Entries from January 2012 ↓

Fail

When Tom Kioussis got the listing for a crappy little house on a fat lot in a part of Toronto once reserved for cheap carpet stores and Polish immigrants, he had a big idea. Price it so low there’d be not only a bidding war, but free publicity for him, lots more business and the perception of a stupid hot market.

In fact, back in the real estate office they laughed, and started betting on how many sucker offers would materialize. As Kioussis bragged to the Toronto Star a couple of days ago, “I bet 25-plus bids. I thought if it didn’t break 20, I wasn’t doing my job.”

  Thirty-one offers later, the house ridiculously listed at $379,900 sold for $570,000, which was (of course) market value. Reported the Star: “Toronto homebuyers, brace yourself for a hot spring. The short supply of properties — coupled with low interest rates and continuing high demand — played out with a passion this week in a 31-person bidding war in Mimico that has realtors talking.”

So here’s a nice little example of media manipulation, apparently easier now than it’s ever been. When reporters stop chasing facts and start writing spin, they cease being reporters. This is exactly why the MSM is now as respected as infomercials for Pet Potty and No!No! Hair Removal (Bikini edition).

As for Mr. Kioussis, well, he did the job for his clients and was paid well for it. He made the news. He’s made it to this blog. And he gave every homeowner in Mimico wet dreams about untaxed capital gains.

Not a day later Star editors outdid themselves. They published a piece, “Why it’s a good time to buy a home,” written by ‘lawyer, author, columnist and speaker’ Mark Weisleder. It ate most of a page, was definitive and authoritative, and ran as editorial copy instead of advertising content. Is there a distinction anymore?

He gave eight reasons readers should ignore historic high prices, economic malaise, unaffordability, greedy vendors, debt overload and property diddlers like Tom Kioussis, and jump right in. I read them all. I’m very pleased Mr. Weisleder is not my lawyer.

Why is it a good time to buy on Planet Weisleder?

First, low mortgage rates. “They can’t get any lower,” he says. Of course, low rates mean danger since the economy is weak. And as rates eventually go up, affordability and house prices go down. So pity those who locked in a great rate only to see their equity vanish.

Canada is appealing, he says, a safe haven in a volatile world. True enough. But we also have one of the most inflated housing markets on earth, and live next to the biggest economy, where real estate costs half. Canada is cool, but not that cool.

Third, he says, this means tons of immigrants, “often wealthy ones. So in my view while the real estate market may level off in some areas of Ontario, it should stay strong in most of the GTA and likely Canada’s other large urban centres as well.” In the absence of any stats to prove this, his view is worthless. The urban myth of foreigners keeping prices up in a market of 6,000,000 people is just that. A myth.

Fourth, we don’t have a lot of mortgage defaults, he says. Over 99% of us make our payments on time. True, and irrelevant. A lawyer should know this. The danger is not a wave of foreclosures but negative equity among all those kiddies we let buy condos and townhomes with 0% or 5% down. Our lax lending and unique Canadian subprimes have all but assured lower values as people who should have never owned homes sell off for whatever they can get.

In Canada, “loans are almost all recourse, meaning if you don’t pay and there is a shortfall, the lender can sue you for the difference,” Weisleder says, so we’re safe from a US-style crash. Another myth. Many US states have recourse loans, just like us. That sure didn’t stop a real estate bloodbath in Florida or Nevada.

Sixth, houses here aren’t really expensive, we’re told. “If you look at median incomes of Canadians against the median cost of homes, this average comes down to around 3.5, which is not dangerous.” Untrue. The ratio of median price to median income for a detached house in Toronto is seven. By global standards that is ‘severely unaffordable.’

As for record levels of debt, Mark asks, “Why is this so bad? At an interest rate of 3 or even 5 per cent, the amount needed to service the debt is manageable.” Well, apart from the fact rates will rise long before most people have paid off a fraction of what they owe, incomes are falling behind inflation and 40% of people can’t pay their monthly bills. Besides, it was at almost exactly this level of consumer debt that the US housing market blew up.

Finally, the US economy will be fine (and us too) because, “in a U.S. presidential election year, politicians will do whatever is necessary to prevent it.” However, exports to the States are already down $30 billion, which is why our unemployment is rising. And does anyone believe a growing protectionist sentiment in the States is good for bungalows in Mimico?

So many words. So many errors. But at least Mr. Weisleder’s consistent. The lawyer makes his living giving courses to real estate agents on ‘generating referrals’ and ‘avoiding legal and disciplinary proceedings’. He also delivers motivational talks on such sexy topics as ‘the perils of not having proper Buyer Representation.’ Man, he brought down the house with that baby at Re/Max’s giant KickStart 2012 event a few weeks ago (below).

Don’t misinterpret me. There’s nothing wrong with flogging houses. People want ‘em. Insanely.

But when you can’t trust agents, reporters or lawyers, can the apocalypse be far behind?

Note and clarification: The original post (above) referred to Mark Weisleder, a lawyer, as ‘defrocked’. He replies: “I have been a practising lawyer for the past 28 years and continue to practice in Toronto”. The record stands corrected, and I apologize to Mr. Weisleder for any confusion created over his professional standing. — Garth

 

Cheap

He’s 43 and has seven hundred thousand dollars in his chequing account. You’re nuts, I said helpfully. “Yah, but it’s my house money,” Lyle said. That was eight months ago. Since then the high-rolling marketing exec has emailed me a dozen listings of houses in the west end of Toronto, asking for an opinion. Most were junk. I told him.

Days ago he sent another which, at $862,000, had some promise. “I’m buying it,” he said. I asked how the price compared to recent solds in the hood, and he had no idea. “It’s a private sale,” Lyle gushed, like he’d just discovered insulin, “so I don’t have to pay commission.”

Not a day later I was talking to a couple in Kelowna, keen to purchase a house on one of those dusty hills for a shade under five hundred. Another FSBO (For Sale By Owner), and the plan was to buy it firm, then market their current home themselves, “saving a massive amount on both ends.” So, how do you plan to make the offer, I asked? “We’re taking them out for dinner at Joey’s, and maybe get them a little hammered.”

As you know, FSBO is sweeping the nation. Some people buy or sell on Craigslist. Others use outfits like The Property Guys. Some invest $3.99 on one of those tacky orange signs you buy a Home Depot, and nail it into the lawn. Given that house porn is part of daily life, and people are inherently cheap, the allure of selling or buying without the help (and cost) of an agent has proven irresistible.

Besides, most of us hate realtors. Especially the ones who type it in CAPS and use that little trademark thingy. Are they that insecure?

Having said this, God made real estate agents for a reason. Besides humour. And it’s time this pathetic blog did something heroic, and defended them. Sort of.

Of course, standard commissions are obscene. Handing over an average of 5% to sell a house in a hot market is a certifiable act. But in a comatose market, it could be worth every cent. The good news is the entire industry is far more malleable than in the past, especially since the federal Competition Bureau crawled up its butt. Changes in MLS allowing FSBO listings (sort of) are a case in point. Plus, commissions are now negotiable.

Sadly, past arrogance, intransigence and a love of monopoly already earned realtors a rep slightly below that of pet abusers or the people who feel you up in airport security. And it’s this visceral dislike which has made the private real estate sale hot.

Too bad. This can be a dangerous thing.

For example, FSBO sellers are considered prey by sophisticated buyers.  Everyone knows the main reason you’d sell your own home is because you’re cheap and naive. And since owners are so entangled with their properties, they can be toyed with. This makes them fun during negotiations, when they freak at criticism or recoil at a low-ball offer. So you can mess with their heads, since their decisions will likely be hasty and emotional. Not like negotiating with a dispassionate third party, experienced at cutting deals. This is why most FSBO sellers end up selling too cheap.

Speaking of which, almost every FSBO house goes to market at the wrong price – usually too much. Instead of reflecting market conditions and buyer realities, do-it-yourself sellers sit around and decide how much they want and need. The research they do is gawking at what other properties in the area are asking, and then adding more. After all, their houses are the best. Ever.

But a mispriced property is a seriously bad idea. It goes stale. The price gets cut. Then some smart buyer comes along and demands a further discount, because he knows you’re not paying commission. So, you end up having gone through this – the advertising, the phone calls, the showings, the vacuuming – for nothing.

Far better to know exactly what the selling prices in your hood have been over the past months, not just the askings. A smart realtor in a fading market might actually price the place below neighbourhood comparables, then use his company’s marketing clout to try and spark a bidding war.

And what about the structure of a FSBO deal? What if a cunning buyer gave you an offer filled with conditions? Would you know enough to accept some and reject others? To generate proper waivers for a legally-binding agreement? How much would your lawyer charge to shepherd the deal along at every stage? What protection do you have at the last moment if the buyer fails to close? Are you compliant with provincial laws?

Meanwhile a buyer entering into a FSBO deal is even more exposed. Like Lyle, he might be handing over hundreds of thousands of dollars in a transaction devoid of a property disclosure allowing him to sue for defects later on. Or buying without a survey, opening up boundary issues. Or putting down a deposit that will never be seen again if the deal goes south.

A good real estate agent doesn’t let this happen. So even if you end up offering on a private sale, you should have one to represent you, do the research for you, bargain for you, and protect you. Will that cost you one per cent, or a half a per cent, of the price? Probably. But it could also be the best insurance money possible. The seller might be a tightwad, but you’re the one shelling out the money. Buyers wear 100% of the risk.

There are lots of things in life to be cheap over. Selling or buying a house worth five or ten years worth of income ain’t one of them. Get an agent.

Just use all the money you don’t pay reading this.