Remember that famous Chinese-gal-student-bung flap in North Toronto? Sure you do. It’s the moment the Vancouverization of Toronto began, when god-fearin’, average SUV-driving, redneck anglos woke up and found out pansy sweat-shop bazillionaires from Guangdong had just bought their hood. No, worse – children of bazillionaires! Double worse – girls!!
Said the agent, Michael Adelson, who handled the deal: “”There’s a lot of anger among Canadians who earn money here that they’ve been priced out of the market. There is some degree of anxiety about how people are going to compete with these hyper-inflated prices.”
Just to piss off the locals a little more, developer Brad Lamb who, er, sells condos added: “”If you want to live in central Toronto, you’re going to have to live in a condo or be a millionaire. That’s the reality. … It’s not a bad thing. It’s the way cities evolve.”
So the female Chinese student (as the buyer was billed) paid $421,800 over the asking price with an offer of $1,180,800, beating out a dozen other people, four of whom were also willing to pay more than $1 million for a property listed at just over $700,000. Some folks blamed the seller and the realtor for pricing too low and creating a frenzied auction (although it’s hard to get horny about a bungalow in Willowdale). Others saw it (as did most media) through Van eyes, where’s it’s de rigeur now that Mainland Chinese are swallowing cities whole and pricing out the natives.
So here’s the latest.
The house at 300 Dudley Avenue is back on the market, and this time you can have it for just $2,500 – a month. Here’s the listing.
This means that after the owner pays the property tax, and assuming no mortgage costs, the property will generate about $24,000 a year. Based on the purchase price (including land transfer tax) of $1,219,800 that gives a return of 1.96%. After tax, that’s 0.9%. After prevailing inflation, it’s a loss of 1.8%.
So why didn’t the bazillionaire just dump $1.2 million into the orange guy’s shorts and get 2%? Or buy a basket of secure Canadian bank preferred shares and get 5.2%?
Not so fast. The crafty industrialist nouveau riche of Guangdong are far too smart for that. Instead they’ve decided to speculate through the purchase of world-class, 50-year-old bungalows with single car garages (and manual doors) in a city where real estate has never cost more, interest rates will surely rise and household debt is off the chart, and do so by way of a bidding war ensuring overpayment and eventual losses.
I’d say we have jack to worry about.
Reed Harris owns a mortgage broker outfit in BC and, to his shame and professional discredit, reads this pathetic blog. “ I do enjoy it,” he admits, “but I have a bit of love/hate with it, as I am in the business.” A day or two ago he noticed a suggestion posted in the nether regions of the comment section which read, “Most folks would be interested in knowing how mortgage brokers were created, how they’re compensated, who they broker for, how they are intertwined with RE agents.” He emailed me yesterday and asked if he could respond. Because I have no agenda and even less common sense, I agreed. So he wrote this…
Mortgage brokers originally were providers of funds for second mortgages, private money, difficult deals, etc, or would arrange a mortgage with a bank type lender for a fee. The bank-type lenders in the 80s saw the brokers as a potential source of new mortgage loans (and therefore new clients), and over time created divisions within their organisations to solicit brokers for ‘A’ business.
The way it works now for ‘A’ business:
- A potential client is looking for a mortgage. They would approach a mortgage broker to take a full mortgage application.
- The mortgage broker would then see which lenders would be willing to fund the deal.
- Say there are 10 lenders that would likely approve the deal. Maybe 4 of those would be offering the best, competitive rate for the mortgage term preferred by the client.
- Of those 4, 2 might have attractive repayment terms, which benefit the client.
- Of those 2, one might be a bank with a branch near the client, or perhaps one might calculate their penalty in a way that might benefit the client vs the other. That would be the lender that would “win” the business, and receive the chance to fund the mortgage.
The broker would work with the lender and the client to provide all required documentation to support the application, including confirming income, downpayment funds, credit-worthiness, and any other condition set out by the lender for the approval of the mortgage.
The broker would be paid a fee by the lender, based on the term chosen by the client, and the size of the mortgage. Longer terms and larger mortgages result in greater commission to the broker. However, shorter terms give the broker the chance to possibly move the client to another lender sooner, possibly creating another transaction at the end of the first term. And any closed transaction (and happy client) might create a few referrals, which more than compensates for a small commission.
The brokers fee is priced into the mortgage, not added to the mortgage or causing an increased rate to the client. From the lenders perspective, the new client business is very low cost versus getting the same client via 1. advertising more 2. having additional branches 3. hiring additional staff, with the resulting salary/office/expenses/pension obligations.
The final point raised in the question is ‘how are they intertwined with RE agents”. To answer that, the answer is they aren’t. A good mortgage broker might be a part of the Realtor’s team of professionals that they refer their clients to, in the same way as they might have a lawyer or notary they have used and trust, or a few house inspectors that they have worked with. From the Realtors perspective, they do want the transaction to proceed obviously. Having a good mortgage broker who will help their clients get the best deal is just good business sense. I don’t pay referral fees to realtors, though some brokers do. Any fees paid have to be disclosed to the client by both the broker and the realtor.
A lot of realtors don’t care who their clients use, be it a banker, broker, whatever. The realtor’s job is to find a home that is a fit for their client, not manage the details of the mortgage.
In conclusion, of course there are unscrupulous professionals in every field, real estate not excepted. My MO is to get the best deal for every client, every time. If the client feels that I’ve done good by them, they are more likely to refer me to their friends and colleagues. And receiving referrals is the best way to stay in business. As every professional knows.
I think I should have charged him for this space, no? Maybe $2,500, plus utilities.