Q: My son and his common-law partner bought a condo together in Vancouver last year—which has since gone up in value. The relationship did not last and she would like to buy him out as both their names are on title. Are you aware of the steps involved to legally proceed with a real estate buy out and is it a wise move from an investment point of view?
— Norma R.
A: Hi Norma. I’m sorry to hear that your son is in this position. Break-ups are hard and can be exasperated when a division of assets is necessary.
I’m assuming your fear is that if your son accepts a buyout from his ex, he may then be priced out of Vancouver’s hot property market.
To minimize the impact of future property price appreciation, he should take the money and buy his own condo or home.
Your fear—that by giving up ownership of the condo he misses out on future appreciation—neglects how difficult decisions can be with someone you choose to no longer build a future with. Just imagine it’s five years from now. Your son has met someone new and he is happy. Very happy. He wants to buy a place with his new love and asks his ex if she could buy him out of this condo. His ex, on the other hand, has just gotten out of another relationship; she is unhappy, bitter and feeling defensive. How well do you think your son’s request will be taken? Probably not all that well. Of course, things could work out totally different, but that’s just it, we don’t know. For that reason, I’m of the belief that it’s always a good idea for each part of a dissolved partnership to sever emotional, physical and financial ties. As soon as possible. Remember, it’s already hard to make unemotional decisions about what to do with an asset when hurt or regret or anger or disappoint lingers, never mind when years have passed and life has unfolded in unpredictable ways.
The dilemma, then, is how to make sure that both your son and his ex are treated fairly when splitting this asset. This should be relatively easy, as long as they agree to pay for some expertise. The first is to pay for an appraiser who specializes in divorce settlements. This appraiser will be able to provide a “fair market value” report—a snapshot of what the property is currently worth if it were sold in as-is condition on this specific day. This FMV report would give a price or price range that your son’s ex could take to the bank in order to obtain mortgage financing. She would then be responsible for paying your son half of the condo’s FMV. He can accept this money free and clear, as he doesn’t have to pay taxes since the condo was his principal residence.
As to your fear of losing out from an investment perspective, remember that he will be selling his portion of the condo to his ex and, if he chooses, buying a new condo in relatively similar markets. That puts him in a net-net position—what he gained in price appreciation on the sold condo will help with current, higher condo prices.
Finally, when it comes to the legal process please advise your son to pay a mediator or lawyer. A few hundred or even a few thousand spent on professional, unbiased advice is well worth the money spent. If he wants to focus on a quick resolution, look for a lawyer or mediator that specializes in uncontested divorces. These professionals realize that not everyone wants to battle over every cent in court and will work to find a fair, quick resolution. Also, by employing a legal professional you are assured that all the paperwork and documentation required to remove your son’s name from the property title and the mortgage documents will be complete and filed, leaving him free and clear to enjoy the rest of his life.
When divorcing partners divide their assets, the split isn’t always as fair as it first appears. Here’s what you need to know.
Two weeks after his divorce, Phil Doughty received a blunt letter from his ex-wife’s lawyer. It informed him he’d contravened his settlement by not giving his ex her $100,000 share of his pension within 10 days of the divorce.
“It was a knockdown punch,” says the retired teacher from Montreal. “I had no idea I had to pay her right away, or that the money would come directly out of my pension fund.” Doughty thought his ex would simply get a share of his benefit after he stopped working. “I’d never heard of a company taking money out of a pension eight years before retirement.”
With his pension fund depleted, Doughty’s monthly cheques were reduced by over a third when he eventually retired, yet he was still required to pay spousal support from what remained, leaving him strapped. “I had to find another lawyer to help me get out of those support payments I couldn’t afford anymore.”
Doughty (we’ve changed his name, and those of all the featured subjects in this article) believes his pension arrangement should have been handled differently—at the very least it should have been explained to him properly. “I guess it was just something the lawyers worked out between them,” he says. “My lawyer and I never really talked about the pension.”
It seems hard to believe a lawyer would not talk to a client about how such an important asset would be divided, but Doughty insists he would have remembered such a conversation. His situation is just one example of how partners frequently get divorced without understanding all the financial implications.
“Divorce changes a person’s financial situation dramatically and often there is no planning for it,” says Debbie Hartzman, a Certified Divorce Financial Analyst in Kingston, Ont., and co-author of Divorce Isn’t Easy, But It Can Be Fair. (CDFAs are planners with additional training in the financial impact of separation and divorce. See “Where to get help,” at the bottom of this page.) “I’ve had clients say things like, ‘I just spent four years fighting with my ex, I have this cheque for $400,000, and I have no idea what that means in terms of my financial future.’”
Surely part of a lawyer’s job entails discussing financial matters surrounding divorce. Apart from custody of children, aren’t money and property the big issues in divorce? “A family lawyer’s job includes giving advice about a number of financial issues, but we are not financial analysts,” says Bruce Clark, who observed many divorce-related financial problems during his 35-year career as a family lawyer in Toronto.
Lawyers may not anticipate the long-term implications of divorce-related financial matters. For example, Hartzman explains it’s possible to have different divisions of assets that all meet the 50/50 requirements of the law but have profoundly different financial consequences for the divorcing partners. Her book includes a case study that presents different ways to legally divide the assets of a middle-class couple. Both are 58 years old, and the largest assets are the house and pensions (his is four times more valuable than hers). In one scenario, the assets are split more or less equally, so the initial net worth of the two partners is about the same. However, her share of the man’s pension is paid out as a lump sum, and the support payments are not structured to reflect the fact his post-retirement income will be higher than hers. As a result, after age 65 the woman’s net worth and monthly cash flow flatline, while the man’s relative financial situation steadily improves. “The person with the pension can end up in a much better financial position than the person with the house, particularly if the pension is indexed to inflation,” says Jim Doyle, a CDFA with Investors Group in Vancouver.
Here’s a different scenario: she keeps the house and gets only a quarter of his pension. To the untrained eye that seems to be simply an alternative way of dividing the pie equally. Yet this arrangement ensures the woman’s net worth stays similar to the man’s for the rest of their lives, without diminishing his financial situation.
Of course, case studies do not translate into rules that ensure ideal financial arrangements for every divorcing couple. That’s why it’s a good idea to consult a financial professional as well as a lawyer if you’re going through divorce or separation.
Don’t assume every asset must be split down the middle. “People often want to split up each individual asset, but not all assets are created equal. It’s usually better to look at assets in terms of how to divide the whole cake,” says Hartzman.
Doughty is not the first divorced person to be subject to pension shock. Many people don’t even realize pensions have to be shared after divorce, says Clark. “In my experience, most people consider their pensions to be their personal property, as opposed to an asset that must be shared equally after a divorce. In a longer-term marriage the pension is often the single biggest asset.”
This was the case for Doughty and his ex-wife, who had sold their matrimonial home shortly before separating. By law his ex-wife was entitled to half the teacher’s pension that accumulated during their marriage.
“Pensions are very, very complicated assets,” says Sharon Numerow, a CDFA and divorce mediator with Alberta Divorce Finances in Calgary. “Defined benefit pensions must be independently valued by an actuary, and the rules about paying out a spouse vary from province to province.” For example, in Alberta there are no longer any provincial pension plans that allow monthly payouts to an ex-spouse when the member spouse retires. Therefore, the only option is to give the ex-spouse a designated value that is transferred into a Locked-In Retirement Account or LIRA (called a locked-in RRSP in some provinces). “This almost always has to be done after the separation agreement is signed, and not usually at retirement,” says Numerow.
On the other hand, Ontario recently adjusted its Family Statute Law in the opposite direction. Now a portion of a person’s pension payments can be made directly to an ex-spouse after retirement. Another possibility is for the spouse without the pension to get another asset equal to the value.
Bottom line, don’t underestimate the potential for misunderstanding pension division. It’s important to work with your lawyer to understand the legal issues, then talk to a financial planner who can help you appreciate the short-, medium- and long-term implications of the division of this and your other assets.
Close to home
Another key, says Hartzman, is determining whether it’s viable for one partner to stay in the family home. There are two main questions: Can one partner actually afford to keep the home? And how will keeping the home affect that person’s financial future?
“Most people I’ve worked with live in houses that require two incomes, so after divorce one person would be trying to maintain the home on half as much income, and often it just isn’t affordable,” Hartzman says. “Can you imagine how hard it is to tell someone already going through the emotional turmoil of divorce that they can’t afford to stay in the family home they and their children are so attached to?”
Sandra Baron, an Ottawa mother of two, did manage to stay in the matrimonial home after her divorce. A financial planner helped her figure out how to pull this off. “My first lawyer really didn’t seem to understand my financial situation,” Baron explains. “I went to see a financial planner and asked if I could afford to buy out the matrimonial home from my husband. He helped me work it out.”
Baron and her spouse had always lived within their means. They had no debt other than a mortgage with much lower principal than they qualified for. That, combined with support payments and Baron’s earning potential (she had been an at-home parent most of her marriage but began doing contract work after the divorce), meant she was able to keep the family home.
The financial planner also gave Baron some tax-saving advice on how to invest some money she had brought into the marriage. Since she had that money before the marriage and kept it in a separate account, it was not an asset that had to be shared equally. However, had she used that money to help pay down the mortgage, it would have become part of the value of the matrimonial home and therefore a joint asset.
This is also the case if one spouse receives an inheritance or gift during the marriage. In most provinces, as long as the money is kept in a separate account it does not have to be divided equally after a divorce. But if it is used to purchase a joint asset, such as a house, it becomes the property of both spouses. (In some jurisdictions growth in the value of the inheritance or gift may count as an asset to be shared.)
Perhaps the biggest factor in Baron’s situation was that she and her husband actually saved money for their separation. “It was almost five years from the time we realized the marriage was likely not able to be repaired that we saved for the eventual separation. Unless the relationship was harmful, I felt it was in the best interest of everyone—particularly the children, who are all that really mattered in the end—to plan and wait so things would be better for them financially.”
It’s a safe bet the path Baron and her ex-husband took is not typical of divorcing couples. Obviously they got along well, even after deciding to separate; they had no debts other than the mortgage and were both well acquainted with their family financial situation. The opposite is much more likely, says Numerow. “It’s common for one partner to know very little about the family finances, and they often don’t know the extent of their debts.”
Lady in red
When Anna Masters, of Taber, Alta., separated from her husband she moved in with her sister and started a new job at a bank. She also applied for a new credit card through that bank, so the person doing the credit check was one of her colleagues. When the Equifax credit report came through, the coworker quietly asked Masters to step into her office. “You are behind in all your bills and credit cards. Most of them are in collections,” the embarrassed colleague said.
“I was horrified,” says Masters. “Even the cell phone bills weren’t paid. I didn’t even know my ex had his own cell phone.”
That’s not the worst of it. Masters’ ex-husband had a line of credit she didn’t know about it, which listed her as a co-signer. Masters says he must have forged her signature on the application.
It’s not hard to find similar tales of woe. Alan Leclair of Winnipeg tried to remortgage his house not long before he and his wife split up. “When the credit check came in the banker said to me, ‘You’ve got debts you didn’t tell me about. You’d better go home and talk to your wife about it,’” says Leclair. These debts were considerable—between $30,000 and $40,000 in unpaid credit card balances. Fortunately, Leclair’s ex-wife eventually agreed to take responsibility for them.
Masters was less fortunate. She got stuck with a big chunk of debt—loans and credit cards her husband was supposed to pay off, but didn’t—as well as the line of credit he’d fraudulently put her name on. “I could only get part-time work at the bank, but I worked every other junk job I could find. It took me three years, but I paid off my share, and in a way I’m glad I went through the experience. I’m in control of my finances now,” Masters says.
The one smart thing Masters feels she did in the lead-up to her separation was to start setting aside money (“Omigod money,” she called it) so she’d have something to fall back on in an emergency. “Even before I realized the full extent of the financial mess we were in, I knew my ex was spending irresponsibly, so I started squirreling money away.” That money—about $3,500, which she kept in a sock hidden under a pile of towels in the linen closet—ended up being used to cover her living expenses during a spell of unemployment after moving to a new town after she was separated.
Leclair did something similar. “I had a friend who was going through a divorce and I asked him for advice. He said, ‘Put a few bucks away.’ So I did.” He hid cash in his house and even left about $500 at a friend’s house. “When the separation happened I was in scramble mode, dealing with all kinds of things. It was comforting to at least know that money was there,” he says.
Clark, the family lawyer, explains any money you stash prior to separation “will still be subject to division, but you will have the use of it while property issues are being sorted out. There is nothing illegal about this as long as you declare the amounts you have put aside.”
It’s hardly surprising that people have trouble working through issues like asset division and debt. But the path to divorce is laden with other potential financial mistakes.
One is trying to settle too fast. “People want it settled tomorrow,” says Jim Doyle, the financial planner. “Emotions often determine the choices rather than making the numbers make sense. I say to people, ‘Let’s slow down and do the math.’” He says it’s common for partners to make hasty, ill-advised decisions about asset splitting just to avoid conflict. “Sometimes in relationships where there is an imbalance of power, one person might simply capitulate, resulting in a financial decision that may have negative consequences down the road.”
Don’t ignore the tax implications. “One of the biggest items that is often overlooked in separation and divorce agreements is tax deductions, such as child-care expenses, and credits that may apply to separated and divorced parents,” says Numerow. For example, a divorced parent can claim one child as a dependent, but both parents cannot claim the same child.
Another dangerous road is trading property for time with children. “Big mistake—just don’t do it,” says Numerow. In addition, remember that spousal or child support and asset division are, for the most part, completely separate issues.
Finally, if you’re a common-law spouse, don’t assume the process is the same as it is for married couples. Generally, legal requirements regarding spousal and child support are the same, provided a couple has been living common-law for at least two years (three in some provinces). However, the division of assets is not automatic, as it is in a marriage, which comes as a surprise to many people, Numerow says. “Go to a lawyer and find out what you do and don’t have to share. Laws concerning common-law separations vary by province.”
One message Clark, Numerow and Hartzman all want to get across is this: both partners should always be aware of the family’s financial situation. If one partner is more hands-on with the money, the other at least needs to understand the big picture. “I’ve met a lot of spouses who weren’t involved in the finances and they’re ashamed,” says Numerow. “I tell them, ‘Don’t beat yourself up over it. Now is the time to begin your learning.’ However, if both partners were on top of the family finances it would make divorce a lot easier.”—written by John Hoffman
Where to get help
Certified Divorce Financial Analysts usually charge between $175 and $250 per hour. “If people do their homework and bring in all the relevant financial information, we can usually get a fairly good handle on the situation in two hours,” says CDFA and author Debbie Hartzman. “For an individual, it usually takes no more than three hours overall. With couples it usually takes three sessions of an hour or an hour-and-a-half each.” She notes that a better understanding of your financial situation can save your lawyer’s time, which is much more expensive.
To find a CDFA, do a web search for your town and CDFA, or visit the website of the Institute for Divorce Financial Analysts (www.institutedfa.com) and search by city, town or area code.
While it’s fairly common for those in tight rental markets to have a roommate to help split the rent, an emerging trend is buying real estate with a family member or friend.
Faced with high home prices in big cities and tougher mortgage rules, including a new stress test on uninsured mortgages, it’s becoming increasingly difficult for first-time homebuyers to get their foot in the door of the real estate market. As such, prospective buyers are finding more creative ways to be able to enter the real estate market, and buying with a family member or friend is one of them.
When considering co-ownership, it doesn’t have to be with a spouse or romantic partner. It can be your brother, sister, aunt, uncle, cousin, friend or even co-worker. When you’re buying with a partner, make sure it’s someone you can trust. You’ll both be on the title and responsible for paying the mortgage on time and in full. If either you or your partner run into financial difficulties and are unable to pay your respective share of the mortgage, it could adversely affect your credit score if the other party is unable to come up with the extra money.
For that reason, I recommend treating co-ownership like a business arrangement by having a lawyer draft up an agreement. Also, this living arrangement likely isn’t permanent. You’ll want this agreement in place when you or your partner wants to sell. The last thing you’d want is for the sale of your property to hurt your relationship.
Qualifying for a Mortgage is Easier with a Partner
Buying with a partner helps you in several ways. The first is mortgage qualification. Two of the factors that lenders consider when qualifying you for a mortgage is your down payment and income.
Saving a sizable down payment is tough, especially for those living in cities like Toronto or Vancouver with sky-high rents and home prices.
Not to mention it’s also more challenging to qualify for a mortgage on a single income. Even being able to afford to a starter home, such as a condo in Vancouver, on a single income can be tough. That’s where buying with a partner comes in handy.
When buying with a partner, both of your down payments and incomes are taken into account. This makes qualifying for a mortgage a lot easier. In many cases it means qualifying for a home you otherwise wouldn’t be able to afford on your own.
For example, instead of only being able to afford a cramped condo, you might be able to afford a more spacious townhouse or semi-detached house. In essence, buying with a partner helps you move up the property ladder faster.
If you don’t know anyone who’s in the financial position to purchase a property with you, you’re not necessarily out of luck. The sharing economy is throwing homebuyers a lifeline. There are real estate matchmaking services like C-Harmony that will pair you with fellow homebuyers.
Some lenders like Meridian Credit Union are making buying with family and friends easier than ever by offering mortgages specifically for this living arrangement. With the Family and Friends Mortgage, up to four people can obtain a mortgage at a low rate.
Ready to Buy with a Partner?
The first step is to find a reliable partner who would be willing to purchase a property with you. After that, you’ll want to get pre-approved for a mortgage. With your housing budget in mind, you can buy a property together that will be a good long-term investment for both of you.
Once you purchase a property, don’t forget to have an agreement drafted up by a lawyer so there aren’t any surprises when one partner eventually wants out of the deal.
This will make for a happy, and hopefully long-term, real estate partnership.
It’s tough to feel financially prudent when buying a house these days.
That’s why an increasing number of first-time buyers are saving a down payment of 20 per cent or more. In doing so, they avoid having to buy mortgage default insurance which, in the case of a house price of $487,095 (the national average) bought with a 10 per cent down payment, would be 3.1 per cent or $13,590. This premium is generally added to the mortgage, which means more interest to pay.
It certainly sounds financially prudent to make a 20-per-cent down payment where possible, but this isn’t always the case. In fact, you may save money both now and in the future by making a slightly smaller down payment and taking on the cost of mortgage default insurance.
Listen up if you’re concerned about the new mortgage lending rules that were announced last week and will take effect on Jan. 1. When making a down payment of 20 per cent or more, the new rules require that you be able to qualify for a mortgage at the greater of the five-year benchmark rate published by the Bank of Canada, or the original contractual rate plus two percentage points. An easier path to a mortgage may be to make a smaller down payment.
To even propose this seems bizarre. “The story has been that you’re just throwing money away with mortgage insurance,” said Mike Bricknell, a mortgage agent with CanWise Financial. What this thinking ignores is the way today’s mortgage market discriminates against people who make down payments of 20 per cent or more. They may pay a fair bit more for a mortgage than someone with a high-ratio mortgage (down payment of less than 20 per cent) both now and on renewal.
A lender dealing with a client who has a sub-20 per cent down payment can take comfort from the fact that the loan is covered by government-backed insurance that is paid for by the borrower. A conventional mortgage (20 per cent or more) can be insured as well, but by the lender. All in all, a high-ratio mortgage is preferable from the lender’s point of view and often results in a lower mortgage rate.
Mr. Bricknell has lately found that rates on five-year fixed rate mortgages are about 0.45 of a percentage point less for high ratio as opposed to conventional mortgages. Maybe your lender can do better than that. If not, consider this example of how a down payment less than 20 per cent can pay off.
We start with a $450,000 house and a buyer with a 20-per-cent down payment already saved. With a conventional mortgage amortized over 25 years, Mr. Bricknell figures this person could get a five-year fixed rate mortgage at 3.29 per cent. That means a monthly payment of $1,758.
Now, let’s see what happens when this borrower makes a 19-per-cent down payment. A smaller down payment means borrowing a bit more, and thus more interest over the life of the mortgage. Also, mortgage insurance will be required at a cost of $10,206. All of this nets out to a monthly payment of $1,743, with the mortgage insurance premium included. How is this possible? Mr. Bricknell said it’s because the high-ratio borrower gets a mortgage rate of 2.84 per cent.
There’s a stress test for high-ratio mortgages as well, but it’s marginally less onerous than it is for conventional mortgages because you only have to be able to handle the Bank of Canada benchmark rate, currently 4.89 per cent. Thus the high-ratio mortgage in Mr. Bricknell’s example would have a qualifying rate of 4.89 per cent and the conventional mortgage would be at 5.29 per cent (the client’s actual rate plus two percentage points).
The two mortgages outlined by Mr. Bricknell are pretty much a wash right now when compared on cost. Looking ahead, the high-ratio mortgage offers the potential for lower interest rates when it’s time to renew your mortgage. This assumes that lenders will continue to look more favourably at high-ratio mortgages.
Mortgage industry data show that even as house prices increased from the early 2000s through the past few years, the percentage of people making down payments of less than 20 per cent has declined to 39 per cent from 54 per cent. If the rationale for this is to save money and be financially prudent, a rethink is required. Depending on the rates offered by your lender, a slightly smaller down payment could save you money in the long run.
Today, the Office of the Superintendent of Financial Institutions (OSFI) introduced new rules on mortgage lending to take effect next year.
OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages (mortgage consumers with down payments 20% or greater than their home price).
The rules now require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada (presently 4.89%) or 200 basis points above the mortgage holder’s contractual mortgage rate. “The main effect will be felt by first-time buyers,” says James Laird, co-founder of Ratehub.ca. “No matter how much money they put down as a down payment, they will have to pass the stress test.” The effect of the changes will be huge, resulting in a 20% decrease in affordability, meaning a first-time homebuyer will be able to buy 20% less house, explains Laird.
MoneySense asked Ratehub.ca to run the numbers on two likely scenarios and find out what it would mean for a family’s bottom line. Here’s what they found:
SCENARIO 1: Bank of Canada five-year benchmark qualifying rate
In this case, the family’s mortgage rate, plus 200 basis points, is less than the Bank of Canada five-year benchmark of 4.89%.
According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 2.83% amortized over 25 years can currently afford a home worth $726,939.
Under new rules, they need to qualify at 4.89% They can now afford $570,970 A difference of $155,969 (less 21.45%)
In this case, the family’s mortgage rate, plus 200 basis points, is greater than the Bank of Canada five-year benchmark of 4.89%.
According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 3.09% amortized over 25 years can currently afford a home worth $706,692.
Under new rules, they need to qualify at 5.09% They can now afford $559,896 A difference of $146,796 (less 20.77%)
If a first-time homebuyer doesn’t pass the new stress test, they have three options, says Laird. “They can either put down more money on their down payment to pass the stress test, they can decide not to purchase the home, or they can add a co-signer onto the loan that has income as well,” says Laird. The stress test will be done at the time of refinancing as well, with one exception. “If on renewal you stay with your existing lender, then you don’t have to pass the stress test again,” says Laird. “However, if you change lenders at mortgage renewal time, you may have to pass the stress test but it’s not crystal clear now if this will be the case for those switching mortgage lenders.”
So if you’re a first-time homebuyer, it may mean renting a little longer and waiting for your income to go up before you’re able to buy your first home. Alternatively, some first-time buyers will buy less—maybe a condo instead of a pricier detached home. Or, the new buyers may opt to get a co-signer to qualify under the new rules.
But whatever you do, if you’re a first-time buyer, make sure you understand what you qualify for using the new regulatory rules, and get a pre-approved mortgage before you start house-hunting. “This shouldn’t be something that shocks you partway through the home-buying process,” says Laird.
And finally, do your own research and run the numbers on your own family’s income numbers. You can use Ratehub.ca’s free online mortgage affordability calculator to calculate the impact of the mortgage stress test on your home affordability.
TORONTO – Sarah Blakely recalls feeling some trepidation when she and her husband shelled out more than $300,000 for a modest 1 1/2-storey house in a less-desirable part of Toronto.
Seven years later, they found themselves on the right side of a hot housing market, with values tripling in a ‘hood suddenly considered up-and-coming for young families seeking detached homes.
They recently sold that renovated three-bedroom for more than $1 million and now expect to live mortgage-free in a four-bedroom purchase in their hometown of Ottawa.
The 34-year-old says it made sense to cash out of a city that was draining their finances, energy and family time.
“My husband and I saw an opportunity to take advantage of the recent gains in real estate and to move to a less expensive city to live mortgage-free, support our savings for retirement and also to be closer to family,” says Blakely, whose new home has nearly twice the square footage.
And they may have taken action at just the right time.
Blakely’s real estate agent Josie Stern says the market appears to be cooling, and doubts Blakely could fetch that same jackpot sale today.
“A little bit of air has been let out of the bubble,” she says.
Many buyers and sellers are waiting to see what will come of Tuesday’s scheduled meeting between Finance Minister Bill Morneau, Ontario Finance Minister Charles Sousa and Toronto Mayor John Tory, who are expected to discuss ways to rein in Toronto’s hot housing market.
Meanwhile, the Ontario government is promising to announce affordability measures soon.
Stern says some buyers are delaying their purchase in anticipation of possible fixes.
“Buyers have been in such a stressful situation for so long that now they think somebody is going to save them and they’re waiting,” says Stern. “They’ve dug their heels in, they’re tired of competition and then there’s those that are still proceeding, but there’s been quite a big pullback from buyers.”
Sellers who’ve bought new homes are rushing to list their old property, she adds, but many are not getting the high bids seen a month ago.
The Toronto market has been astonishing, with the average sale in the Greater Toronto Area skyrocketing last month to $916,567. That’s up 33.2 per cent from a year ago.
With strong demand and limited supply, it wasn’t uncommon for bidding wars to result in sales hundreds of thousands of dollars above asking. And a lot of those sellers took those dollars out of the Greater Toronto Area where they can get more acreage, less congestion and still pocket a fair bit of cash.
“We’re finding that a lot of people are leaving the city,” says Stern, who estimates that about a third of her 35 sales this year involved sellers either downsizing to condos or moving to more affordable markets.
“It’s empty-nesters, it’s (couples with) babies, it’s all kinds of people that are doing this.”
Even with a new uncertainty in the air, it’s still a seller’s market, she adds.
One of her biggest sales was a $2-million listing that went $575,000 over asking in February. The sellers moved to the commuter city of Burlington, Ont.
They’re joining buyers priced out of the Toronto market who have gone looking for cheaper housing in smaller communities across the Golden Horseshoe, spurring other sales spikes in the region – Hamilton-Burlington homes jumped 22.6 per cent during the first two months of 2017 compared to a year earlier.
Real estate agent Wanda Graves of Eastern Valley Real Estate says it’s sparked more inquiries from Ontario, Manitoba, Alberta and B.C. house hunters suddenly hip to Eastern Canada’s charms.
Nova Scotia sellers are taking notice, and are marketing to out-of-province buyers now considered increasingly likely to make an offer.
“They know that there are buyers out there and now it’s, ‘How do we reach them?”’ says Graves.
Before selling for $455,000, the mansion in Newport Landing, N.S., drew more than one million views on her company’s website and 36,000 shares on Facebook.
It’s a story Vancouver real estate agent Melissa Wu knows well.
Years of record-setting sales saw Vancouver homeowners cash out for smaller markets with more space.
But that changed after the B.C. government introduced a 15 per cent foreign buyers’ tax last summer, which Wu says especially soured interest in west Vancouver luxury homes priced at more than $4 million.
Detached homes in the $1-million to $2-million range in east Vancouver are doing well and still notching close to record highs, says Wu.
Her recent sales included a $2-million get for a century-old home owned by a retired couple. Their plan is to downsize to an older condo costing less than $500,000. The rest of the proceeds will go to their kids and retirement fund.
She says the sale was a record high for the neighbourhood, but it took an agonizing three weeks to secure – longer than it would have last year, she says.
She advises Toronto homeowners thinking of selling to take advantage while they can.
“There’s always a shift coming in,” she says of this hot market. “Sell before it corrects.”
Stern would like to see a crackdown on real estate speculators in Toronto, citing one buyer who bought 15 properties in the last two years.
And she cautions those tempted to cash out that there’s always a risk the market won’t co-operate.
“People have been asking themselves that question since the year 2000: Should I sell? Should I cash out?
“And there have been people who have cashed out and have regretted it because they’ve seen what the market has (done) – they’ve never been able to rebuy the houses that they’ve sold.”
Traversing the thorny issue of mortgages amidst divorce proceedings can prove to be problematic, and a Red Deer-based agent recently offered insights on how to handle the situation.
In a contribution for The Red Deer Express, Dominion Lending Centres – Regional Mortgage Group broker Jean-Guy Turcotte noted that it is possible to purchase a matrimonial home for up to 95 per cent of its value, should one desire to do so.
“[It] feels more like a refinance, but technically one spouse is buying out the other,” Turcotte explained. “The funds can be used to pay off the amount owing to your spouse and debts listed in the separation agreement – keep in mind not all lenders allow payouts and rules are changing on us all the time, so time can be of the essence.”
To qualify for the Spousal Buyout Program offered by banks, lenders, and mortgage insurers, the party who wants to purchase the matrimonial home should first complete a Legal Separation Agreement, “with the bare minimum that a lawyer provides each party with their own Independent Legal Advice (ILA).”
“[Both lawyers] do need to sign off to ensure that your rights are protected and to determine what liabilities are remaining from each other, if any (i.e., child support, alimony, etc.),” Turcotte said. “Ensure you talk about all the debts you jointly have so they can be separated appropriately and can be managed inside the separation agreement.”
An appraisal of the property’s value will also have to be conducted, as “[there] can be large value differences between what you think it’s worth and what it’s really worth.”
Creating a purchase agreement should follow, which can be done quite readily with the help of lawyers. Tapping the assistance of a mortgage professional to help with the other qualifying criteria would also benefit both parties as the process would be expedited.