly with a lender (ie The Bank) make sure you ask exactly how their penalty works should you choose to break the mortgage. If you are working with a mortgage broker have them explain the different penalties on the different mortgage options you are looking at.

It is not uncommon with the rate declines we have seen over the last 6 months to see $10,000-$25,000 in mortgage penalty. I would suggest before you decide to sell your house that you find out what your IRD is so you don't find yourself looking for a miracle cure. Here is a discussion on a blog between a lender(PC Financial) and a home seller that clearly shows the lenders do not feel bad about sticking to their contracts and getting what they can. If you have made it through a bought of IRD feel free to leave a comment and advise others of the lender that infected you with this money draining condition. You may be responsible for saving someones financial life.

So what do you do if you have been diagnosed with a high cost IRD? If you are dead set on selling make sure you minimize your other costs to help maintain your financial health and then contact a mortgage professional to ensure you are protected the next time. Based on this TV ad, I am not sure this "doctor" would be my first choice to help.


M

So How Did This All Happen?

More importantly where did it all go?

We have all read the stories in the newspapers. We have all seen the reports on TV. Does anyone really understand what happened to the US economy? Is it as simple as banks lending money to people who could not afford to pay it back? If it were stock markets would not have crashed the way they did.

Here is a video that takes you through sub-prime mortgages, Wall Street vs. Main Street, and credit default swaps. Visualization is much easier to comprehend then the Wall Street Journal.

My favorite part is the depiction of the "less responsible"!

So what is next for those of us on Main Street? Hunker down, pay off your debt and get back on the right side of the balance sheet. With interest rates so low you can pay off your debts (mortgage, credit card, line of credit) quicker and easier. Extra payments on your mortgage or increasing your monthly payments are applied directly to the principle.

M

5 Equals 20 or "Real Estate Math"

Sounds complicated but it's not.

Your family is growing and it is time to move out of your starter home and into something with room to breath. What is the first thing you do? Call your parents of course. Always a great place to start.

After the obligatory apologies for not calling more and assurances that you are eating enough vegetables you get on to the business at hand. This is your first house, you have never sold one before and you are looking for some advice. Your parents are from the old school and say that they will call Joe the realtor because he has sold 3 houses for them. Joe is such a good guy he will only charge you 5%.

Wrong, he is going to charge 5% of the transaction but he is charging YOU 20% of your equity!

Here is the breakdown.

You paid $190,000 for your townhouse 3 years ago and put down the minimum deposit of 5% leaving you a mortgage of $180,500 (not including any CMHC fees). Based on an interest rate of 5% (you didn't have the advantage of today's low rates) you would have $168,672.50 left on that mortgage. For ease of calculation we will call it $168,000.

Your house has increased in value since you purchased it and is now worth approximately $225,000, congratulations. If you were to sell this home with Joe he would charge you 5% or $11,250 (I won't even get into the fact that you would have to pay GST on this).

$225,000 (Value) - $168,000 (Mortgage) = $57,000 (Equity)

The bank owns such a large piece of your home (75%) you really only have $57,000 in equity built up between your appreciation and the amount of principle you paid off on the loan. If you take the $11,250 as a percentage of what you actually own of the house, Joe is taking a total of 19.7% of your equity. Everything that you have worked for over the last 3 years and he is coming in and taking 1/5th, that's fair, right?

$11,250 (5% Commission) / $57,000 (Equity) = 19.7%

For those that need a refresher on how to calculate using "New Math"...


M

The Big 0%

Hurry up it is today only!!!

So you listed your home privately. Congratulations, it was probably a big step for you.

If you are like most of the people we see you have not ventured into the arena of Private Sale before. You had looked around the internet, checked out a few different sites, weighed the merits of private vs. MLS, then measured the merits of a few different companies and then finally decided on the one that offered you the biggest bang for your buck. Maybe it was the one with the most experience or the most listings locally. Either way you made your choice based on VALUE.

Your home was then listed on the internet with professional photos, virtual tours, plenty of details. It makes MLS pale in comparison (trust me I've seen some bad photos and virtual tours on MLS).

You are getting some phone calls, doing some showings, hosting some open houses. All things you were expecting to do. But then the craziest call comes in. Some agent calls you and says he wants to list your home for free. Yeah right, free. Anything you had ever heard about agents was all about money, money, money. Why the heck would an agent list your home for free?

If an agent is going to list your home for free there is going to be something in it for him. Here are some of the common situations our clients have run into.

It all comes clear when she states that in order to do this you have to do your new mortgage with them. They are also mortgage brokers. That they are going to get paid from a lender (bank) and that you will only be required to pay the 2.5% commission for the buyer's agent. Hmm, so who exactly is this agent working for?

Another instance we have seen is where an agent comes in and says he will list your home on MLS for a flat fee of $695 (+ or - $100). You can continue to do sell privately. Issue is that the agent's contact info is what goes on MLS so any interested buyers are going to call him, not you. He then shows up with an interested buyer and says he needs 2.5% to facilitate the deal. Hmm, so he gets paid up front and then still collects a commission.

What about this one. "I will list your house on MLS I just want to do Open Houses so I can get some new clients". OK so his whole objective of YOUR open house it not to sell your house but to get some listings that he can get paid on. Seems to me that if an agent is this desperate to get in your door they may not be too good at what they do. There are plenty of successful agents that have built a reputation of service over the years. Do you think they did it by spending every Saturday and Sunday in a non-paying client's home trying to get other people locked into contracts?

Don't be fooled by smoke and mirrors. Best case scenario for you is that you still end up spending 2.5% of your $300,000 house or $7,500 for something you can easily do yourself. I am not saying that you won't have to work a little for your $7,500. We all expect to work for our money, don't we?

Let's figure it out by the hour. At $100 and hour this works out to 75 hours of work. While you are slaving away for the man at your job for just under 2 weeks (hopefully you are making $100 an hour) you could have been selling your home. At a more reasonable $20 an hour you can afford to put 375 hours into the sale of your home. Based on a 40 hour work week that works out to just over 9 full work weeks. Would you expect that an agent is worth $20 an hour (just over $40,000 a year)? Would you think that you will get 9 - 40 hour work weeks for the sale of your home? And that is only if you get one of these "deals". Double it if they are your traditional 5% listings.

Here is a broker in NYC that is looking at a different value model for his agency


M

Economy Starts With Real Estate?

OK so let's examine this.

I read a blog with an interesting point of view the other day. Most of the points seem very valid to me. Our economy is driven by many things. It is my belief that it all starts at spending. There is no doubt that the purchase of a home catapults one into a spending spree.

I have a friend that recently purchased a home and they have spent thousands in changes and upgrades in the few months they have been there. With many more projects planned on the 80 year old house they are economy drivers in their small community. My wife and I are looking at purchasing a home closer to my son's school. In the homes we are looking at there is work to be done. New kitchen here, detached garage there. We are recession busters!!!

Where this previous blog looses me is the innuendo that real estate agents are the ones driving the economy. If all of the real estate agents were to disappear off the face of the earth does that mean our world would end as we know it? People would not be able to buy or sell another property? That without these precious soles that the great unwashed would not know how to proceed with the transaction? It would be like cats and dogs living together, mass hysteria!



Why should I spend 10% of my hard earned equity to pay for them to go to school when I could use it to send my son to school? As a home seller I know that by keeping as much of the equity I have in my home as opposed to floundering 10% to an agent I can stimulate the economy in either one of two ways. I can afford a more expensive house (or one with more potential and fix it up) or the other side is have a smaller mortgage going forward which will allow me more expendable cash or savings. Just think now when you look at your mortgage what an extra $10,000 off of that would do for you long term. Now I am not saying that you can take $10,000 off your mortgage but you sure can avoid adding it on.

That leaves me with one question. How much will you add on your mortgage before the day comes when Felix moves in with Marmaduke?

Are Your Feet Dirty?

Even if you wipe them off you can be sure there is still some stuck in between your toes.

This week-end was the first significant snow fall of the season and I thought talking about sand between your toes might take your mind off all the cold to come.

Thinking about better times sure makes us feel better. No matter how hard we think it will not change the reality.

Truth is real estate values have escalated dramatically over the past 20 years. Truth is the traditional way things have been done have added to that increase. Think about it. If a house has been sold 4 times in the last 20 years, each time agents charged 5% on that house, how much of the increased value of that house is because the home owner selling it had to make up for the portion he was paying out?

Here we are now with average houses pushing the $300,000 mark here in Waterloo Wellington and people are finding it difficult to get mortgages. Truth is the whole sub-prime fiasco came from the fact that house prices had gotten so out of control that people could not afford the standard 5% down 25 year amortization program. The lenders started increasing the amortization period and lowering the minimum deposit. Even that was not enough.

Truth is, as a home seller in today's market, if you decide to give up 5% of the selling value of your home it works out to be a much bigger chunk of your equity. If you are lucky enough to have paid off half your mortgage you are giving up 10% of your equity ($300,000 -50% = $150,000, $300,000 x 5% = $15,000, $15,000 is 10% of $150,000).

If we are heading into a recession then why would you hand over 10% of your equity? People have just lost thousands in equity in the stock market and mutual fund arena and it makes the news daily. People throw away 10% of there equity in their house daily and it doesn't even show up on the radar.


Maybe it's not our toes in the sand after all?

M

That's Fair, Right?

When it comes to your finances you need to ask this in many areas. I recently heard reports that "many economists felt that a .25% drop in interest rates would not suffice, that a .5% would be needed from the Bank of Canada to assure the public during these times". In this CBC article it states that 6 out of 10 wanted the .5% drop. Here is the funny part. It seems that a lot of these economists are employees of the banks. Take the economist quoted in this article, Dawn Desjardins, assistant chief economist at Royal Bank.

Why would the banks want the overnight rate dropped? Didn't they just take away all of their discounts on the variable rate mortgages? Now that they are prime plus they want prime dropped.

Here is what I know. Someone looking to buy a home that was looking at prime -1% was sitting in and around 3.75% to 4.25% on a variable rate mortgage. Now they are prime +1% and they are looking at 5% and higher even with the drop in the BOC rates at most institutions.

As a home buyer, today more than ever, you need to get shopping on your mortgage. You should always shop around. A mortgage broker is a great tool to keep the banks honest (trust me, they need it). So when hunting for that new house, call your bank, but also call a mortgage broker. Make sure that you are not required to pay the broker. They get paid from the lender.

That's fair, right?

M