...ABOUT REALTORS AND MLS (Multiple Listing Services)
Somewhere in the vicinity of 90% of all Real Estate Transactions in Alberta involve a Real Estate Agent in one form or another, and yet many Buyers misunderstand the process and costs involved. Hopefully, what follows here will clear up some confusion:
What is a Realtor? All Real Estate Agents are not Realtors. Realtors are members of a Nation-wide (Actually, North-America wide) network of co-operating Agents and Brokerages. Sometime after WWII Canadian Real Estate Agents came to a conclusion: They’d sell a lot more property if they co-operated and allowed each other to sell each other’s listings. For Agents working purely on Commission, so the Canadian Real Estate Association (CREA) was formed, and the term “Realtor” was coined to indicate that an Agent belonged to that Association.
Under the CREA umbrella, each Canadian Province has a Provincial Association (In Alberta’s case AREA – The Alberta Real Estate Association) and each Provincial is made up of Regional Boards. In Alberta the two largest Real Estate Boards are, not surprisingly, Calgary and Edmonton. David is a member of the Edmonton Realtor’s Association (RAE) and are therefore 1 of 3200 Licensed, co-operating Realtors in that Association. Why is this interesting to you? Well, it means that I can show you any listing, basically, in Alberta (although I tend to stay somewhat closer to home). For most buyer’s, working with one realtor to view 10 properties is infinitely more convenient that trying to co-ordinate with 10 different Realtors.
Furthermore, it can be difficult (especially in the Country) to get a Realtor’s undivided attention, if you have indicated that you intend to use the Listing Realtor, regardless of the service level of a Realtor that has put in some effort to find and show you the total range properties that might be suitable, not just their own listings. Remember, although the services of a Realtor cost you, the buyer nothing (Realtor’s are almost always paid entirely by the Seller) we are paid purely on a commission basis, and the only thing we have to ‘sell’ is our time and expertise. Therefore, it can be worth thousands of dollars to a buyer to make a commitment to an experienced local Realtor, provided they are doing what they say they’ll do. In other words, like anyone – a Realtor is likely to work harder if they have an expectation of eventually getting paid.
Lac Ste Anne Real Estate is prepared to give you the highest level of personalized service including automatic notification of new listings. If you subscribe to this service, you will generally be system-notified of a new listing as much as 48 hours prior to it appearing on Realtor.ca, so you’ll be in on the ground floor.
Call or email me if you’d like a more detailed explanation of how an experienced, full time Rural Professional can save you time and money, while making the process as stress-free as possible.
Roughly 60% of all real estate purchases in Canada involve some form of mortgage, or other financing. The rules, regulations and types of financing available are often confusing to a Purchaser, especially to someone buying their first home. Here are a few definitions, FAQ’s and web-links to help you become more familiar with the standard financing concepts generally encountered in a real estate acquisition, with special emphasis on those types typical of a Rural environment. Financing in rural areas can be quite different from the financing available in large urban centers. We strongly recommend that a new or any, buyer first talk to a financing specialist before getting too involved in trying to find a property, and you will find links and contact information to a few Mortgage Professionals who we have worked with and who have experience in a Country environment. They will be more than happy to elaborate on the basics of mortgage financing which we have touched on below.
What is a ‘high ratio’ or CMHC insured mortgage? “CMHC or Canada Mortgage and Housing, are a Federal Government Agency whose mandate is to facilitate affordable home ownership. They basically insure the Bank or Credit Union you are borrowing from that in the event of a foreclosure, the Bank is fully protected for any losses incurred due to a market turndown, legal costs or the costs incurred to re-sell the property. This mortgage insurance permits banks to lend at very low rates and with very small down payments (as little as 5%). However, this accessibility comes with a few strings attached: 1) There is insurance ‘fee’, which may be as high as 3.15% on a 5% down mortgage, (the more you put down, the smaller this fee becomes). This fee is generally added on to the mortgage balance. And 2) you personally guarantee a CMHC mortgage. In other words, if the bank forecloses on you and there is a shortfall on the re-sale of your home, you are personally liable to pay it, and the creditor is the Government of Canada (who are fairly good at collecting money), so a high ratio mortgage is not to be taken lightly. There are other mortgage insurance companies, but generally speaking, the same rules and responsibilities apply.”
What is a ‘Conventional Mortgage’? “A conventional mortgage is a mortgage that is generally no more than 75% of the purchase price, (although a few institutions will go as high as 80%). In other words, you are putting down 25% of the value. (You’ll hear terms like ‘Loan to Value’ bandied around and that’s what this means – the loan to value ratio on a conventional mortgage is 75%, or less). Whereas these mortgages require a bigger down payment, they generally do not incur an ‘insurance fee’. Furthermore, in Alberta, most Conventional Mortgages do not incur a personal guarantee – the lender may foreclose on you, but cannot (usually) pursue you for a shortfall on resale. I spent a number of years acting as in-house Realtor for a mortgage corporation, and there are some notable exceptions to this general rule, so I advise you to get more information if this is a mortgage product you think you are inclined to pursue.”
What are the Special Mortgage Concerns when buying a County Acerage? "If the home is on less than 10 acres, the financing options available are generally the same as when buying urban residential property. However, once you exceed 10 acres, many insurance companies will discount the value of the additional land from a value appraisal. CMHC, for example, are not in the business of insuring mortgages on 'farmland' and therefore, if you are considering a large acerage or farm, even if it's only to live in, you should discuss your options with your lender prior to getting too far along in the process. This is quite honestly, a policy that can change from week to week and lender to lender, so become informed"
What is a ‘VTB’ or Vendor Take Back Mortgage? “A VTB Mortgage means that the seller of the property is playing the part of your “bank’. These types of mortgages are almost always ‘conventional’ mortgages in that they are not insured or guaranteed, but may be for more that standard conventional lending ratios. In down times, VTB mortgages may be for as much as the total purchase price, if the seller is motivated to dispose of the property. Take warning, however - these types of mortgages are generally offered at very high interest rates, and usually entail paying the seller top dollar (or more) for the home”.
How does ‘Rent-to-Own’ work? “Rent to own is another form of Seller financing. It is also known as an Agreement for Sale. Unlike a VTB, the title remains in the Seller’s name until the terms of the Agreement have been satisfied, at which time the Title transfers to the Buyer. This type of transaction can be difficult and dangerous for a Buyer, so you are advised to get Professional advice before embarking on this course.”
What is ‘pre-qualification’? “A financed Real Estate transaction basically boils down to two main ‘risk’ factors for the lender: 1) How likely and how able to pay are you? And 2) How desirable and well priced is the property they are lending on? Pre-qualifying your borrowing ability is a good idea because not only does it tell you how much you can spend on a home, it speeds up the approval process when you do find your dream home. Also, any ‘glitches’ in your personal credit can be corrected by a Professional Lender or Mortgage Broker, before it causes you to ‘lose out’ on a property you wanted.”
What is a ‘Commitment Letter’? “A commitment letter is the notification a Lender provides to you confirm that your purchase has been approved. It is pretty important for your Realtor to have this prior to advising you to remove your financing condition”.
What are the costs, over and above the mortgage itself, involved in getting mortgage financing? “Well, we’ve already discussed insurance fees, but there are also Appraisal costs, Brokerage or ‘Lenders’ fees and of course, a Lawyer is a must anytime a bank is lending you money.”
What is an Independent Mortgage Broker, what do they do, and what do they cost? “An Independent Mortgage Broker, unlike a bank, has access to more than one (sometimes dozens) of sources of mortgage financing. In Rural real estate, they can be a valuable ally, because as discussed earlier, not all lenders finance rural property, or mobile homes, or farms. Each has its own ‘niche’, and a good Broker knows who will and who won’t, finance your purchase. Brokers all pretty much work on commission, but in most (but not all) cases their commission is paid by the Lender.”
How is a Bank Mortgage Specialist different from a Mortgage Broker? As discussed above, a Bank generally has access to one source of money: its own. Recently, most Banks have employed ‘mobile’ mortgage specialists who act in part, like Brokers. If your transaction isn’t one that their parent Bank wants to lend on, Mobile Mortgage’ specialists will generally have access to secondary lenders who can.
What’s the difference between the ‘term’ and the ‘amortization period’? ‘Term’ means the time period that your current agreement is good for, generally from 6 months to 5 years. At the end of the term, the Lender can re-quote the interest rate and mortgage conditions, or in rare cases, demand the balance be paid out. You would then be required to find a new mortgage lender willing to take over your loan. The ‘amortization period” is the total length of time the mortgage will run; commonly this is 20 to 25 years. As a rule of thumb, the shorter the amortization, the higher the monthly payment, but the lower over-all interest you would pay”
If I want to sell my property later on, or pay off my mortgage early, what is involved? “Depending on the type of mortgage, you may be faced with significant pre-payment penalties. If this is a real likelihood, you should consult with your lender and choose a product that minimizes your penalties”.
If I want to buy non-residential farmland, or a large (more than 10 acres) parcel with a home. What do I need to know about financing this type of purchase? “Large, working farms cannot generally be financed as High-Ratio. CMHC views these as businesses, upon which they cannot lend.”
When does GST apply to my purchase, and when doesn’t it apply? “This can be complex, but as a rule of thumb, GST applies if the SELLER has been using it as a commercial farm/greenhouse/feedlot or whatever. It doesn’t matter about the parcel size and it doesn’t matter what YOU intend to do. Make sure your Realtor has some knowledge of this area before relying on his or her advice. Many purchaser's obtain GST registrations in these cases, which defer the payment of gst 'down the road' to when you re-sell. However, a gst registration, although free, requires annual reporting, and other paperwork, which may be too inconvenient to be worth the trouble. On the other hand, operating under a gst registration permits you to claim back many types of gst payments, provided you are actually generating income from the property. This is a topic you should discuss with your Accountant”
What are the things to be aware of in buying mobile homes? “Well, mobile homes are considered to be ‘chattels’ not real property by most lenders. In other words, the lender fully expects a mobile home to be worth less in ten years than it is today. Therefore, on older mobile homes, many lenders are reluctant to lend, CMHC is reluctant to insure, and the amortization period can be very short (there-by driving up the monthly payment). Talk to an experienced rural lender or Realtor before falling in love with an acreage with a 1978 Bendix Mobile home on it.”
These are the basics and FAQ’s of mortgage financing as it applies to most Real Estate, but certainly Rural Real Estate Transactions. Don’t hesitate to call or email Dave with any other questions.