Balanced real estate market prevailed through much of 2011

The 2011 Greater Vancouver housing market began with heightened demand in regional hot spots and concluded with greater balance between seller supply and buyer demand.

The Real Estate Board of Greater Vancouver (REBGV) reports that total sales of detached, attached and apartment properties in 2011 reached 32,390, a 5.9 per cent increase from the 30,595 sales recorded in 2010, and a 9.2 per cent decrease from the 35,669 residential sales in 2009. Last year’s home sale total was 6.3 per cent below the ten-year average for annual Multiple Listing Service® (MLS®) sales in the region.

The number of residential properties listed for sale on the MLS® in Greater Vancouver increased 2.7 per cent in 2011 to 59,549 compared to the 58,009 properties listed in 2010. Looking back further, last year’s total represents a 12.8 per cent increase compared to the 52,869 residential properties listed in 2009. Last year’s listing total was 11.1 per cent above the ten-year average for annual Multiple Listing Service® (MLS®) property listings in the region.

“It was a relatively balanced year for the real estate market in Greater Vancouver with listing totals slightly above historical norms and sale numbers slightly below,” Rosario Setticasi, REBGV president said.

Residential property sales in Greater Vancouver totalled 1,658 in December 2011, a decrease of 12.7 per cent from the 1,899 sales recorded in December 2010 and a 29.7 per cent decline compared to November 2011 when 2,360 home sales occurred.

More broadly, last month’s residential sales represent a 34.1 per cent decrease over the 2,515 residential sales in December 2009, a 79.4 per cent increase compared to December 2008’s 924 sales, and a 12.6 per cent decrease compared to the 1,897 sales in December 2007.

The overall residential benchmark price, as calculated by the MLSLink Housing Price Index®, for Greater Vancouver increased 7.6 per cent to $621,674 between Decembers 2010 and 2011. However, prices have decreased 1.5 per cent since hitting a peak of $630,921 in June 2011.

“Our market remained in a balanced state for most of the year, although higher levels of demand for detached properties in the region’s largest communities caused prices in certain areas to rise higher than others,” Setticasi said. “For example, the benchmark price of a single-family detached home experienced double-digit increases in nine areas within the region over the last 12 months.”

New listings for detached, attached and apartment properties in Greater Vancouver totalled 1,629 in December 2011. This represents a 4.1 per cent decline compared to the 1,699 units listed in December 2010 and a 49.4 per cent decline compared to November 2011 when 3,222 properties were listed.

Sales of detached properties in December 2011 reached 630, a decrease of 18.1 per cent from the 769 detached sales recorded in December 2010, and a 30.2 per cent decrease from the 902 units sold in December 2009. The benchmark price for detached properties increased 11.2 per cent from December 2010 to $887,471.

Sales of apartment properties reached 774 in December 2011, a decline of 4.6 per cent compared to the 811 sales in December 2010, and a decrease of 32.9 per cent compared to the 1,154 sales in December 2009.The benchmark price of an apartment property increased 3.7 per cent from December 2010 to $401,396.

Written by  Kevin Marron Issue Date: May 2011

Illustration: Matt Daley

It’s an uncomfortable fact of life that anyone buying into a new condominium development must sign a contract and put down a deposit, sight unseen, years before they can move into a completed building. That’s because pre-sales are routinely required by banks and other lenders that don’t want to advance funds without the security of knowing units will be sold. But the uncertainties involved in this practice are a frequent source of frustration for purchasers and developers alike all over Canada, often leading to disputes and lawsuits.

The old adage of “buyer beware” goes out the window, says Mark Thompson, a partner with Singleton Urquhart LLP in Vancouver. “The property is simply an idea, a business plan, a concept, a set of architectural drawings, which could be changed in the actual building. And it’s only possible to say to a purchaser ‘Do your own due diligence on this,’ if you have a completed property.”

Nowhere is this issue as hot as it is in British Columbia, where a boom and bust in the property market, together with concerns about leaky condos and other construction defects, has ratcheted up the risks for all concerned. These risks were recently highlighted by a B.C. Supreme Court decision that will make developers evermore cautious of the stringent disclosure rules imposed by the province’s Real Estate Development Marketing Act (REDMA). This legislation, introduced in 2004 to protect consumers buying pre-sale condo units, places strict requirements on developers to provide purchasers with full disclosure statements and allows purchasers seven days to rescind after signing an agreement. It also gives them the right to get out of the contract at any time if the developer has not met all obligations imposed under the act. “The act is clearly designed to make sure that the buyer who is pre-buying is given the full goods and the onus is definitely on the developer here to be very stringent with disclosures,” says Thompson.

Christopher Johnston, assistant chairman of the pre-sale condo litigation group at Harper Grey LLP in Vancouver, has been tracking case law on the legislation and observes that there were very few cases before 2009, while there has been a series of court rulings since then “all dealing with different issues but all finding in favour of the retail purchaser and their rights to disclosure.”

The reason for the renewed interest in REDMA litigation is obvious. Before the market slumped in 2008, condo prices were soaring and purchasers were happy to hang onto or profit from a great investment. Now, it’s the opposite. Condo prices have dropped dramatically and purchasers are finding their units are no longer worth what they agreed to buy them for in the pre-sale contracts. So many people “are looking for whatever means they can to get out,” says Thompson.

The decision in Ulansky v. Waterscape Homes Ltd. Partnership will make it easier for purchasers to get out of their deals, according to Damon Chisholm, an associate specializing in commercial real estate at McMillan LLP’s Vancouver office. The case involved a dispute over whether the developer of an 18-storey building, part of a nine-phase condo development in Kelowna, B.C., provided full disclosure regarding the risk that owners may decide to rent out their units on a short-term basis. The developer had provided assurances in the pre-sale disclosure statements that the building was not designed for, or intended to be used for, hotel-style short-term rentals. In the municipal development permit it was described as a multiple-unit residential dwelling tower. But the court found the disclosure statement failed to point out that a secondary permitted use under the municipal zoning was “hotel/motel accommodation within a multiple residential unit.” This would make it possible for owners to rent out their units and for the strata board to allow this practice.

The court accepted the evidence of the 12 plaintiffs in the case showing that short-term rentals were occurring and were permitted in the building — and that building permits were being issued for that purpose. The pre-sale contracts were ruled unenforceable and the developer ordered to return all deposits to the plaintiffs.

Chisholm does not question the plaintiffs’ motives. He says he understands owners of condo units may feel that vacant landlords or transient occupants of a rental unit will not take good care of the building. However, he says, the ruling will “open the floodgates” to other people who don’t necessarily care about short-term rentals but want to walk away from their contracts for other reasons.

What the ruling does, according to Chisholm, is clarify the position of the B.C. courts on how much detail must be provided in a disclosure statement. Until now, he says, many developers have presented details that they considered relevant and not necessarily followed all of the formal requirements set out for disclosure statements under the act. In this case, the developers apparently overlooked the possibility that secondary uses permitted under the municipal bylaw could be a material fact that should be included.

The risk to developers of missing some relevant detail is particularly serious because REDMA does not require that purchasers prove they were relying on the misrepresentation contained in the disclosure statement. “None of these purchasers who got out of this contract need to argue, ‘Had I known short-term rentals would be allowed I never would have bought.’ That’s irrelevant. The fact that the developers missed doing something required by them under the act allows a purchaser to get out,” says Chisholm. As a consequence of this ruling, Chisholm says he is advising developer clients to “list everything” in their disclosure statements. For example, he says they would be better off “actually copying and pasting the zoning, as opposed to paraphrasing and running the risk that you get it wrong.”

Developers are beginning to get the message, says Johnston: “They’re disclosing everything because they’re so nervous of being offside of the act.”

Meanwhile, in Ontario, where pre-sale disclosure rules are embedded in the province’s Condominium Act, purchasers are having much less success when they take developers to court, according to Gerald Miller, managing partner and head of the real estate practice at Toronto-based Gardiner Miller Arnold LLP. “There’s lots of litigation over this type of thing and the consumer generally loses,” he says. But Harry Herskowitz, senior real estate counsel at DelZotto Zorzi LLP in Toronto, says this is probably because purchasers didn’t review their documents carefully enough or failed to retain a solicitor when they originally signed the pre-sale agreement. When they get to court, he says, they are likely to find that the matters they are complaining about were adequately addressed in the disclosure documents. “Requiring even more disclosure will not necessarily add to the ultimate level of the purchaser’s true understanding or comprehension of the condominium issues involved,” he says.

Johnston, in Vancouver, agrees that longer, more detailed disclosure documents could be harder for purchasers to understand — if they bothered to read them. He says only two out of 200 clients he has seen on pre-sale matters actually brought him the pre-sale documents before locking themselves into a deal. “People are, unfortunately, putting more thought into buying rain gear to go hiking than they are to a half-million-dollar condo,” he says.

That may not matter so much in B.C., however, because REDMA’s consumer protection provisions are strong enough that it is the seller, rather than the buyer, who has the greatest reason to beware.
kevin@kevinmarron.com

Over the years I have watched real estate practitioners come and go.  Some have built amazing careers that seem to have no limit their growth, and others never find any type of appreciable trajectory. The difference between those that reach the pinnacles of success, and those who remain mired in dark valleys of defeat seems to be almost unappreciable.

The long term success of a REALTOR® in the business of real estate doesn’t appear to have anything to do with educational levels, physical attributes, ethnic background, or social class. I have seen many instances of agents with poor grooming, lack of social graces, even with speech or other physical impediments reach truly stellar levels of success, while others that seem complete on the surface are left behind. So, the question is; what is the magic powder, the key to success in real estate?

The one attribute that appears to weave itself into every successful agent I have ever encountered is the ability to instill trust. The ability to present oneself in a genuine and competent manner, a manner that says, “I am reliable, honest, and will protect your interests at all costs”. The aura of trustworthiness crosses boundaries of race, class, education, and even health. For those who have the trust continuum built into their character, a long term career in real estate is guaranteed.

So, if developing a trust continuum is so vital to a real estate career… what is it really?

The definition of trust in psychology is based on believing that the person who you trust will do what you expect. It starts at the family level and grows to others after the early years of development. The ability to place trust in others is a key element to a healthy socialization process.

 Trust is also integral to the idea of social influence. The fact of the matter is that it is easier to influence or persuade someone who has developed a sense of trust in you. The real powerhouse REALTORS® create that sense of trust in their clients. Perception of honesty, competence and common values are essential. Once trust is lost, however, it is very hard to regain.

 Being and acting trustworthy should be considered the only sure way to develop a trust continuum with your clients. Stephen Covey has a great way of describing trust. He calls it the emotional bank account. One puts in deposits of trust, or makes withdrawals, based on responses to perceived actions. Where trust is absent, projects can fail, especially if this lack of trust has not been identified and addressed. Individuals that are in relationships characterized by high levels of social trust are more apt to openly exchange information and to act with caring benevolence toward one another than those in relationships lacking trust.

A key element in developing a trust continuum with your clients is being reliable. Philosopher Annette Baier has made a distinction between trust and reliance by saying that trust can be betrayed, while reliance can only be disappointed. Nonetheless, being reliable is a powerful tool in building trust with a client, while the reverse can destroy trust and empty out the emotional bank account.

In the discipline of economics, trust is seen as an economic lubricant, reducing the cost of transactions, enabling new forms of cooperation and generally furthering business activities, employment and prosperity. This observation created a significant interest in considering trust as a form of social capital and has led to research into a closer understanding of the process of building trust. It’s been claimed that higher levels of social trust are connected to economic development. It is widely accepted and demonstrated by economists that social trust benefits the economy while a lower level of trust inhibits economic growth. Trusting less leads to the loss of economic opportunities, while on the other hand trusting more creates the risk of  unnecessary vulnerabilities and potential exploitation.

 It’s worth noting that when someone says, “trust me” most people won’t. Trust can’t be forced. Building trust is something that must be demonstrated in many little ways. The subtle clues like eye contact, and body language play an important initial impression of trust worthiness. Even something as simple as showing up on time for appointments helps to demonstrate to others that they can rely on you and hence create the building blocks of a trust relationship.

The life of a REALTOR® becomes much easier when you have won the trust of clients, and peers. The majority of the calls that a manager or broker will receive are based on agent to agent or agent to consumer mistrust. Gaining and retaining trust makes the job easier, and makes life less stressful. It’s clear that the one ingredient that makes the secret sauce for all top producers is the trust continuum.

New federal rules have come into play as a result of government concern over rising consumer debt levels. Three new changes to Canada's mortgage rules are an attempt by Finance Minister, Jim Flaherty to create some “moderating” impact on the Canadian housing market.

These new federal rules will reduce the maximum amortization period to 30 years from 35 years for government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.

Secondly, Ottawa will lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes.

Thirdly, Ottawa will withdraw government insurance backing on lines of credit secured by homes.

Though longer amortization periods reduce monthly payments, they greatly increase the amount of interest paid over the life of the mortgage and make it harder to build up equity.

The average Canadian resale home sold for $344,551 in December. Assuming a five-year mortgage at 4 per cent interest, and the minimum 5 per cent down payment of $17,227, a 35-year mortgage would have monthly payments of $1,441. Shorten the amortization period to 30 years, and the monthly payment increases to $1,555.

Mr. Flaherty said his concern is not Canada's mortgage default rate - which is less than 1 per cent. Rather his concern is those who are borrowing as much as possible.

"We're seeing people borrow to the max, and borrowing to the max at low interest rates," he said. "Most Canadians are not doing that."

He said the changes will not take effect immediately because of a requirement to give the industry 60 days notice before making policy changes of this nature.

He said past experience suggests there is no need to fear a rush on 35-year mortgages before the new rules take effect.

In addition to cutting mortgage terms, Ottawa is taking action to reduce the rapid rise in home equity lines of credit, or HELOCs. The government will do this by clamping down on the insurance that Canada Mortgage and Housing Corp. offers to the lines of credit.

Home-equity lines of credit and loans have surged in Canada, rising at almost twice the pace of mortgages over the past decade to account now for 12 per cent of overall household debt.

The third measure that will reduce how much Canadians can draw on their home equity. Last February the Finance Department announced that it would lower the maximum amount Canadians could withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. It is now reducing that maximum to 85 per cent from 90 per cent.

Its seems that every  few years someone comes along with a concept or a business model  to improve on the tried and true compensation method that has worked best for the Real Estate Industry over the last hundred years. The means of compensation paid for the services of a Real Estate agent has been based on a ‘payment for results’ model. When the sales representative for a Brokerage is successful in putting together (and keeping together) a transaction, they receive a benefit for their efforts. If their efforts fall short, in that a completed sale does not occur, they do not receive any compensation for their time or expenses. Under the common business model in the industry, the degree of success speaks for the degree of financial reward a Brokerage receives annually.

Although this method has been ubiquitous for almost a hundred years in Canada, it has existed in some form or another since the advent of commerce in society. Some within the real estate industry have experimented with different models of compensation to less effective results.

In England during the Middle Ages King Alfred ordered every man to give his allegiance to a lord in exchange for mutual benefit. This benefit included the right to protection from raiding parties, and the right to occupy and cultivate a piece of land in the Serfdom. In turn the lord was allowed to collect taxes in some form and turned them over to his king. The King would then pay a commission based on the results of the lord’s efforts. This commission was a percentage of the taxes as well as gifts of land or other items of value in some cases. The idea of performance based pay grew from these types of models.

 When society emerged from the Middle Ages and shook off some of the elements of the Feudal system, the lower class was elevated in that they had acquired rights to the land they farmed. As the market economy evolved and the middle class established itself, the need for a good negotiator acting as a middle man between various interests grew. When the Black Death and the Bubonic Plague thinned out the body of available workers, all wages increased. In spite of the efforts of the kings and lords, change continued and serfdom ended by the 1500's. The economics of the times continued to encourage the development of a middle class and land ownership beyond that of the lords and crown. Pulled along with this fundamental change the idea of commissioned wages continued to grow.

Historically commission wages based on results have brought the most creative and entrepreneurial to the top. When a Seller decides to dispose of land holdings, they look for a combination of the highest market price, the least risk on their end, and the most efficient process. Any other compensation model will not address these desired elements as effectively as a commission based model.

When a compensation model has a pay as you go component, it inadvertently creates a lack of urgency on the part of the agent. The longer a product is listed, the more compensation is earned. Any type of compensation model that offers a flat fee or ala carte type of formula removes some aspect of motivation or creative thinking on the part of the agent. It is not a question of the dollar value of the outcome, it is a motivational incentive that is of the greatest import.

If a Seller wants to feel totally comfortable that an agent is working to gain the highest possible price for their home, and not just make a sale, then a percentage based on the sale price offers the best protection. If a Seller wants to have the least up front risk, or out of pocket expense, then a results based model is the most desirable. When a payment can be made out of the proceeds of a successful transaction, the actual impact on the Seller’s cash flow is minimal.

If a real estate agent was paid on an hourly or service based model, the performance would not compare to the success achieved under a results based model. It is little wonder that the real estate industry has not moved from commission based compensation despite the other forms of business models that have come and gone over the years.

There is no doubt that commission based sales provide both the Client and the Agent the best solution for the complex territory that real estate industry covers.

CMHC Housing Outlook Session: Forecast for Vancouver Housing Market

August 18, 2010

Presenter: Robin Adamache Senior Market Analyst for Vancouver Region

August 18,2010, Vancouver - Senior Market Analyst, Robin Adamache began her session by talking about the overall economy in BC.  Real GDP up 2.7% in BC although what happens in the USA affects us directly in GDP, so predictions must be done with an eye on how conditions are in the States.

 Lower mainland is looking forward to 29 Billion in major projects in the next year…including the New Surrey Hospital and the Evergreen Line. Job growth is at 2% vs. a decline last yr of half a percent. Good solid full time jobs are being created, Ms Adamache quipped that these were not “McJobs”.  

Migration growth continues at the same pace as last year’s 58 thousand new migrants into Vancouver area. There will be approx 18 thousand new households in need of housing each year over the next few years if not longer.

The CMHC expects that there will be a gradual increase in interest rates next year. Robin made a point of reminding everyone that interest rates have been at a historic low for a sustained period of time. Any increases will be gradual, but they are expected.

Canada remains about 20 times lower than the US in mortgage defaults. In short, Vancouver has a stable economic environment. There are lots of people moving here and buying here. The question was asked, “Who is buying?”  6% of existing Vancouverites plan to buy.  One third of buyers  will be first time home buyers, while sixty percent  are move-up buyers, and 25% are downsizing.

Despite all of this seeming good news, the reason it is not a crazy hot market is partly due to the changes in lending policies, and the rise in interest rates. The market is in the “balanced” range of 40 to 60% of the sales to listings ratio. Prices will rise next year at about the rate of inflation. There is an ample supply of listings in the West Side. Peak prices were reached earlier this year, but have dropped slightly since. The activity in house sales has shifted to the higher price ranges. 57% of the activity on the MLS has been in the 1.25 to 2.25 million dollar range. Downtown condo prices have dropped by around 3%. Coal harbour average condo price per sq ft is 852; False Creek = 805; West End = 605.

Price growth in 2010 will close out in the average range of 9 -11% due to the price growth and activity earlier in the year. Speculative activity is not an issue and is down according to statistics. Research shows that the speculators left the market in 2006 and have not been a factor since. While average mortgage carrying costs remain higher than average rents, the vacancy rate is at 1.7% in Vancouver.

Summary

Economic conditions in the Vancouver CMA will be favourable for the housing market this year and next

Major projects worth approximately 28 Billion are proposed for the Lower Mainland area

As the economy gets traction, some of these proposed projects and some of the 4 Billion worth of project currently on hold will move forward

Vancouver’s job market is also expected to pick up as the economy improves over the next eighteen months

Population growth will add to housing demand, an estimated 40,000 people are expected to move to the Vancouver region each year, adding about 18,000new households in need of housing

It will be important to keep an eye on higher mortgage rates which may dampen homeownership demand, especially for those who are more sensitive to the impact of higher rates.

For 23 years, REAL Trends has ranked the largest residential real estate brokerages in the United States in an annual survey published each May. Upon its release, the REAL Trends 500 provides not only a clear snapshot of who is the biggest, but some interesting nuggets on the industry that can be drawn from the data collected. This year, for the first time, a similar survey was published for the Canadian market. By comparing the REAL Trends Canadian 200 to the two hundred largest firms on the US list, we thought the following findings were pretty interesting:

• Although the average Canadian office in our sample had fewer sales professionals (40 per office vs. 51 in the United States), it generated far more transaction sides per year (592 vs. 367) and nearly twice the sales volume ($179 million vs. $97 million.)
• That meant that sales professionals in our Canadian sample were over twice as productive as their U.S. counterparts (14.9 annual transactions vs. 7.2 in the US).
• Over half of the firms in the Canadian survey would have cracked the top 500 of the U.S. list. Not too shabby considering Canada is one-ninth the population of the United States.

– RE/MAX has been awarded Most Trusted Residential REALTOR® as

voted on by readers of Reader’s Digest magazine. The survey conducted for the annual awards revealedthat the majority of Canadians trust RE/MAX for all their residential real estate needs, ranking RE/MAX associates five-times more ‘trusted’ than the second most trusted brand.

“Our associates should be proud and honoured to receive the confidence of Canadian consumers as the Most Trusted Residential REALTOR®,” says Elton Ash, Regional Executive Vice President for

RE/MAX of Western Canada. “It’s an inspiring merit that the best trained and most experienced agents

have received for providing valuable assistance to so many families.”

Ash believes that this distinction awarded to Canadian RE/MAX associates is due in part to two notable

attributes. The first being “Premier Community Citizenship” - a quality that RE/MAX associates share

by being ever-mindful of the impact they make locally as they are involved with their communities

through volunteering, fund-raising and more.

The second is that RE/MAX associates carry more professional designations than any other REALTOR® in Canada. RE/MAX agents are invested in additional education in specialized areas such as Senior’s representation, commercial brokerage and luxury homes.

RE/MAX is Canada's leading real estate organization with over 17,500 sales associates situated

throughout its more than 680 independently-owned and operated offices across the country. The

RE/MAX franchise network, now in its 37th year, is a global real estate system operating in more than 70

countries. Over 6,500 independently-owned offices engage over 115,000 member sales associates who lead the industry in professional designations, experience and production while providing real estate services in residential, commercial, referral, and asset management.