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Real estate survey protects home buyers
1. MarketNews
JAMES METCALFE’S REAL ESTATE UPDATE FEBRUARY 2012
PRICES, VOLUME UP 9% IN JANUARY
The average selling price of a resale home in the GTA in January Total unit volume through the TorontoMLS® system in
came in at $463,534 - up by almost 9% versus January 2011. Price January was 4,567 - which represented a 9% increase
growth was fuelled by continued low inventory levels which kept versus January 2011 sales of 4,199 single family homes.
competition between buyers exceedingly strong. The number of The brisk sales volume continues to be fuelled by a positive
active listings at month end were 11,009 - down by 9% versus the affordability picture bolstered by exceptionally low mortgage
ending January 2011 total of 12,107 properties for sale. The following interest rates. The following is a brief breakdown of volume
is a brief breakdown of price performance by major dwelling types: performance by major dwelling types:
Dwelling Average Ann’l Index Dwelling Units Ann’l % of
Type Price Growth to Avg Type Sold Growth Total
Detached $586,098 +8% 126 Detached 2,136 +13% 46.8%
Condo Apt $321,475 +5% 69 Condo Apt 1,126 -1% 24.7%
Townhouse $359,467 +9% 78 Townhouse 725 +16% 15.9%
Semi-Detached $424,952 +7% 92 Semi-Detached 493 +8% 10.8%
GTA RESALE HOME SALES (AVERAGE PRICE) - JANUARY GTA RESALE HOME SALES (UNITS SOLD) - JANUARY
2009 2009
2010 2010
2011 2011
2012 2012
$300,000 $350,000 $400,000 $450,000 3,000 3,500 4,000 4,500
James Metcalfe BROKER
416-931-4161 Royal LePage Real Estate Services Ltd.
www.OurHomeToronto.com Johnston & Daniel Division, Brokerage
Service@OurHomeToronto.com 477 Mount Pleasant Rd., Toronto, ON M4S 2L9
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2. High-ratio vs. second mortgages
Personal
Finance
In today’s housing market, a large percentage of buyers are first on their first mortgage and the rate they are paying on their second
time homebuyers entering the market with less than 20% down. mortgage.
Any mortgage where the applicant is putting down less than
20% is what is called a high-ratio or non-conventional mortgage. Let’s assume that the first mortgage is at 5% and the second is
Further, any high-ratio or non-conventional mortgage has to be at 10%. The difference in interest (5%) times the amount of the
insured by a mortgage insurer in order for a bank to lend the money second mortgage (10% of $300,000 or $30,000) is the annual
to you. cost of carrying this higher interest rate component. For the
sake of simplification, let’s assume simple interest and that the
For years and years Canadians have thought they had no other second mortgage is not paid down at all until you save enough to
option than to pay the premiums imposed by mortgage insurers completely pay it off entirely. In this case the cost of carrying the
(typically CMHC). The fact is that there is an alternative that many of second mortgage is $1,500 per year (second mortgage value times
those people seem to have been unaware of – a second mortgage. the difference in interest rate, or $30,000 x 0.05). Since we know
A second mortgage is a mortgage that is placed on the property that the premium for having only 10% down is $5,400, we know
with a second claim to the property in the event of any defaulted that you have over 3 and a half years ($5,400/$1,500) to pay off the
payments. While the second mortgage gives a lender less security second mortgage before it is no longer a sound financial decision.
than an insured mortgage or a first mortgage, it still represents a If you can pay off the second mortgage before this time then you
secured loan to the lender. have saved yourself money.
Generally speaking, a second mortgage will be at a higher level This is of course a simple explanation of how to look at the numbers.
of interest with a shorter term than a first mortgage – typically 1 To determine your exact savings you would have to consider the
or 2 years. While the higher interest rate on the second mortgage fact that the insurance premium is also added on to your mortgage
portion will increase the size of your monthly payment, it gives you resulting in you paying interest on the premium. Another important
one very important benefit – you will not have to pay the pricey element to consider is that by using a second mortgage you tend
mortgage insurance premiums imposed by insurers like CMHC. to commit to paying down your mortgage quicker thus saving on
interest you may have been paying later on had you not chosen
Let’s take a look at a simple example of the decision to get a second this option.
mortgage as opposed to accepting mortgage insurance. The first
thing to consider is what the insurance premiums will cost you. The
chart below shows the cost of the premiums for various levels of Down Insurance Loan Insurance
Payment Premium Amount Cost
down payment on a $300,000 home purchase.
5% 2.75% $285,000 $7,837
Since there are only a very select few people who can get a
reasonably priced second mortgage for over 90% of the purchase 10% 2.00% $270,000 $5,400
price, let’s consider the 90% scenario where the premium is
$5,400. To the consumer, the only extra cost incurred by having a 15% 1.75% $255,000 $4,462
second mortgage is the difference between the rate they are paying
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3. The value of up-to-date surveys
Legally
Speaking
Many buyers think that if they have title insurance, they don’t need a For example, are all fences and backyard sheds you see included on
survey when they purchase a home. In order to properly understand the survey? Are all hedges that separate the boundary lines accurately
this issue, we first need to look at the advantages to a buyer of having represented? Has the deck in the backyard been expanded?
an up-to-date survey when they purchase any property.
Look for survey monuments – metal or iron stakes that are found on
Buyers have faced all kinds of difficulties over the years when they many boundary lines, sometimes with orange or red paint at the top,
purchased a property without a survey from a licensed surveyor. to help you find them.
These include:
These monuments clearly identify the boundary lines between
- building a house on the wrong lot; neighbours, as well as cities, municipalities, and counties, and
- building a swimming pool on part of a neighbour’s property; indicate that a surveyor has conducted a historical review of the
- building a cottage on land owned by someone else; title to your property. It is a criminal offence in Canada to knowingly
- and discovering major easements after closing. remove a survey monument.
It is always preferable to have a current survey before you buy Take a measuring tape with you, as well. If the survey states that
a property: you’ll know about fence lines, encroachments, and the distance from one fence line to the other is 40 feet, measure it
easements before you complete the transaction. Encroachments yourself. If the survey says it is 40 feet from fence to fence, and you
include your neighbour’s garage that is partly on the land you are look at the fence lines and the area between the fences, you may
buying. In addition, surveyors carry their own errors and omissions not be able to complain later about a one or two-foot difference
insurance coverage. If they make a mistake, their insurance may between survey and reality. Case law is not on your side. Take the
provide more protection than your title insurance policy. time to measure as you walk the property.
Sellers can provide different types of surveys to buyers. The most The date on the survey is less important than the information it
desirable is a survey plan and report signed and sealed by a registered contains. For example, if a survey was prepared six months ago but
land surveyor. You can compare this survey to the title described in the seller built an addition onto the home three months ago, the
the deeds and other documents registered against title, to make survey is not up-to-date. Often a 10-year-old survey will show all
sure all is in order. Most sellers don’t have this type of survey, but current structures and boundary lines. You can rely on that 10-year-
they may have other types of surveys that can provide a similar level old survey to demonstrate the soundness of your title.
of comfort. This would include an older survey that still shows the
current location of all structures, fence lines and easements on the In summary, buyers should always request an up to date survey from
property. their sellers, to have more certainty as to the quality of their title.
Yet they should still walk the property with their survey, to measure
Whatever type of survey you receive, be sure to walk the property distances and compare what is written with what can be seen on
and compare what you see with your own eyes to what is on the the ground.
survey.
This article was contributed by Mark Weisleder, a Toronto-based lawyer, author and
speaker to the real estate industry. Please visit him at www.markweisleder.com
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