A recent blog post on buzzbuzzhome.com has us look at the transaction of a home purchase from an economic standpoint. How does your home sale/purchase impact our economy?
It would seem that the national average "service and taxes" fee of $22,775 sits well with the traditional high fee real estate agents.
Imagine another reality...the $10.2 Billion spent on these services was reduced to a fraction and the average home owner had more equity, more accessible cash and less debt. What would our economy look like then?
I don't care if you have your investments with a bank, an insurance company or an independent financial planner. Fact is, if your financial adviser is not discussing your choices of how to sell your home they are not working in your best interest.
Think about it. If you were to live in 4 houses in your life how much money could you waste on a real estate agent. Let's do the math, shall we.
Year 1 (Age 30) First Home - Modest townhouse selling for $225,000 Agent Commission 5% - $11,250 GST on Commission - $562.50 Total amount not invested - $11,812.50
Year 5 (Age 35) Second Home - Single detached selling for $300,000 Agent Commission 5% - $15,000 HST on Commission - $1,950 Total amount not invested - $16,950
Year 20 (Age 50) Third Home - Large family home selling for $450,000 Agent Commission 5% - $22,500 HST on Commission - $2,925 Total amount not invested - $25,425
Year 30 (Age 60) Fourth Home - Bungalow selling for $300,000 Agent Commission 5% - $15,000 HST on Commission - $1,950 Total amount not invested - $16,950
At 60 I hope that we are all ready to retire (if not before). All ready to buy a cottage on a lake in Northern Ontario and a condo in Palm Springs. So let's look at our investment profile....or more importantly what didn't end up in it. The total amount of commissions (including taxes) paid to real estate agents through your life was $71,137.50. That sure is a big number! But let's add in the aspect of lost interest into that figure over the 30 years and see what it is.
Using the Bank of Canada investment calculator over the 30 years at 6% interest the $11,812.50 from our townhouse would have been $67,844.99. The $16,950 from our second home would be $72,747.21 over 25 years. The $25,425 from our 3rd home would be $45,532.30 over the 10 years. Of course our $16,950 doesn't get invested because we just sold that place. So the total money not in our financial portfolio due to needlessly spending it on real estate agents is $203,074.50.
There was an article printed in this week-end's real estate papers in KW and Cambridge. The one that appeared in the Cambridge Times was entitled "HST threatens home buying dream". It was written from the board and quoted Mike Toffner, president, "No matter how you sell it, the HST is a big tax increase for local home buyers, sellers and owners." The article goes on to claim with the average home price being $302,354 (Ontario) that the cost to home sellers would go up an estimated $1,449.
Realtors are very much opposed to the HST, and I suspect it is for a reason different than they claim. The following chart was included with the article to show you how much you would be effected. Not pointed out is that of the $1,449 in additional tax, 83.5% of it is a direct result of their fees. If they are so concerned with home buyers being able to live out their dream of home ownership lets not worry about $1,449 in potential taxes when they are charging 10 times that amount for a simple process.
If a home seller decides to pay themselves commission, which the government can't tax, then they end up not only saving HST on the commission but also the $15,117.70 in commissions. What would the chart look like if it considered the cost of a an average Private Sale marketing package? Realtors appearing so adamant on reducing costs for the home seller by going after a proposed tax that equals a small fraction of what they charge seems a little misguided. They claim that HST will add an additional $262-million to residential resale real estate transactions. That means that they are expecting to charge $3.275-BILLION to you the home sellers. Put your equity in your pocket where it belongs. Pay for all your marketing with less than the taxes you would have paid for using a Realtor.
This trooper has a new name...Harmonized Sales Tax.
The Ontario Budget released last week announced the plan for a harmonized sales tax like our friends in Atlantic Canada. For those of you buying homes after June 1st 2010 this new tax will not be charged on resale homes. There are some increases on tax charged on new homes, dependent on the value.
Where this tax increase will hit the everyday consumers is when purchasing a service related items. Service oriented businesses like lawyers, hair dressers, car repairs, accountants, real estate agents. That's right real estate commissions are subject to GST today and as of June 2010 taxes will increase to 13% on all commissions charged by a real estate agent.
Here is how deep this will effect you, the home seller.
June 2010: $300,000 x 5% commission = $15,000 + 13% HST = $16,950
Of course there is a way to avoid this HUGE increase of $1,200 in costs to you. As a matter of fact you can REDUCE it by thousands. Sell your home privately and you only have to pay HST on the fee of your marketing. Let's look at the same example, but as a private sale.
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