GST Has Risen Again

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.

Today: $300,000 x 5% commission = $15,000 + 5% GST = $15,750

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.

Today: $300,000 x 0% commission = $0 + $1,500* + 5% GST = $1,575 ($14,175 Savings)

June 2010: $300,000 x 0% commission = $0 + $1,500* + 13% HST = $1,695 ($15,255 Savings)
*PropertyGuys.com Elite Package

So as it turns out this new HST thing gives you even MORE savings selling privately. What a Trooper.


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

Seeing The Future of Joe Schmo

He is reading the mind of the North American culture.

He being Seth Godin, author of best sellers like Purple Cow, Permission Marketing and most recently Tribes.

I recently read a tweet (post on Twitter) from @ebloch about one of Seth's blog posts talking about the decline of agents in today's world. Travel agents, insurance agents, real estate agents. Anyone that is a middleman in a transaction is in danger of being replaced by a cheaper, faster, more efficient way. He goes as far as to say that it may even be a consumer with a computer.

This is nothing new to me, I see it every day.

I am going to draw your attention to a quote from the blog.

"Think about how anonymous the typical real estate broker is. He will sell almost any house or represent almost any buyer. When selling a house, he has a fiduciary responsibility to represent that house to the best of his ability. Just like every other broker. The great real estate brokers do far more than this."

This quote describes perfectly the term "Joe Schmo Agent" from PropertyGuys.com radio commercials and marketing materials. Does an ordinary agent deserve the extraordinary fee charged in the transaction? What have they done in order to justify their fee?

It seems everywhere we go these days we run into an agent. I'll bet at least one person you know from High School is an agent today. Why do we have so many Joe Schmo agents out there? I'll let Seth explain it...


With nothing stopping people from becoming agents in the Tiger Woods Market, with no "Dip", we have become overrun by the unexceptional.

M