Is Buying as Affordable as Renting?

When purchasing a home, could your payments work out to be similar to renting? It depends. If you could build equity by buying a home that is similar to the one you are renting, at a comparable ongoing cost, it makes sense to buy. Is this an accurate statement, or is it a fanciful claim made by real estate and development operators designed to encourage buying?

Let's investigate, by creating some hypothetical scenarios, using common financing arrangements with local and current prices. For simplicity, we will leave out additional expenses such as scheduled roof repairs, maintenance fees, real estate purchase fees and government taxes.

This essay is an examination of possible financing options, and is not intended to be a substitute for professional financial advice. Each transaction is unique, so you will have to factor in the costs particular to your circumstance.

What to Consider
You are trying to get your foot in the door of a rising market, and intend to buy in an outlying area, so you are probably looking at condominiums. For our example, let's say you are in the market for a 1 bedroom or a 1 bedroom and den. Looking at current prices, this could cost from under $275,000 to over $400,000. Let's examine the outcomes of using different term periods, types and payment schedules. To create consistency, the home in all our scenarios is priced at $300,000, you make a 25% payment and the amortization period is 25 years on the remaining $240,000 mortgage. We wanted to show two different figures - the first is simply what you will be paying every month in scheduled payments. The second is what you will pay in the long term when you add all associated costs (house price plus the amortized interest) and then divide by the months of the amortization period. We used a major national lending institution's online mortgage calculator.

Scenario A - Closed Fixed Mortgage:

1. Monthly Payments on a 5 year term:
   A common financing arrangement is a closed fixed-rate mortgage term of 5 years. You can currently get a rate of 4.19% for this arrangement. Your monthly payments will be about $1290.Amortization interest will be just under $146,200 over the entire period. Adding that to the principle, your total expenses would average out to nearly $1490 per month over 25 years.


2. Accelerated weekly payments on a 5 year term:
   If you had the same arrangement, but scheduled an accelerated weekly payment, your payments would equal $1,284 a month. This is comparable to the monthly plan, but you would pay it down 3 years faster and save $22,000 on the amortized interest.Over time, your expenses would average out so that you would be paying around $1620 per month for just less than 23 years.

Scenario B - Variable Mortgage:

You could take out a variable term mortgage rate, taking advantage of 2009's low rates, but take care to allow for the eventuality that these rates could go higher. The bank we looked at only offered a 5 year term for this option, to be renegotiated. With an accelerated weekly payment at the current variable rate of 2.55%, your payments will amount to an amazing $1080/month.Total monthly expenses, including the entire cost of the home, plus an amortization interest cost of about $84,820 over the term, will be $1431 over 22.5 years.

The Cost of Renting in Vancouver
According to the Canada Mortgage and Housing Corporation's (CMHC) April 2009 survey (Download the PDF to read the entire article), Vancouver's average rent is $1,154 per month, with the most expensive apartments averaging $1,435/month. The article also indicates a steady 2.7% increase from April 2008 to April 2009. If this trend continues, buying at current lending rates will become even more economical over time.

Conclusions
In all the fixed term scenarios, the official payment schedules cost between 10-20% more than CMHC's reported average city rent, while the variable rate was 6% less. In all the scenarios, our calculated average monthly output, which include all costs over time, ranged from 19%-35% more than renting. The bigger the down payment and more frequent the payment schedule was, the less your monthly output. If you have the down payment and can afford a little more than what you are paying in rent already, than owning is within your grasp. Your ECO Realtor can help you find a home that fits your means, and take advantage of current low rates. Your representative can recommend you to a good mortgage broker/counselor.

Beating the Competition Multiple Offer Situations

With the resurgence of buyer activity and escalated pricing in Vancouver's Real Estate market, conditions have become more favorable to sellers. A circumstance that frequently occurs in this kind of market is "The Multiple-Offer" situation.

Many home buyers make a bid on a suitable house within their price range, only to find that there are competing offers. It is up to the seller to decide which one will get picked, so if you are certain about a property, you will want to get your offer accepted right away.

If you want to beat the competition's offers, there are a few things you can do:

Get on it Early
The key is timing. Hiring a REALTOR® puts a professional in your corner. Talk to yours about what they may do in various multiple-offer situations, making your preferences known. Your buyer's representative has access to listing information that is not available to the public the moment it becomes available on the professional database, and will be able to act sooner than you could by searching independently.

A good REALTOR® will try to get you into the property for a viewing as early as possible, so that you can submit your offer ahead of the other buyers. If you decide to make an offer, protect yourself by discussing contract clauses with your REALTOR® and including them with your offer. If the inspections pass and your financing is sound, you may remove the subjects and the property is yours.

Offer a Deposit
Offering a deposit lets the seller know you are serious about buying. Only do this if you know you are absolutely certain you want the property. This deposit will be held in trust until subjects are removed. Expect to make a deposit of 5 per cent to 10 per cent of the purchase price.

Backup Offers
You should have a good grasp of timing and circumstances before making a backup offer. Your REALTOR® is able to determine the veracity of other offers, and will be able to decide whether it is a good idea to put in a backup offer. This means that if your competitor's offer falls through, backup offers will be considered in order of offering.

Offer Over the Asking Price
Do this only if market research supports the higher price and you absolutely must have the property. Though overbidding happens a lot in the Vancouver market, you still want to be certain that you can live with this decision.

Get Pre-Approved
Get pre-approved, not pre-qualified. You will want to secure written confirmation from a lending institution guaranteeing financing on the property, and to provide a copy to your REALTOR®. To see what a pre-approval letter should include, download this sample PDF .

Subject Free Offer
Nothing gets a seller's attention quite like an all "cash" and subject free offer. These are risky, and it is not recommended for a buyer to do this without the assistance of a REALTOR® and Real Estate lawyer, who will conduct due diligence to determine any hidden expenses or problems with the property.

Most importantly, you should not submit the offer if there is any aspect of the deal that you do not understand - and have 100% confidence in. If the seller accepts, the buyer must purchase. If the inspector missed a buried oil tank causing the financiers to pull out, the deal must be carried out. Then the lawyers get involved and nobody will be happy.

The Multiple-Offer situation is just one more reason why it is wise for buyers to get professional representation to guide them through their purchase. If you are selling your home, a REALTOR® can help you ascertain which offers are the most beneficial to you, not just in terms of profitability, but financial viability as well.

Buying a Condo - Affordable Option or Money Pit?

With the recent resurgence in property value, many first-time home buyers are considering condominiums as an option.

Condos promise affordability, but do they deliver?
Condominiums appeal to home buyers for their promise of reasonable entry prices, shorter commutes and comfortable urban living. However, they are not always the more affordable option; hidden expenses can make them cost more than they initially appear.

Unseen Costs
Condominiums can become expensive if regular building maintenance costs rise substantially, or if there is a major building repair coming up. Don't let yourself be surprised.

Another financial risk is that if an inflated market corrects prices, the value of condos will typically fall farther than other types of property, and because they do not come with land, they are harder to resell. Buy as large a property as you can afford; this will make reselling easier.

Condos can be more difficult to finance. Lenders are sometimes hesitant to finance a condo sale, because so many speculators are interested in them. Get pre-approved for a mortgage.

Research Prospective Purchases
Here is a list of things you can do to ensure that your condo purchase is worthwhile:

• Reduce risk by enlisting professional help from a Realtor with experience in buying condos. Your representative will know what to look for and what questions to ask. Fortunately, the services of a Realtor won?t cost you anything, as they are paid out of the commission.


• Review the minutes of strata meetings. If there has been a history of maintenance issues or discussion regarding upcoming major repairs, the minutes will usually contain information that will alert you to these conditions.


• Find out what the monthly maintenance fees include and exclude.


• Hire a property lawyer to conduct a financial analysis of the property. Acquire a status certificate for the property, as these have a wealth of information ranging from contingency fund amounts to the status of any current legal actions against the condo corporation. One of your conditions should be that your lawyer reviews the status certificate and condominium documents.


• Determine who makes up most of the occupancy, renters or owners. Owners are preferable in that they are invested in the good maintenance of the property, and will therefore be more interested in keeping the property in good order.


• If you are planning to use this as an investment property, look for a return on investment of at least 10 per cent to ensure that purchasing the property for this purpose is worth your while. You can do this by dividing your annual profit by the funds you invested. Review the strata?s rules on renting, as many of them do not allow renting.

A condominium can be an achievable way to get your foot in the door. Make sure you are prepared for any contingency. If you are considering buying or selling a home eliminate the guesswork by calling your ECO Realtor for professional advice and unprecedented service.

What is a Buyer's Representative?

Sellers, Buyers and Agency Relationship
The buyer's agent is a licensed real estate representative that specializes in representing the buyer in a real estate transaction. This is often a more challenging position that the listing agent, since the buyer is usually assuming debt, and facing greater emotional and financial challenges than the seller. This imbalance underscores the importance for the buyer to have their own representation; the listing representative is a professional negotiator working on behalf of the seller.

Since 1994, home buyers in British Columbia have been able to attain specific agency representation in the real estate transaction process. Before this time, only the seller was entitled to legal representation through their listing representative. It was not well known that the representativeworking on behalf of the buyer was actually working primarlily for the seller.

Before buyer representation was put into effect, most real estate representatives amassed listings as a survival strategy. As a result, buyers did not receive the attention they deserved. It was not uncommon for a representative to show 20 or more homes to clients before a purchase decision was made. It was a long and tedious process that sometimes ended with the buyers losing interest, changing representatives or making uninformed impulse decisions. Fortunately, with the advent of equitable representation, many representatives now act exclusively as buyer representatives, providing home buyers with the option to obtain advocacy.

Does using a Buyer's Agent increase the cost of purchase?
Services as a buyer's representative are offered without charge; they are paid out of the proceeds of the transaction . That means that when the seller gets their money from the sale, they pay the listing agent who will then pay the buyer agent their share.

What to Expect in a Foreclosure Sale

When the borrower of a mortgage defaults on payments and cannot come to an agreement with the grantor, the lending financial institution normally gives 90-120 days notification that they will begin foreclosure proceedings in order to recover monies loaned to the borrower. For this to happen, the mortgage borrower will have typically been in arrears for 90 days.

If the borrower cannot either sell the home or bring the mortgage up to date, the lender will submit an application for the conduct of sale, which, if approved will authorize the property's sale, and it will be listed. Should the property be listed, the agent must respect the borrower's rights by giving adequate notice for showings, refraining from Sunday showings and so on. It can be more of a challenge to view a foreclosed home, so a potential buyer should prepare to be more flexible going in.

Foreclosure listings are offered on an as-is, where-is on the date of possession basis, as the lending institution will not make any representations as to the property's condition. The buyer should also be ready for that possibility that the owner, resentful at the loss of their home, might leave the property in poor repair.

Foreclosure sales pertain only to the property and its fixtures. Chattels appliances, drapes, storage units, and so forth are never in the offer. Arrangements to buy such items can be made separately. Once you have viewed the property and decided that it is suitable and reasonably priced you are ready to make the offer.

Making the offer
The offer, called the contract of purchase and sale is prepared on your behalf by your REALTOR®. The usual subject conditions such as inspection and financing will be present, and there will also be a special clause designating it subject to the approval of the British Columbia Supreme Court.

Once the lending institution receives your offer it will be negotiated until a mutually satisfactory offer is reached. You then carry out due diligence by performing a mortgage appraisal, an inspection, title verification, and so forth. This leaves the only remaining written subject conditions subject to the approval of the British Columbia supreme court. It would now be appropriate to provide a deposit, on bank draft, for a minimum of 5% of the offered price. This would go into your buyer agent's trust fund, and become part of the purchase price.

Waiting for the offer to be approved
Once the lender's representative has the offer, he or she will apply to the court for a date when the offer can be presented for approval. This is typically 10-15 days following the removal of your subject conditions and the payment of your deposit. You and your REALTOR® should be present at the court hearing. Your offer amount will appear along with the courtroom number on a list in the courthouse lobby. This is one way the court fulfills its mandate to protect the borrower by ensuring they receive the highest possible price. This also means that your offer must be close to the fair market value. Even if the lender is willing to accept your bid, the court will not necessarily approve it; as its function is to protect the foreclosed upon owner.

At this time, the listing agent will usually meet with other prospective buyers that might want to bid on the same property. The lender's representative will then gather other offers and get them ready to present to the judge or master. At this time, you may now change your first offer; this is the reason you need to be at the courthouse. There are not always other bidders present but you must be prepared for that contingency.

Once all bids are submitted, the judge or master reviews them, hears the recommendations of the lender's lawyer and decides which offer the court will approve. Usually, the current owners are given a month to vacate the property, but on occasion the courts will permit up to two months.

From here, the deal carries out in the regular way.

Deposits

Do I need to put a deposit down when making an offer on a home?
You are not required place a deposit to secure a place, but it is worth considering, especially in a perennially hot real estate market like Vancouver, BC. Offering a deposit shows the sellers that you are serious about buying the property, and it may just give you the leverage you need to close the deal before someone else has the chance to outbid you. This is particularly important your offering price is the same or lower than the list price. Typically, the higher the deposit you offer is, the better your bargaining position will be.

Is a deposit the same as a down payment?
These are different. The purpose of the deposit is to show your commitment to buying that property. The down payment has more to do with negotiating your mortgage. However, if you do end up buying the property, it can go toward the purchase of the home, payment of commissions or back to the buyer.

Making the Deposit:
If you proceed with the deposit, the money will be put into your brokerage's trust account. In British Columbia, it is legally required to be in the account for 10 business days, meaning that it will not be available for you to be used if you find a home you like better during that time. That is one of the ways that it shows you are serious, so be certain that you really are!

How big should the deposit be?
A standard range for a deposit is usually between 5-10% of the property's selling price. Therefore, $17,500-30,000 would be an appropriate amount to put down on a house priced at $350,000.

The upon final subject removal clause and following due diligence
An effective strategy that real estate representatives use to ensure that the money is released to the sellers only once it is a done deal is to make the payment contingent upon final subject removal. The buyer's lawyer or notary will draft a contract requiring a number of conditions be satisfied through due diligence in order to release the money. For example, these conditions would likely require that the buyer will have seen minutes of strata meetings, an inspection or inspections have been done on the property, all restrictions have been made known to the buyer, financing has been put in place and so forth. These are not escape clauses; they are intended to ensure that there are no dangerous or expensive surprises for the new owners.

Will I lose the deposit if the deal does not go through?
Your deposit will be returned quickly in almost all cases if the deal falls through, but the process by which it is released can vary. In exceptional cases, it can become more complicated. Here are a range of scenarios; they are only guidelines, as legal proceedings can become far more complicated.

Offer rejections and counter-offers
If your offer is rejected, you get your deposit back quickly, that is, at the expiration of the 10 business days it sits in the account. If the seller gives you a counter-offer, and you do not accept, the seller does not have the option to go back to the original offer, which means that you are not obliged to carry on with the deal if you have changed your mind.

The conditions of subject removal clause are not met
If the conditions of the contract are not met, the funds are normally released to you quickly. Though it is extremely rare, sometimes the sellers may refuse to sign off on releasing the money. In this case, the funds must be released by a judge. This is why the subject removal clause is a good strategy. Should the buyers change their mind because of an issue with the property, subject removal essentially documents that in the course of due diligence, an unforeseen problem was divulged, showing that the buyers were acting in good faith. This is why the subject removal clause is a good strategy.

You change your mind
If you change your mind because you saw a better deal, but all the conditions of the contract have been met by the buyer, or if you try to renegotiate in mid-deal, that is a different story. You have entered a legally binding contract, and the seller can take you to court, where the judge can order you to perform the conditions of the offer. You could incur a penalty such as losing your deposit, or you may have to follow through and buy the home.

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