So... assessments. Homeowners around these parts have just gotten their property assessments last week. This governement issue document  is mainly about what they think your home is worth and from this number (combined with a slew of other factors mainly about which services are available) they calculate how much property tax will be owed on that property this year.

In my line of work, the assessed value of a property is fairly frequently brought up by Sellers and Buyers alike to justify what they think a given property is worth. It is understandable that the layman would rely on such numbers for their conclusions, but when scrutinized from the perspective of actual market value these numbers do not hold up. But don't worry, they are typically on the low side... but not always.

In May of 2009, I wrote this post but as it is something that continues to come up, I will write about it once again. I will borrow from the post but I will use the latest available information to show that my position is not just something I'm pulling out of a hat.

Before attacking the accuracy of assessed value I want to point out that I think it is understandable why the taxing system works the way it does. I am not trying to blame anyone, I just want to clear up this all too common misconception as it affects people's decisions regarding real estate. This is, of course hte most valuable thing most of us ever own so it's pretty important to have a clear understanding of it.

Quite often people will tell me the assessed value (for taxes) of their property, or they will ask about the assessed value of a property on the market that they have some interest in. My answer is that although the prices are generally in the right ballpark, that they are not usually very accurate and in many cases way off the mark. Not everyone takes me for my word, and thanks to my university years I am in the habit of being able to back up what I claim. So when someone challenged me on it one day I pulled up a large sample of recently sold properties and compared the sale prices to the assessed values and created an average by use of a computer program Realtors have access to.

I just did this again for the purpose of this post. Read on if you are skeptical, curious or the sort who likes stats and numbers.

According to the program us Realtors use known as “Interface”, there were 126 properties that sold in the Nanaimo area between January 1st 2011 and Janurary 31st 2011.  I chose these numbers from a year ago as the new assessment values have not been entered into our database as of yet. These numbers do however show the same pattern as when I did the same thing in May of 2009. There were 3 properties that didn’t have assessed values attached to them so they were removed from the list. I averaged the numbers on all of these listings and here is the pertinent info I found:

Average List Price:               $328,356

Average Sale Price:              $319,168

Average Assessed Value:      $308,805

Of course, we know that the people making these assessments have not been inside the properties so they are only guessing what the places are like inside. As I understand it, hey have a budget that needs to be payed for and they have to find ways to justify the way they collect it. Now before you start complaining, think of how much more it would cost to run the system if they went to each home and made sure it was totally accurate. I don’t know about you, but I’m glad they don’t. Again, I’m not saying the system needs to change, I just think people should know what these assessments are NOT for: pricing a property that’s to be sold.

I might be labouring the point, but here are some of the more notable differences I found in that list of recently sold properties. You’ll notice that they tend to under value the properties rather than overvalue.

Sold Price           Assessed Value

$299,900           $120,000

$198,000           $146,900

$145,000           $176,600

$219,900           $177,000

$130,000          $178,300

$239,900           $187,200

$257,250           $343,000

$305,000          $351,000

$352,900           $299,000

$325,000           $280,100

$175,000           $260,000

$320,000           $205,600

So, if you want a better idea of what your home is worth just contact me. It will cost you nothing but a conversation with me at your place. This is a big part of what I do for a living.

Ryan Coffey

Here is an article I found in Canada Realty News.  Although the concepts are quite simple, I do meet a lot new clients who are still locked in the notion that a mortgage has to come from a bank. This article does a little to explain that there are other options.

Ryan Coffey

Mortgage Brokers vs. Banks

Do you know that over 30% of Canadians now source their home loans through a mortgage broker. Why? Because it can save time and possibly money.

A mortgage broker act as an intermediary between lenders and customers who are looking to finance their home. One visit to a reputable mortgage broker will make the process much easier and could save you thousands of dollars. They look after you through the entire home loan process by providing information and documentation advice, sourcing suitable home loan choices, an

d submitting applications.

Brokers have access to information for all kinds of loans from banks. They don’t work for the bank and can give you the most cost-saving deal that they can find in the market. Brokers are expected to be transparent and take care of your best interests.

Here are a few advantages of using a professional mortgage broker:

Access to a wider range of products
A mortgage broker has relationships with several financial institutions that are competing to get your mortgage business. These institutions continuously compete with rate, product and service promotions, hoping to win your business. Working with a mortgage broker will provide you with access to some of the best deals and most innovative mortgage products you can obtain on the mortgage market.

Help you get the best deal possible
Mortgage brokers shop the market for the best mortgage rate for you. They usually have access to so-called “wholesale” mortgage rates, which are significantly lower than the posted rates offered by the banks. In most cases, your mortgage broker has the ability to find the best rate on the market and still place your mortgage with the lender or bank of your choice.

Fewer complications
The many forms and other data that are required for a loan application can be quite complicated, A seasoned mortgage professional will have years of experience that will help him or her navigate the tricky loan application and avoid complications for you.

Save you time
The most valuable of all commodities, a broker can save you time and has the experience to make sure you get the best package for your individual needs.

Mortgage broker services are free
Mortgage brokers are usually paid for by the lending institution where the mortgage is placed through a so-called “finder’s fee”. In other words, mortgage broker services are free to you. There are cases, however, where institutions do not pay a finder’s fee to the broker, in which case the broker will charge the client directly.

Here is something I found in The Globe and Mail. I thought it was well written and worth sharing. It pretty much echoes much of what I have previously talked about on this blog, but it covers a wide variety of things in one article. It’s a bit longer than what I usually post here, but it’s the sort of info that has the potential to make a huge positive impact in your life. The original post is here.

Ryan Coffey

How to find a home loan on terms that work for you

By Rachel Mendleson
Special to Globe and Mail Update

In this excerpt from the MoneySense Guide to Buying and Selling Your Home [http://moneysense.ca/myhouse], a book in the “Best of MoneySense” series, writer Rachel Mendleson cuts through the jargon and explains how to find the mortgage that’s right for you.

Lauren Chender likes to shop around. So when she and her husband were trying to figure out what kind of mortgage to get on their first home, she took to the Internet and began comparing the interest rates posted on various bank websites. But as the Toronto resident did more research, she discovered that it might be possible to get even lower rates through an independent mortgage broker, or by speaking with a financial institution’s mortgage department directly. Even when she found a good rate, she discovered that the tough decisions just kept coming. Should she go with a variable or fixed rate? What about the amortization period? “It’s overwhelming,” says Chender, who wound up using a broker to secure the mortgage on her semi-detached Victorian. “There was a lot to know.”

Chender is hardly alone. Despite the fact that how you finance your home will have a significant impact on everything from what you can afford to how long you’ll be in debt, the complexity of mortgages can make it difficult to arrive at an informed decision. But by understanding what’s at stake, you can cut through the jargon and weigh the options to find a mortgage that’s right for you.

Perhaps the most important thing to consider when thinking about how to finance your home is what taking out a mortgage really means. As Rob McLister, editor of Canadian Mortgage Trends, explains, “Mortgages are definitely among the cheapest money you can borrow, simply because they are secured by quality assets.” But they are also a tremendous responsibility, and something that can greatly increase what you end up paying for your home. While an interest rate of 4 per cent on a $200,000 loan may not seem like a lot today, that changes dramatically when you consider that repayment will likely be spread over decades.

With that in mind, the first step to choosing the right mortgage is identifying the lender whose terms work best for you. While prospective home buyers often begin with their financial institution, your search shouldn’t stop there. As Sarah Daniels, a Vancouver-area realtor, points out, “The lenders are in competition for you.” She advises using a mortgage broker, who will “shop you around” to all the lenders, free of charge. (Mortgage brokers are paid a finder’s fee by the lender. There’s no charge to the home buyer for a pre-approval and no obligation.) And whether you opt for a broker or not, a second opinion never hurts. “It always helps to get one or two other quotes to keep everyone honest,” says McLister.

It’s a good idea to get pre-approved for a mortgage before you start house hunting. That way, you can get a sense of your budget, and avoid falling in love with a property you can’t afford. To give you a pre-approval, lenders factor in your income, type of job and credit history. They also take into account how much you have to put toward a down payment, and any other debts you may have. The amount you are pre-approved for is the upper limit of what the lender will allow you to borrow. Add that to your down payment, and you’ve got the total amount you have to put toward a home. If you have bad credit, are self-employed or want to borrow more than what a bank or credit union will approve, you may want to consider using an alternative lender. But while second- or third-tier lenders (examples include Equitable Trust and Aaron Acceptance Corp.) have looser requirements, the mortgages they issue come with higher interest rates (sometimes much higher), so they are not generally recommended for first-time buyers.

The specifics of the mortgage you select will depend on what makes the most financial sense, as well as your personal preference. One important decision is whether to go with a fixed rate of interest, which is locked in for the entire term of the mortgage (usually five years), or a variable rate, which can change depending on market forces. In today’s low interest rate environment, “variable rates are initially cheaper upfront,” says McLister. The risk is that they could rise far above the fixed rate later in the term, increasing your monthly payments. You’ll also have to set the amortization period, which is the theoretical length of time you have to pay off your mortgage in full, assuming you never move. Bear in mind that while a longer amortization (as of March 2011, the maximum for an insured mortgage in Canada is 30 years) may give you a bigger mortgage or lower monthly payments, it’ll also mean paying more interest in the long run. If you want the flexibility to make additional lump-sum payments outside of your scheduled monthly (or bimonthly) payments, this must be stipulated in your mortgage. And beware that if you break your mortgage before the term is up, you’ll have to pay a penalty-usually three months’ interest for variable-rate mortgages, more for fixed-rate mortgages. (This doesn’t apply for open mortgages, which are mainly for homeowners who plan to sell within a few months.) Mortgage insurance is one of the extra costs to buying a home that can be easy to overlook. But if you are putting less than 20 per cent down, your lender will require that you purchase an insurance policy to protect them in case you don’t hold up your end of the deal. Calculated on a percentage of the total mortgage, your insurance premium will depend on how well qualified a borrower you are, and can amount to thousands of dollars. As Daniels observes in her book, for a $450,000 mortgage, even the most qualified borrower who gets the lowest rate (which she sets at 1.5 per cent) would be on the hook for an additional $6,750 in insurance.

If you’re lucky, your family may offer to help with financing. But it’s important to understand how the contribution factors in. A family gift is considered a traditional source of down payment, which is ideal. It will increase the size of the mortgage you can get or allow you to pay for a greater proportion of your home up front. But if the family help is a loan, your down payment is considered to be non-traditional, which, if you’re putting down less than 20 per cent, will result in slightly higher insurance premiums.

When your mortgage is up for renewal, it may be tempting to simply sign on the dotted line, and accept whatever package your lender offers you. However, not shopping around can cost you. “The bank relies on people just to sign the renewal agreement at posted rates. As soon as you do that, you’ve lost thousands of dollars by not negotiating,” advises Vancouver mortgage broker Alma Pasic. Don’t be surprised if you need a refresher course. “It’s like you’re doing it for the first time, because everything has changed,” she says. “It’s hard to keep up-even for us.” RACHEL MENDLESON Sidebar: Cost Cutter If you can live with the uncertainty, a variable-rate mortgage has historically saved home buyers money over a term of five years or more. A 2008 study led by Moshe Milevsky, a professor at York University’s Schulich School of Business, found that variable rates would have saved Canadian borrowers money on a five-year term more than 77 per cent of the time between 1950 and 2007, and chopped a year off the amortization period. By taking on a more predictable, fixed-rate mortgage, you are offloading risk to the lender, and that comes at a price. You might sleep easier, though.

Excerpted from MoneySense Guide to Buying and Selling Your Home (Rogers Publishing Limited, $9.95). The book is available at bookstores and newsstands or online at http://moneysense.ca/myhouse

I don’t even ask what amount they’ve been approved for. All I need to know is that they can get a mortgage for the sort of place we’re looking at. The rest, as far as I’m concerned, it between them, their Mortgage Broker and the Lender who is supplying the funds. Ultimately, this all boils down to affordability for that buyer.

You see, if a buyer goes out and makes an offer on a place and then it turns out they can’t afford it they have wasted a lot of time, stress and probably some money (on things like inspections or perhaps trips to the town they are moving to) before finding out it was for nothing. This is why I ask this question so early on. It saves everyone a lot of headache.

Even if you don’t qualify for a mortgage on the kind of place you had in mind, that conversation with the mortgage broker is still a positive thing. Why? Because now you have a plan. You will know what you need to save in order to get what you had in mind, or better still, you will know what you can afford now. If you’re not in a postiion to afford anything yet, at least now you know what you need to do. All positive steps.

If you come to me with a modest budget, I’ll tell you what your options are. I’m a big believer in leveraging your assests to make your financial life down the road easier. I’ll throw some ideas at you which you may not have thought of on how to do that. That said, an awful lot of people prefer places that are move in ready and cozy over the money maker. Either way, once you’ve worked out your finances, I can tell you what your options are before honing in on a section of the market to take a close look at and choose from. Using market knowledge to get the Buyer the best fit for them is a big part of what us Realtors do.

And this is in short, how you build the framework of your plan with helps from professionals. It costs you nothing to get the plan together. It only costs you money to go through with it.

Ryan Coffey

Ryan Coffey

The Finance Minister of Canada has made a couple changes to the way banks can lend mortgage money in order to slow down some of the consumer spending we as Canadians love to indulge in. The average house hold credit debt in Canada is nearly $30,000 .00 per home which shows we are not shy when getting into debt for the things we want is a possibility. I believe the new lending practices are a means by which to make consumers choose between home ownership or keeping up with the neighbours on credit card spending because, with the new rules in regard to mortgages, payments will be higher and potential investment capital will be lower.

Rule #1: Refinancing amounts will drop from 90% Loan to Value to 85% Loan to value which means that when the time comes that you would like to use your equity for investments/pleasure there will be less capital to use potentially putting some people in a tough spot.(For those of you unaware how Loan to Value ratios work lets say I wanted to borrow $1000 at a 90% LTV the bank would give me $900 and I would have to come up with the remaining $100 myself)

Rule #2: Amortization periods will be decreased from 35 years to 30 years thus shorting the amount of time given to pay off the loan as well as increasing monthly payments .

These rules which are to be law as of March 18 2011 are intended to tighten the reigns on potential new home owners and make them think twice before going and buying an 60 inch tv or other frivolous items. The government wants to keep our mortgage default as low as possible thus making Canada a respected player in the world economy based on our excellent lending and banking practices. In short if a new home is on your horizon an indepth look at your personal finance and plans for the future is completely necessary.

The following is from an issue of Canada Realty News released a few months ago. I have edited it sllightly by removing a couple of sentences though.

Ryan Coffey

Choosing the right mortgage is as important a decision as choosing the right home. Getting the best deal on a mortgage loan can minimize your monthly payments and maximize the value of the investment you have made in your home. There are many different types of mortgage loans available to home buyers today, and it is important to understand the differences, advantages and disadvantages of each type of mortgage loan.

There are several elements of a loan that should be analyzed. While one of these elements may suggest one type of loan, another may call for a different type. You must weigh each ingredient separately and collectively. You will find that your answers to the questions below will ultimately determine the type of mortgage that best fits your needs.

How much risk are you willing to accept?
If you are the type of buyer that needs to know exactly what you will be paying each month for the term of the mortgage, a fixed rate mortgage will fulfill this need. The fixed rate loan, however, will also net a higher interest rate. If you are willing to take some risk of fluctuations in the interest rate, you may be able to receive a lower interest rate.

How much can you afford?
Most lenders set lending ratios that ensure mortgage payments never exceeds more than a third of a person’s income. However, this may still be too much of a stretch for you, especially if your have other expenses, potential future income changes or simply a lifestyle to uphold. Once you find a home you love, start crunching numbers. Can you really afford the mortgage payments, and are you willing to cut your expenses and save every month? Make sure you select a mortgage plan with a monthly payment that is within your means.

How much cash do you have available for upfront costs?
If you have the resources, you may want to make a larger down payment to lower your monthly payment. By keeping a higher monthly payment however, you might be able to shorten the term of the loan to a 15-year loan in order to pay it off quicker.

Keep in mind that you’ll have closing costs and fees to pay in addition to your down payment. If you don’t have much cash saved for your upfront costs, don’t despair. You may need to accept a higher monthly payment or even lower your monthly obligation by choosing an adjustable rate mortgage.

In addition to choosing a type of loan, you must also consider which lender to use. Once again, several factors will influence your decision.

Annual Percentage Rate
This is most likely the best way to make an “apples-to-apples” comparison of lenders. The Annual Percentage Rate reflects the cost of credit on a yearly rate and includes any points and fees in addition to the interest rate.

Interest Rate
Find out the rate the lender will commit and how long the lender will guarantee it. Get any commitments in writing. As with any transaction, if it isn’t in writing it doesn’t exist.

Points and Fees
These factors will vary greatly. Look out for hidden fees. Make sure the lenders disclose all fees; ask what they charge and what is included and what is not.

Loan Approval
Both approval and funding time should be considered. You don’t want to lose a prospective home because your lender takes weeks to fund your loan. A lender should be able to fund the loan within ten days.

Ryan Coffey

Home ownership is the cornerstone of financial independence and security. It may seem a daunting prospect to younger people or first-time buyers, but it is achievable.

Like many would-be homeowners, you may be wondering how you can possibly afford to buy your first home. Even if you think you can’t afford a home, these saving tips and financing strategies can take you there sooner than you think and turn you from a renter into an owner.

Develop a culture of saving
The first priority for you should be to develop a culture of saving. This not only helps you in budgeting and planning for the future, but also to satisfy banks and other lending institutions that you have a clear commitment to save.

Start an automatic saving plan
Saving for a down payment can be a financial challenge but it’s a step forward to owning your dream home. Make saving automatic by setting up an automatic savings plan at your bank to regularly move a specific amount of money directly from your chequing account to a savings account. You’ll be surprised at how much you can save and how quickly the “pay yourself first” approach adds up.

Borrow from yourself
The federal government’s Home Buyer’s Plan (HBP) lets you borrow from your Registered Retirement Savings Plan (RRSP) to help purchase your first home. You and your partner can each withdraw up to $20,000, provided it’s not locked-in and the money has been in the RRSP for at least 90 days.  You have to repay the loan in installments over the next 15 years to avoid a tax hit.

Take a holiday from tax
If you open a new Tax-Free Savings Account (TFSA), you won’t pay any tax on earnings, which will help you compound your savings. You can contribute up to $5,000 a year to a TFSA, and save for anything you like, tax-free.

Review your mortgage options
Once you make the decision to purchase a property, the next choice is the type of loan to suit your budget. The two most common types of loans are the variable interest rate loan and the fixed interest rate loan.

You can now choose to pay back your mortgage over 25 or 30 years, instead of the traditional 20-year amortization period. This means you will pay more interest over the long term, but you can reduce monthly payments to get into your starter home. You can always change this later, once your income rises and you can pay your mortgage down faster.

Get into a starter house
Try to be as flexible as possible when choosing your first home. Unless you are status conscious, your first home doesn’t necessarily have to be your dream home. You could settle for a starter home, which you can afford with a small down payment and easy mortgage installments. There are plenty of lower-priced houses out there in need of repair, with some “Do-It-Yourself” projects where you can add more value to the house. Just be careful not to buy a place where the cost of repairs will eat up any profits you might make when you sell.

In just a few years you will build enough equity in your starter home to make it easier for you to sell and move into to your dream home.

Buying your first home is an exciting process. After all, your home could be the largest asset you’ll ever own. Being able to finance most of its cost will take a load off your back in the future.

Having said that, the money to run the province has to come from somewhere and not being a political science major or having a background in macro economics it’s hard for me to say what they would replace this tax with. I suppose this is why I have kept thinking about this article.

I am still grumpy about the HST though.

Ryan Coffey

Time to axe transfer tax

By Darrell Bellaart, The Daily NewsAugust 11, 2010

It’s time the provincial government started taking a hard look at eradicating the property transfer tax.

The B.C. Real Estate Association is keeping up its push to axe the PTT and has been busy arranging meetings with senior members of government for this September.

Now that the province has followed Ontario’s lead by harmonizing provincial sales taxes with their federal counterpart, it takes away one of the province’s biggest arguments for keeping the tax in place.

Provincial officials wonder how they would replace the millions of dollars the PTT brings in. In the 2002-03 tax year, it added

$400 million to provincial coffers and that amount grew by about $100 million each year afterward, reaching a peak of more than

$1 billion before the real estate market retreated in 2008.

Anyone who has bought a house in the past decade will be familiar with the shocking experience on closing day of sitting at the lawyer’s office and learning that the price of the transaction is several thousand dollars more than expected.

The reason is that in B.C. the first $200,000 is taxed at 1% but anything above that amount is taxed at 2%. The total is tallied up and inserted as a line item on closing day.

For the average Nanaimo homebuyer closing the deal on a $350,000 property, they can expect an additional $5,000 in taxes, which most people will likely add to their mortgage.

Add that to the legal fees, real-estate commissions, assessment and inspection costs and annual property taxes and insurance costs and it contributes considerably to the total the average person shells out each month to keep a roof over their head.

B.C. is not the only province with property-transfer taxes. Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island also use them, but in a recent analysis done for BCREA by economist Stanley W. Hamilton, he said the way B.C. applies the tax makes it “the highest property-transfer tax in Canada,” outside metropolitan Toronto, where a separate municipal tax jacks it up even higher.

Taxation pays for important services like health care and education and social services for the poor and needy.

But a shelter tax has unexpected social costs. It affects rental rates and that means it affects everyone, especially those people surviving on welfare and pensions who suddenly can no longer afford renting.

Many people now live in alleys, under bridges and in abandoned buildings. Suddenly, the province has a homelessness problem, requiring even more tax money to solve.

Taxes alone didn’t drive shelter costs up, but it did play a role.

Nanaimo realtor Jim Stewart was the chairman of the association’s committee fighting to axe the tax for more than 15 years. He says the government “does a terrible job of dealing with issues like affordable housing.”

He’s right. When the government gets involved, projects become more expensive due partly to standards unknown elsewhere in the marketplace. It drove the unit costs of a housing project on Meredith Road through the roof.

When former premier Bill Vander Zalm introduced the PTT in 1988, he said it would be a rich-man’s tax since it only applied to properties beyond the reach of the average worker. Twenty years later, it affects virtually all homes sold in the province.

The BCREA calls for a gradual phase-out of the tax, starting with eliminating the 1% portion applicable on the first $200,000. A year later, it proposes removing it on homes below $500,000, before abolishing it completely.

It’s time to axe the PTT.

This is a (mostly) serious blog about real estate in the Nanaimo area. That doesn’t mean that my dissemination of information has to be all dry and dull.

Here is a video where Seth Green actually makes some really important points about starter homes, ultimately he’s talking about keeping it within your means. As I’ve said before, this is the number one thing with buying real estate as it will go up in the long term, but in the short term you MUST be able to pay for it.

By the way, houses like the one he’s showing off (small but pretty new or at least recently and thoroughly updated) would probably be somewhere between $260k and $280k here in Nanaimo depending on location. But if it were me, I’d go for the place that’s a bit more and has a suite that I can rent out and have tenants pay a good chunk of the mortgage for me. One day, when I am in a better financial position I’ll stop renting out the suite and expand my own living area to include the whole house.

Enjoy.

Ryan Coffey

Slow down. Relax. None of this is true.

It’s a grossly exaggerated and twisted impression of what is actually going on.

If these things were true it would be a huge deal for real estate markets and prices would probably plummet. That’s not what’s happening because the changes aren’t nearly as severe as all that. I have written about this twice on my blog before. Once when the changes were first announced and once I was able to wrap my head around it better and I found an article written by someone with more knowledge on lending practices than I. I highly recommend that you read that second one. It will put you at ease once you realize that there’s no real problem for most people.

If I were you, I’d keep an eye on what the mortgage rates are doing and get pre approved as soon as you can. The Mortgage Broker can almost always hold those rates for 90-120 days and as rates are starting to creep up, you might as well do it now if you’re planning on buying soon.
Now read that earlier article. In fact, while you’re at it you might as well have a look at my year end “best of” lists like this one and this one. They’ll basically make you understand that although real estate is very complicated, the essential strategies are simple. For navigating the details… that’s why you have Realtors like me.

Ryan Coffey