Monday, April 28, 2008

Say we bought last year?

For fun. Let's say we bought a condo last March. We stuck to our "fundamentals" and paid $225,000 for a dumpy place in Central Park. We had to pay 1.5% in closing costs for $1250.

Ms. HHV gave us reason to sell this year in March with her big-time move up in her career. We won't pay rent in one town and mortgage in another, so we sell. We have no interest in being landlords and the building (as do most older buildings in Victoria) has rental restrictions, so that option is out.

The condo market did roughly 11% between March 2007 and March 2008. Our place? We'll, I painted it out at a cost of under $200 and about 4 weekends worth of my time. I got a great deal on some new cabinetry for the kitchen and single bath at a cost of about $4500. My family assisted me with the install at a cost of two dozen beers, a bottle of Crown, and 5 steaks ($200) and another two weekends. I went to The Brick and picked up all new stainless appliances and did the buy now don't pay til 2021 deal (hey, I'm selling my condo, I can't lose can I?) at a cost of $4500 for 5 appliances. I figure I'm getting at least 15% or more because I've made so many improvements.

I've paid out just over $800 in property taxes and another $2400 in condo fees this year. So before we talk about mortgage payments etc, let's add up the total. I'm out of pocket $238,850.

We list the place with a Realtor for $259,900. It's a nice place in a dumpy building in a not-so-nice neighbourhood, but there is still demand for low end properties in town and our Realtor thinks we have the nicest unit on the market within a few blocks of downtown in this price range. We're skeptical, but hey, we made a huge investment and we owe it to ourselves to get as much as the market will bear.

We get an offer after the first week. It's for $252,000. We counter with "yes" but no appliances. They counter with $254,000. We accept the offer. They go get financing. Can't get it. Deal falls through. We're bummed because there's a time pressure with our upcoming move and we were happy that we had an offer so soon.

Another week, another offer. This one from a qualified buyer. They do their homework and read the strata minutes for the past two years. They have trouble with some of the questions unanswered from the engineer's report dated November 2007. They offer $245,000. We counter $254,000. Eventually we settle with $250,000. Deal goes through. And we made only 9%. Not the market 11% and we made improvements. Man, are we jaded now.

Then we start crunching the real numbers. $250,000 less the Realtor's commission is $241,000. We "made" $2150 or approximately 0.9% on our "investment." In a market that reported 11%. Where did it all go?

Thank goodness we didn't throw that $5000 we actually built up in equity payments on the mortgage away on rent eh? We would have made over $11,000 in interest payments.

In that same period we made $9600 in rent payments and will have added $6400 to our $20,000 down payment. I know where I'd rather be right now. Do you?

Wednesday, April 23, 2008

Is the market about to become ugly?

Here's a quick recap of what we're seeing:
  • record inventory
  • lowest monthly sales numbers since 2001
  • lowest prime interest rate since 2001
  • divergence between the BoC interest rate and the mortgage companies' posted rates nearing 3%
  • MSM publishing regular stories in western cities about record employment, "we're different here" etc.
With April and May the two biggest sales months historically, what will we see? If the declining sales trend continues with the increase in inventory will we get across the board price reductions?

Anecdotally, in my PCS I still see, especially with condos, high asking prices and very little price reductions ($5K or so). I'm not seeing much activity in SFH listings in the $400K range.

Looks to me like the bulls are digging in their heels in this game of tug of war.

Monday, April 21, 2008

Realtor Ethics and Contracts

A family I know want to move. They called a Realtor to help them purchase a new house. Realtor finds out that they currently own their own home and sees an opportunity to get two commissions. So Realtor comes round to discuss their options.

This family is looking for a pretty specific scenario. They want to downsize but stay in a SFH. They have about 85% equity in their current home and when they sell they ideally want to spend no more than 85% of the sales price on their new place thus freeing themselves from a mortgage.

Their plan was to take their time finding a new house that fits their needs and make a conditional offer subject to them selling their own place. Their Realtor's plan is to sell their house first, thus creating a pressure situation that will force them to buy a new place quickly. This family feels like this situation could at best get them into a house they aren't completely satisfied with and at worst get them into a financial situation that has them in worse shape than the current good state of their financials now.

Somehow in the confused state of the arguments for and against the Realtor's advice, this family found a sign on their front lawn and copy of a contract that they don't quite understand why and how they agreed to sign in the first place.

Here's my question to Realtors reading this blog: what happens if a seller decides to break their contract in the immediate week after singing it, prior to the listing going on MLS? Should Realtors be subject to a "grace period" or "cooling off" period where there is a reasonable time limit on buyer's or seller's remorse, say like a week? where the seller can change their mind consequence free?

To me, the whole scenario paints an ugly picture of the industry. These people were told by the Realtor that in this market, conditional offers aren't being accepted. They were told that they should prepare themselves for bidding wars on good properties.

It seems to me that the Realtor could have secured two commissions by giving good service. Instead, hopefully, this Realtor will lose out on two commissions by being a snake. The trust is blown for these people. They have already told the Realtor that they won't be buying through them now.

Let's hear your thoughts and advice...

Thursday, April 17, 2008 most markets, renting wins: Redux

Mrs. HHV moved to Vancouver. She found a rental in the West End, exactly one block from Stanley Park. It's a beautiful, character one bedroom apartment. Great building, great location, wasn't the easiest search, but it took only a week and she got the place and it's about as perfect as one can get for a rental.

We pay $900 in rent, $25 for parking, $25 for hydro and $50 for cable/internet. This is more than we paid in Victoria at our old place by about $100 per month (I still live in Victoria, but found a zero rent family place). The place is about 100 SF smaller than our old place, but at 650 SF is big in relative terms for a one bed suite.

Let's take a look at the competition: MLS # V701479. 508 SF at $284,900. $125 Strata fee, roughly the same $100 per for bills, plus mortgage of $1650 (25 year amortization with 10% down) for a total of $1875 per month compared with $1000 per month for renting a slightly larger place on a slightly better street in the same great neighbourhood of town.

Ask yourself if you'd rather have that $875/month invested in a rapidly building condo market that is demonstrating some economic cracks or in something safer, like say, a balanced mutual fund? We did, and even in this market, renting won.

I'll be back in Victoria in the next week or so (politics ended my trip to the top of the world prematurely) and will continue this blog's focus on the Victoria real estate market in these most interesting of times. Thanks for the great commentary in the previous post. I haven't read them all, but it looks like this blog didn't die a fast death after all.