Thursday, March 26, 2009

Ouch. An attempt at clarifying the true impact of the new Ontario sales tax.

[Apologies if this post isn’t tightly edited. I’m trying to get my take on the whole “harmonized” tax thing out while it’s timely and (I hope) can clarify some of the misunderstandings out there. So I’m banging out a story at the end of a long day.]

To summarize:
• The harmonized tax will add a few thousand dollars to the cost of any home transaction if you factor in taxes on commissions, legal costs, moving costs, etc. Not nice, but not the massive impact implied in some stories.

• The tax WILL add an outrageous hit to an already nasty tax on NEW CONSTRUCTION homes.

• The rebates etc will help those buying less expensive homes and those with lower incomes. There is zero help for the rest.

• We have until July, 2010 to beat it or work on changing it.

• Has it occurred to anyone how much money gets sent to the government on a new-construction home versus a comparable resale home?

The story with a little more detail and embellishment:
On Wednesday, the night before the budget came down, I choked on my dinner while watching a TV news item on the impact of a harmonized sales tax on housing. After panning a number of lovely old Toronto homes, the reporter spoke to the camera and to a young couple standing in front of a central Toronto real estate office.
He showed them and the audience figures suggesting the taxes on a $745,000 home could increase by almost $47,000! The young couple went into cardiac arrest and the earth stopped spinning on its axis.

Digital Video Recorder to the rescue. I rewound and listened again. Despite all the visuals the word “housing” was generally modified by the adjective “new”.
Sure enough, the numbers being quoted were from a recent study done about and for the new-construction housing industry.

If, as I suspect, the young couple accosted on the street were actually hunting a resale home in the city somewhere, and even if they were going for the ¾ million dollar job, then GST, PST, or the proposed HST (“Harmonized” being a rather friendlier word than “combined” when describing taxes) does not apply.
The only direct impact of the combined tax would be on the commission paid by the Seller. Sellers currently pay GST on the commission. The new tax would add a little less than $3000 to the Seller’s cost on the above sample sale. Not insignificant; not a good thing in the current economy and housing market. But far from the $50k impact suggested.

Further hits would appear in services such as legal costs and moving costs associated with moving.

Tonight, the actual budget bomb was dropped. Harmonization was there, but so were a few “sweeteners” to help us swallow the medicine. It’s bad medicine, and if you are middle class or above in Toronto, you don’t get much sugar!

There are a few exemptions (kid’s clothes, diapers, etc.). There is the $1000 paid to you if you don’t make a pile of money (over $160,000 for a household), over the first year. The rest of the budget has some tax reductions at the lower income brackets.

And there is a rebate on new home purchases that will be likely be hyped up to Disney-esque proportions. Three quarters of the provincial portion (6% out of the 8% tax) on new construction will be rebated to buyers of homes under $400,000. Smaller rebates will come to those buying in the rather narrow bracket of $400-500,000.
This helps buyers of modest condos and townhouses and some homes outside of the higher-priced Toronto area.

But if you buy a new-construction home for more than $500,000 you get ... bupkus. Nothing. The $745,000 home in the first example will indeed have an added $47,000 tax hit.

Another thing that early reports have not emphasized is the effective date. July, 2010. So you have over a year to fret about this. And whine. And maybe there will be changes.

There will also probably some market-distorting rush to sign newhome deals before whatever magic date is selected for the tax to kick in.

Biased? Me?

With apologies to our builder and developer colleagues, this whole analysis has provided a related “aha” moment for me.

The vast majority of our business involves resale homes. While we see the appeal and benefits of a brand new house, and there are certainly situations where it is the best or only answer. We are, however, also aware of the issues and overall we prefer an “experienced” home. All of the “whys” may be grist for another post someday.

But we had never factored the tax story into our new vs. Resale comparisons. I have no objection to paying my fair share of taxes, but I tend not to seek out ways to pay extra tax.

It now occurs to me that when choosing between two equally appealing homes, one new and one resale, there is a huge tax difference. The cost of the new one involves a direct submission of 5% of the sale price (GST) to the Feds. After July, 2010 it will also involve another 8% to Queen’s Park. The resale home ... doesn’t. Back to that $745,000 house. In round numbers, we’re looking at sending the government $100 grand for the new one.


This is a first take. I may have further information or modifications later as more information is available. If the whole thing is as clear as mud, don’t hesitate to ask me to try again. And, oh yeah, I do have a dusty old MBA degree somewhere but I’m not a tax expert.

Sunday, March 22, 2009

One Tree-ific Deal... and one not so good.

Spring is in the air. Want a tree? Go HERE for a way to get a free tree on your boulevard, etc. or a good deal on a tree for your yard.

Want to save some money on electricity or gas? DON'T sign up with anybody who shows up at your door. CBC's Marketplace just did a hidden camera thing and Direct Energy, Universal Energy, and the others by implication didn't come out looking very good. If you do want to explore possibilities for energy contracts, try for some objective advice and the ability to choose the option that suits your needs.

Thursday, March 19, 2009

98% of list ! NO, NO, NO, NO !!!!

[See update at end]
This is a pet peeve of mine. In two days, two flyers in my own mailbox from fellow agents emphasizing a property sold for, respectively, 95% and 98% of list price. Before anybody gets excited, the senders have done nothing wrong and what they say is true.

But I would STRONGLY suggest that you not give ANY weight to the fact that the property sold for a high percentage of list. Why? Let's check out these two mailings.

The first one is really pretty straightforward and accurate, claiming a 95% sale-to-listing ratio and a quick 10 day sale. This is very good in today's market, where the days-on-market and sale-to-list ratios are starting to look like the numbers we saw in "the old days". My only point is that this property was a fairly unique, higher end home, and the 5% below list represents almost $80,000!

The second one more clearly shows why we don't use these statistics and why we don't think people should use them to evaluate a representative. The home in question is promoted as having sold for 98% of list. It did. 98% of the LAST list. The full story is that the home was listed for 68 days at its original price. It was then re-listed at a slightly lower price. Sometime later the price was reduced another $20,000 and ultimately sold for almost $12,000 below that number.

This was quite likely a fair price. The time and pricing changes were likely quite understandable given that the whole thing was happening while the market was trying to decide what to do in response to economy spasms.

But, the way we look at it, the property sold in 3 1/2 months for 93.7% of the original list. That very likely indicates good work under the circumstances. But I doubt you will ever see it on a postcard.

This post qualifies as part of a series. My intro to how NOT to select a rep. was posted previously. You can find it here.

[Update: A client recently pointed out how this statistic could be useful.  The client agreed with me that using the sale:list ratio of the majority of agents would in no way distinguish or rank them.  However, she suggested that an unusually low ... OR HIGH ... ratio would be a good reason to eliminate an agent.

You aren't likely to hear anybody bragging about a low ratio.  But the point was that it would indicate an agent who encouraged or accepted prices that were too high AND did little to market them.  The result: limited reruns, reductions, etc and a home taking a long time to sell. 

OK, that was pretty much just academic.  Not many agents are like that.  If they were, they would have figured out how to disguise the statistic and/or you would never hear about it.  But too hight??  Yup, my client suggested that a high ratio implies properties being under-listed to encourage a quick sale not necessarily at the best price.  I'm not sure that would happen in the recent/current sellers' market where under-pricing is a viable -- and often annoying -- strategy.  But in a more balanced market, as many are now predicting ... good point. April 17, 2011]

Sunday, March 15, 2009

I Hate My Job.

No, I love my job. But I hate my job TITLE.

I am allowed to call myself a Salesperson or Sales Representative. Lee has taken courses to qualify her to open and operate a real estate office, so she is a “Broker”.

Any of us who do not state somewhere in ANY promotional material that we are one of the above; or are so bold as to instead call ourselves a Consultant, Manager, Facilitator, Guru or some sort of real estate deity … is breaking the rules set out by provincial legislation. You may notice the commonly used "agent" isn't mentioned... not allowed. We've been known to break that rule in the interests of common sense and common usage, but by law it's not right.

Yes, I “sell” my services in order to attract clients. The end of the most active period in a “job” is a “sale”. We certainly produce a wide array of marketing materials to assist in the sale of a home. We work with buyers and sellers to help THEM get a sale. We negotiate on behalf of clients. And so on.

But we cringe at the idea that we sell homes. The implication is that our job is to get a buyer to buy or a seller to accept an offer. It isn’t. Our job is to help a buyer find and acquire the right home for them. Not the first home, or the most expensive home, or the one that pays the highest commission rate. The Buyers buy it.

Our job is to help a seller market their home effectively in order to get the best possible offer for them. Not the first offer, or the one that closes fastest, or the one from our own buyers because then we get more commission. The Sellers sell it.

That's the job: work with clients through the real estate buying/selling process so that they are happy and satisfied at the end. I like it. The title ... not so much.

Wednesday, March 11, 2009

Haven't I seen you in a movie ? ...

An article for you ... . I guess all the chat about the makeover of Gordon Pinsent's condo is interesting, but the most important line in the article is:

"I contacted my real estate agent and Janine was at the top of the list." I'm sure Leah's actual words were "my amazing incredibly excellent real estate agent Lee Martin..." but magazines will insist on editing.

Congratulations Gordon and Leah. Good work Janine, Trinity Gallery et al.

Tuesday, March 3, 2009

Hot Off the Press: RLP Estate expands / Market News

The focus of this blog is not self-promotional . But it is supposed to include local real estate news, so I think the following info qualifies.

Our brokerage, Royal LePage Estate Services, has announced that it will be expanding it's convenience, service and size.

We currently have two offices on Queen Street.
At the end of March, the Hammersmith office will be closing (our "home" at Glen Manor remains). How is this expanding?

Good question. Easy answer.

We will be taking over the building at Kingston Road and Victoria Park which is currently a Prudential office.

This provides us with increased space and facilities, and a strong presence in both the Beach and the Upper Beach.

Personally, we hope this will even further enhance our ability to serve our clients, particularly in the areas we have lived in for nearly thirty years.

AND ...
The Bank of Canada rate dropped AGAIN this morning and banks immediately followed. If you are a first timer, or a move-up buyer and have some stability in these difficult economic times, it may be time to leap into the market (as opposed to out the window). Sorry if this, too, sounds promotional. But, ...

Prices are lower. If you are a first time buyer, or you are moving to a larger home in a similar market, your dollar costs are lower than they were in the peak market.

Free money. Almost. The Bank of Canada rate is now one half of one percent. Rates cannot get much lower.

This perspective is not for everyone, but there are some great opportunities out there. Not everyone should be hiding in the basement waiting for "it" to be over.