A – B – C – D – E – F – G
Enjoy our Calgary ABCs of Real Estate Series to carry us through the month of September!
I’m sure there are plenty of other words we could have picked (except for X – that took some effort…) but we’ve covered a decent selection here. Let us know if you have any questions about something we didn’t cover. (Stay tuned through the month of September 2020 to make it to Z!)
Let us know if you have real estate-related questions.
H – I – J – K – L – M – N – O – P
We’re happy to answer them or direct you to the right place.
Q – R – S
T – U – V
W – X –Y and Z
(This is generalized info related to our local market, and not to be used as situation specific advice without talking to your own agent or lawyer about your own situation.)
A
Appraisal Real estate appraisers in Alberta are currently licensed by Real Estate Council of Alberta**. Appraisers provide an independent evaluation of a property’s value, using various analytical techniques. Don’t confuse a Comparative Market Analysis (by a Realtor®) with an appraisal. They are not the same thing. There are many uses but the most likely way an appraisal is embedded in a transaction, is when a lender orders one to ensure the property they are loaning money on, is worth that amount. In other words, can they actually recoup money loaned if a buyer defaults? This is the CliffsNotes of it. If a property doesn’t appraise the loan won’t be granted, as requested. There are a few ways to work through this situation during the course of a transaction.TOP **this is likely in the process of changing
Average Price Thinking back to school days, you’ll recall average is just the sum of a selection of units, divided by the number of units. Several lower value units means the average is down. Many higher price units, and the average is up. How relevant do you believe the average price of homes to be when you read about it in a nation-wide report? Even a city-wide report? What does average price actually tell you? I guess it tells you what price range sales are happening in more often. Does it really tell you what a home is worth? If you’re forming the words d’uh right about now-you’re right. It doesn’t tell you a home’s value. Only reporting on average pricing when talking about home sales and values is irresponsible. Covid-19 aside, any number of factors influence the average price, in any given region. For the purpose of buying and selling properties, it has little value, other than showing you an unscientific trend of a time period.TOP
B
Benchmark Pricing Yesterday we talked about average price. (Sum of all unit values/ # of units). Today, we talk about Benchmark Pricing . This is a style of pricing that is based on the Home Price Index (HPI). The HPI establishes pricing for a typical home in each community. It doesn’t fluctuate as much as an average or median price would, so it provides a clearer picture of how prices are actually trending. Prices are tracked for 5 major Canadian housing markets, as well as house styles. Comparisons are further based on things like size, location, bedrooms, bathrooms, lot size, age etc. They are then compared to a baseline established in time, and adjusted from there, under strict guidelines, and calculated through a commonly used statistical technique. This is an incredibly shortened description of benchmark pricing but, in our opinion, is far and away, the tool to use when talking about pricing trends over time. It gives us the ability to price properties, even when there aren’t many comparable properties available, by way of providing a working factor. Think of it this way: average pricing includes all fruits and vegetables together in a food pot. Benchmark pricing compares apples to apples.TOP
C
Comparables Many of us know what a comparable is – except for Word that is; it’s underlined in red. This is a common term. Not as widespread though, is the knowledge of what is considered a true comparable in looking at pricing data. We see this regularly when we discuss the pricing of a house, either to sell or buy. We might hear something like “Yeah, but my neighbor’s place went for….$” Same community, same street – must be a comp, right? Not always. Location is only one aspect we consider when thinking about what a valid comp to a subject property is. Many things must be considered such as size, age, location (community, street type and/or view ie, house on a busy street = price hit compared to house backing onto a ravine), amenities, finishes (quantity + quality) and house style (we don’t compare a bungalow to a 2-storey). Many would be surprised at how much goes into establishing what is and isn’t a comparable, and if it can be adjusted for, to make it comparable. (ie. 2 similar houses where one had a single garage and one had a triple garage on a larger lot – how much value do you attribute to that difference?) Comparables are what agents work from when completing a Comparative Market Analysis (CMA).TOP
D
Dower Under the Dower Act (circa 1900s), neither spouse may sell the homestead without the other’s written consent. It gives a legally married couple equal rights to dispose of the matrimonial home, regardless if only one party is on title. When Dower applies, there is additional paperwork to complete. Your situation should be discussed with your lawyer to ensure it is covered correctly. If proper consents are not in place, a transaction can be delayed or stopped.TOP
Deposit vs. Down Payment You’ve likely worked you’re a$$ off to save a down payment (DP). It contributes to the purchase price and isn’t part of a mortgage (eg. price is $450,000; DP likely 5%-20% ($22,500-$90,000); mortgage would be $427,500-$360,000. Lenders need to know you’re invested and won’t walk away when you’re sick of it. The deposit is part of your DP and used as a show of good faith to a seller when you make an offer on a property. It’s a point of negotiation but will range from ~$5,000 – $15,000 but can be much higher, relative to the purchase price. The deposit is normally held in trust by the seller’s brokerage, and will be due within a few days of an accepted offer. Talk to your mortgage specialist about proof of funds-this is an important factor. If conditions are written in an offer and not waived (eg. Not financed, home inspection failed), the deposit is refundable. If all conditions were satisfied and waived, and a buyer does not follow through with the purchase, the deposit will be forfeited and a seller may pursue further action to recover any losses. The (balance of) DP is held by you and is payable via the lawyer-usually 2-3 weeks prior to possession. This is important to note in case it’s coming from somewhere that the money can’t be obtained easily.TOP
E
Encumbrance An encumbrance is something that is registered on title and is binding on any subsequent owner of the property, until or unless it is discharged. (There is no guarantee that an encumbrance would be discharged.) There are many examples but a common one would be a Home Owner’s Association fee. If you’re buying a property, your agent should always buy title – you need to know what you will be obligated to, before moving forward.TOP
F
Fiduciary Responsibilities These are the highest level of legal responsibilities we have to a client (not to be confused with a customer). Working as a sole agent for a client, these are the responsibilities one could expect: an OLDCAR . Just kidding-this is an easy way to remember them though – bonus points if you can tell us what the use of ‘OLDCAR’ is when using it as a tool to remember a longer list of items! Obedience – an agent must obey a client’s lawful, reasonable and ordinary instructions. Loyalty – an agent must act solely with the best interests of their client, putting a client’s interests above other’s and their own. Disclosure – an agent must tell you in writing, about their services to be provided. They must tell you anything they know that might affect the relationship or influence your decision in a transaction. This excludes confidential information obtained under another agency relationship. Confidentiality – an agent must keep your information confidential even after the relationship ends. Accounting – an agent must account for all money and property (e.g. keys, documents) they receive while acting on your behalf. Reasonable Care and Skill – an agent must meet the standard for a reasonable and competent member of the real estate industry. This is a basic description of fiduciary duties and what we call sole agency. There’s always more of a discussion of how this applies, some exceptions to points, and how it changes depending on individual transactions. TOP
G
Grow Operation Hot topic for some… If a property was discovered to be used as a place where illegal drugs were grown, it will almost certainly always be stigmatized as a grow up, even after it is cleaned up. Not all properties that were used as a grow operation have a health notice registered on title though. If they were moved prior to being discovered, there likely won’t be a registration, as a dead giveaway. If there is a health notice registered on title, past or current, they will need to have undergone a remediation process in order to have the notice revoked and the property declared fit for habitation. This refers to the prescribed remediation process at the time it was lifted. They are often initially seen as a ‘good deal’ because they tend to be listed for a noticeably lower price. That’s usually the first trigger to look into why it’s priced lower than expected. It may be indicated in the remarks as well. There are almost always telltale signs that can be discovered by someone who knows what they’re looking for, ie. a home inspector. Agents have some training on this, but this is something that you should discuss with your home inspector. We can also ask questions of the selling agent, but can’t guarantee their answers. Known grow ops will almost certainly have a problem when it comes to financing and/or insurance. There are options, but if you’re interested in this ‘deal’ plan to spend some extra time on the process and be open to secondary lenders. Of note, when someone is growing legal pot plants, this isn’t considered a grow op. The knowledge of such may still be important to a buyer. This needs to be discussed on an individual basis though. TOP
H
Holdback A holdback is an amount of money agreed on between a buyer and a seller, usually for a task to be completed by the time possession date arrives. If the task isn’t completed by the prescribed time then the money would be released to the ‘injured’ party that was supposed to have benefited. When writing a holdback into a contract, the more details we can add, the better. Ie. what is supposed to be done, to what standard (DIY vs professional), by who, at who’s expense, by what date, and how is the money to be released/used and how will completion be proved (receipt)? When does the benefitting party check on the work? We see them on occasion and they should be accompanied by a written amendment, depending on the timing of the discovery for the need. The holdback should be a reasonable amount that will cover the expense of completing the work if it’s not done, and an amount that encourages the party that is supposed to do the work, to do it.TOP
I
Inspections This is broader than it seems when you initially hear the word inspection. Most people just think (whole) home inspection and call it a day. That is definitely a good place to start. A home inspection is not to guarantee there is nothing wrong with the property you’re contemplating buying. It’s to bring to your attention, what is a problem, or what could be a problem. You’ll also learn what is considered fine. After an inspection, it’s up to a buyer to determine what they are comfortable dealing with. We suggest you review the entire inspection report, paying close attention to items that are problematic for you, as well as the summary of tasks highlighted by the inspector that should be addressed sooner than later. We can’t tell you how to interpret the report. If there are concerning items, we recommend sourcing a quote(s) to see how much it will cost to remedy any particular problem. From there, you can determine how best to proceed: 1. Accept what is in the report and waive the property inspection condition 2. Don’t accept what is in the report, don’t waive the condition and look for your next choice (deposit will be returned) 3. Direct your agent to ask the seller to participate in a remedy for concerning items A seller has options as well: 1. Accept your request for help to remedy a problem 2. Deny your request for help to remedy a problem 3. Offer an alternative solution to work with There are many inspections you could order as a buyer, depending on what type of property or amenities there are. Electrical, Engineer’s, or Environmental Reports, Furnace and Chimney Inspection, Gas Line, Roof, Septic, Sewer, Water Quality/Quantity, Wood Stove/Fireplace, Condominium Documents Inspection. (This is not an exhaustive list.)TOP
J
Judicial Sale A judicial sale happens when a property for which a lender provided mortgage funds for, is in foreclosure and wants it sold to recover their investment. They don’t technically own the property but they can still force the sale. These are a bit different than a foreclosure even though the net effect is generally the same to an owner. (In a foreclosure, the lender takes over ownership.) These are pretty much always somber sales – they don’t represent happy times. The contract will look like it’s been marked up by a toddler by the time it’s done, as many of the warranties and representations typical to most contracts are not made. The possession date is usually established by the court, not the purchaser.TOP
K
Keys Yay!!! You just got the keys to your new place. Now what? We recommend that a buyer always gets the property re-keyed when they take possession. There’s no guarantee that you received all of the keys for the place you just took possession of. That’s not to say that a seller intentionally withheld keys, they just may not remember who they handed one out to. Or a past owner for that matter if the seller didn’t change the locks. Yeah, that might be a stretch but it’s always safest to get your new place done. A re-key job is pretty inexpensive peace of mind. Of course, it may also be an opportunity to get a new system with keypad entry or remote alarming.TOP
L
Lis Pendens This will show up on title as a registration and signal that another party has a registered interest in the property, by way of suing the owner. If the settlement isn’t registered yet, there’s an unknown factor and this is a big red flag if you’re considering buying. It’s always a good idea to review the title before purchasing.TOP
M
Material Latent Defects A material latent defect is a physical defect that is not discernible through a reasonable inspection, and makes a property: · dangerous or potentially dangerous to the occupants · unfit to live in · unfit for a buyer’s purpose, should that purpose be known to the sellers or by the industry professional Material latent defects may also include: · defects that would be very expensive to repair · when a seller has received a notice from a local government or authority that something about the property must be fixed · when the seller does not have appropriate building or other permits for the property These are things your professional will not know unless you tell them. If defects are discovered by a buyer during an inspection, or by their own real estate professional or lawyer when they review permits, real property reports, or title, it could put the transaction in jeopardy. Sellers cannot hide defects or mislead buyers about the property’s condition or other attributes. You must disclose all material latent defects that you know about. Source: RECA TOP
N
Negotiation Negotiation is usually one of the top factors considered when an agent is hired. It tends to be a function that not many people want to do since it is often seen as a conflict. It can be sometimes, but it doesn’t always have to be. It’s really a discussion between two interested parties, in coming to an agreement of terms under which ‘goods’ are exchanged. Everyone wants to feel like they’re winning and no one wants to feel like they were taken advantage of, or lost. During a contract discussion, the most obvious point of negotiation, is price. And people often get fixated on that. But keep in mind, there are many other factors that can be included during the discussion of a sale. Dates, terms, conditions, inclusions or exclusions. Other considerations also include style of negotiation of the other party, which you may or may not be able to determine. Ultimately, negotiation will come down to what your best alternative to the desired outcome is, and what your tolerance or ability is to walking away.TOP
O
Offer to Purchase The offer to purchase is currently a six page document. Aside from schedules to the contract, it outlines all of the terms of the agreement for the purchase/sale of a property. It’s generated from the buyer’s side with terms a buyer is willing to agree to purchase the property for. If the seller signs it, the document becomes a legally binding (conditional~) offer. If the seller rejects it as is, but offers something otherwise for consideration, it becomes a counter offer. It will go back and forth until there is either agreement or rejection. All changes must be initialed by all parties. Generalized, it outlines the parties to the contract, the property, purchase price and completion day, general terms, deposits, land title, representations and warranties, dower, conditions, closing process, insurance, remedies, notice and documents, authorization, confirmation of terms, legal obligations, offer terms and acceptance. The only area not on the above list, is the attachments and additional terms. There are a number of schedules available to further outline the details of the contract. Use of them will depend on who, what, where basically, but is on a case-by-case basis. An offer is not open indefinitely. Under typical circumstances you’ll see an offer presented with less than 24 hours for a seller to accept, counter or reject. If nothing happens in writing by the last time agreed to on the offer, the offer dies and would need to be rewritten should negotiations start again and come to agreement. Most times, the offer will include conditions which allow an out if they are unable to be fulfilled or outcomes are unsatisfactory.TOP
P
Pre Approval First of all, a pre-approval is not the same thing as a pre-qualification. A pre qual is what you get when you plug your numbers into an online portal and it spits out a number in 5 seconds. Good for you – now you are closer to knowing what your pre approval will look like, but don’t expect them to necessarily be the same. When you go through the pre-approval process, you should have had a discussion with your mortgage specialist that includes these topics +/-: pay, hours, employment history, credit history, tax returns, any support payments, rental income, clean paper trail for down payment, etc. If you haven’t had a chat with a broker about your pre approval, you’re fooling yourself and wasting everyone’s time. If you’re a serious buyer, understand that this is necessary. If you end up in multiple offers on a purchase, having a pre-approval can lend itself well to winning in competition, and give everyone the confidence to move forward with your offer.TOP
Q
Qualifying Ratios We’re not going to get into the actual numbers here because there is ongoing discussion as well as recent changes with mortgage insurers and what is being approved. It’s best to talk to your mortgage specialist for the most up-to-date details. In order to qualify, your income/debt needs to fall into specific guidelines when it comes to qualifying for a mortgage. These are based on the Total Debt Service Ratio (TDSR) and the Gross Debt Service Ratio (GDSR). If you review the CMHC Debt Service Calculator , you’ll be able to determine what is relevant at the time you see this, to you. If you need the name of some good brokers – let us know!TOP
R
Radon We’ve talked about radon before . We’ve also blogged about it. If you want to read more-follow our bio link to our blog and look up the maintenance category. We have an SSD system in our house. Radon is a colorless, tasteless, odorless gas that is produced as a by-product of uranium decay. You won’t know you have it unless you test. We talk about it during the course of a transaction, but awareness is still growing. There are both short-term and long-term tests available, but the long-term test is the most accurate. It’s generally recommended that the test puck should be left out for at least a 3-month period, and preferably through winter months. If you haven’t tested your property, we strongly encourage you to do so – and we’re just in time now for our upcoming cooler season.TOP
Real Property Report (RPR) By way of the widely used purchase contract, a seller is obligated to provide a current, compliant RPR to the buyer, when selling. The RPR is drawn up by an Alberta Land Surveyor, then sent to the appropriate municipality to determine if all the buildings, etc., are in agreement with the governing land use bylaws, at the time. Current doesn’t mean a point in time. Current usually means that the RPR reflects the actual lay of the land. If anything has changed since the last RPR, then a new one should be obtained. If you’re uncertain, it’s best to talk with your lawyer about the conflict. If a seller leaves this until the last minute and there are any problems, this can result in a holdback, which we talked about earlier in the series. They can take some time to acquire (depending on a variety of factors) so it’s best to order it sooner than later, if you’re selling. We know some people-ask if you need one.TOP
S
Stigmatized Property When a property has been stigmatized, it is considered that there’s an unfavorable quality about it that would likely cause a buyer to shun the property. This is a reason unrelated to the physical condition. Examples of a stigma issues against a property may include: -a suicide or death -the scene of a major crime -the address has the wrong #s -reports that it’s haunted -has been vandalized -a remediated, former grow op Sellers may face a dilemma to disclose a circumstance that may negatively affect the value of their property. We’ve all heard of the scenario where the neighbor tells the new owner every negative issue with the property shortly after they move… Prudent sellers will discuss the circumstances of a stigma, their rights and obligations, with their own lawyer. Source: RECATOP
T
Torrens System This is the land titles system used in Alberta where the Province of Alberta guarantees the registrations on title. This means that titles, as registered, may be absolutely relied upon. The system has been in use since the late 1800s. It’s based on the Mirror, Curtain and Insurance Principles, when used together. There are two land titles offices in Alberta. Even though you don’t necessarily need to look beyond the current title to find ownership interest, we will still review past registrations to see if there was anything registered that a buyer should be aware of, during the course of their decision making.TOP
U
Unit No, we’re not referring to the Big Unit, 22” hot dog found at Alice Cooperstown in AZ! Anyone finished one of those? This basic word is actually the legal term used for a space in a condominium that can be owned by exclusive title. When looking at a condo plan, you’ll see a Unit Number for your living area (may be land, may be a space in a building). If you look, for example, at parking or storage-it may have the same unit number (one tax bill), a different unit number (a separate, ~saleable area and tax bill), or something other than a unit number (not owned, may be leased or assigned). These are all indicators of the ownership details. The unit is determined on a plan by the boundary lines. (This is a very basic description and example and shouldn’t be applied without further discussion of each situation.)TOP
V
Vacancy Permit A vacant property may run into problems when it comes to insurance coverage. If your property will be vacant, check with your insurance provider to ensure you have the coverage you need, without any surprises. A vacancy permit will offer basic insurance coverage.TOP
W
Waiver (non-waiver) A waiver is a form completed by the party that requested a condition, once the condition is completed and no longer standing in the way of a conditional offer becoming a firm offer. Eg. A buyer asks their agent to write into the offer, a condition that they are able to obtain financing. They have until a specific, agreed upon date and time to do this. The buyer provides the necessary documents to their lender. The lender says yes, we can provide you a mortgage loan. The buyer, through their agent, signs a waiver to say that financing is no longer a condition of the offer. Each condition must be waived or not waived. There is also a non-waiver for when a condition can’t be cleared. Ie. The buyer’s home inspector discovers a significant problem they were previously unaware of and the buyer is no longer interested in the property. Waivers are tied to conditions. Generally speaking, once waivers are received and conditions are waived, a conditional offer becomes firm and binding.TOP
X
(E)Xpectations Okay – we are so busted here. We don’t have a word that starts with X… But expectations is really close! And, it’s also more important during a real estate transaction than one would probably give any credit for. Much like in life and all of the memes you’ve likely seen, we can’t necessarily control what happens around us. What we can control, are our expectations (and reactions). Managing expectations makes for a far more pleasant experience for everyone involved. It can make or break a working relationship. It can be the difference between getting through a problem gracefully with your sanity intact or losing it and having a meltdown. It’s really important to have an open dialog with your agent about what you expect, what your experience is and how you’re viewing what is going on during your transaction. It’s also important for the agent to convey what and why something is happening. How many times does an avoidable problem start from a miscommunication? Make sure you’re working with someone you can have those types of open conversations with in order to obtain the best outcome!TOP
Y
Yardwork So at first, I thought I’d go with yardwork – just about as lame as X and not finding a word there…but yardwork is something that you should consider, both as a seller and a buyer. Especially if you’re coming from renting where maybe it’s been done for you, or from a condo where it’s not your problem. Are you up for the job when you own a house? Sellers – curb appeal matters – a lot! It’s usually the first picture a buyer sees online when they find your property. Make it count!TOP
Years Make sure you talk to your mortgage specialist about how many years you need to or want to commit to your mortgage term. When it comes to selling, you’ll want to understand how your mortgage repayment works, including any penalties. Years – although there are mixed messages, the average number of years lived in a home, is seven, according to CAAMP, and 5-7 years according to a FP article.TOP
Z
Zero Lot Line This is where you see a house built with no setback from the property line, rather than built between the side property lines, which is more typical. There will likely be an easement that allows you to access your neighbor’s property when you have to do maintenance on the side of the house that sits at the property line. Ensure you understand any restrictions that come with the home, while house shopping.TOP
This is it for our ABCs of Real Estate Series!
Hopefully you enjoyed it and got something out of it. Again let us know if you have real estate-related questions, whether buying or selling . We’re happy to answer them or direct you to the right place. We take education seriously and have extra designations: Seller’s Representative Specialist, Accredited Buyer’s Representative®, Certified Condominium Specialist, NAR® Certified Green, Senior’s Real Estate Specialist® This is generalized information related to our local market, and not to be used as situation specific advice without talking to an agent or lawyer about your own situation.
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