Cracks in the garage floor.

I often see cracks in garage floors; heck, I even have some in my own garage. Most people assume they aren’t a problem, but that’s not always the case.

I recently previewed a home for clients that had a giant crack running from one side of the garage to the other. Outside, the crack ran up the foundation and disappeared under the siding. (I had seen a similar crack in a brick sided home before and the brick on the garage wall had all started to sag, in that familiar step-down pattern that shows structural problems.  A bit of research on that one and I had discovered it was a serious problem — the garage was attached to the rest of the house and if the foundation is sagging, it can take the rest of the house with it.)

Anyway, I contacted the listing agent of the home I’d previewed to see if he knew anything about the crack — it was obvious that someone had tried to parge it, but  that didn’t work, the crack had expanded. And he said not to worry, a garage floor isn’t structural, it’s like a basement floor with a crack in it.

But I knew that wasn’t correct. So I went back and did more research to refresh my memory. And sure enough, what I had seen was a sign of structural damage according to this website: 

Another serious concern suggested by a floor slab crack can be inferred if if the floor cracks track to corresponding cracks in the building foundation wall. If you follow a basement or slab floor crack across the surface to the foundation wall, and if you find a crack in the foundation wall which maps onto the wall from the end of the floor crack, there is risk of more serious foundation damage and further investigation by an expert is warranted.

From what I’ve read, it can be an expensive fix so well worth being cautious. Sometimes the cracks can be “mud-jacked” which means injecting concrete into the holes and spaces beneath the crack where the ground has shifted or dropped away. But it can also require breaking up and re-pouring the entire concrete floor. And in some instances, you have to lift up the entire garage to do that.

So my advice is don’t assume that a garage floor crack doesn’t mean anything, and don’t assume that your realtor is an expert if they tell you it isn’t significant. If one side of the concrete is higher beside the crack than the other, it can be a sign of serious heaving. Anything over the width of two nickels is well worth investigating. This is one of those situations where I wouldn’t rely strictly on my home inspector, either; I’d bring in someone who knows concrete/foundations. In Ottawa, I’d call Steve and Chris at Ardel Concrete Foundations – they’re the best.

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What is an escalation clause?

An escalation clause is a clause put into an offer to buy a property by the buyer that says the buyer will pay “X” more than the best offer received by the seller. It usually contains a cap. Are they a good strategy for a buyer? I don’t think so. Here’s why.

The buyer’s agent thinks an escalation clause will narrow the gap between what his client will end up paying and what the next best offer was in a multiple offer situation.

For example, the client has a maximum price in mind of $ 600K but doesn’t want to overpay. An escalation clause indicating that buyer is willing to pay $ 5K above the highest offer would mean that if the next best offer was $ 550K, the client would only pay $ 555K instead of $ 600K. That seems sensible for the buyer, right? Well, I think that’s completely wrong. Instead, the buyer has disclosed their bottom line and a savvy seller will take full advantage of it.

By specifying in the offer itself that the buyer is willing to pay up to $ 600K, the buyer is now negotiating from a position of weakness. Why would a seller ever accept an offer for $ 555K from someone who has clearly stated they are willing to pay as much as $ 600K? The smart seller will either counter the offer back at full asking price, or send all offers back and tell the buyers to come back with their best price.

So then, an escalation clause is good for the seller, right? After all, they now know what that buyer’s top price is, and assuming it is the best offer, they can take advantage of it and get top dollar. What’s wrong with that?

Well, if I am acting for the seller, the escalation clause  adds uncertainty to the buyer’s offer. Instead of being able to accept an offer, my seller has to counter back. That applies even where my client accepts the escalation clause amount , because we have to change the purchase price on p. 1 of the Agreement of Purchase and Sale to reflect whatever calculation resulted from its use, and that’s considered a counter. The buyer can then either reject our counter or counter back, and we’ve now rejected all the other offers as we can only counter back one.

Accepting the buyer’s offer also implicitly tells the buyer that the next best offer was $5K below theirs, which is a breach of our Code of Ethics not to disclose the contents of a competing offer.

If I had a close offer with no escalation clause and one with the clause in it, I’d recommend my clients take the one that didn’t have the clause, particularly if the offer was conditional. One issue I see with accepting an offer that has an escalation clause in it  is that the buyer now knows they were $ 5K ahead of the other buyer (in my hypothetical) and may use that knowledge to try to wrest concessions in price over financing or the home inspection.

Our manager says an option for us is to simply strike out the escalation clause and send the offer back to the buyer with their maximum amount written in as the new purchase price. That gets around any disclosure issues, but it is still a counter and I don’t like counters because they mean we may not have a deal.

Overall, in a multiple offer situation, I think every buyer should come in with their best offer upfront. Now that these clauses are creeping into the business, I  may well get my sellers to sign a Form 244 (Seller’s directions for sale) saying that they will not entertain any escalation clauses in offers and that they do not want to see any offers that contain them. That would force buyers to bring their best offer in from the start and without the uncertainty and ethical issues around the use of these clauses.

(Besides, I can’t even imagine what might happen if you had a whole bunch of offers with each one containing an escalation clause: it would be a real Rubik’s cube trying to sort out whose offer was best. Again, I think I’d send them all back and tell them to come back with their best offer so we can make a decision.)

Our brokerage does not recommend the use of these clauses, by the way, they think they will cause all kinds of problems, and I agree. For our governing body’s position on them, see this link to RECO’s recent article, What you need to know about Escalation Clauses. 

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Staging works! Another example.

I helped a friend get a townhouse ready for renting over the weekend. It’s an older unit in a complex where two other units are also for rent. So the first thing we agreed was that the rent needed to be lower than theirs. And I decided it could use a little staging.

On a rental, it’s not worth staging the entire property: it would be prohibitively expensive. But you can do a lot in a kitchen and baths, and in a few key areas.

Here are my before and afters.

There is a beautiful wood-burning fireplace in the living room but nothing to show it off as a focal point. Nothing fancy – a few vases, a plant and a picture and what a difference!

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The main floor powder room was convenient and cute, just needed to be dressed up a little to show it off.

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Same with the upstairs MBR ensuite. I don’t have a “before” picture, but I can show you how I changed my mind about having a white shower curtain and went with something with more interest.

I hung the white shower curtain first but then I thought it didn’t really do much for the room. Better, but not enough.

The shower and tub surround is made up of beige tiles with peachy-red accents and looked a bit dated. While the white shower curtain hid the surround, the new one works with those accents and makes the room seem more modern. (You’ll note how I picked up the peachy-red in the floral arrangement as well.) Since the MBR has a light teal cupboard, I used a shower curtain that had a similar tone it as well.

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Much more interesting, don’t you think?

I didn’t do much with the kitchen, but it had a couple of open areas above and beside the fridge that I thought were a little odd, so I staged them with  a wooden tray, some interesting vases and cookbooks to draw the eye away from the white spaces.

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And then I popped in a few accessories on the counters and to dress up the empty shelves and add a little life.

Did it work?

Well, we’ve had four or five showings already; there was a showing this morning with someone who is very interested and we have a realtor showing tonight. So I would say yes, definitely!

 

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Flooding! What you need to do to protect your home (now and in the future) #Ottawa

Ontario is facing massive flooding at the moment; the photographs coming out of places like Rockland, east of Ottawa, and Gatineau, on the other side of the river, are astonishing. (Photos courtesy of http://www.cbc.ca)

Photo published for Quebec set to provide update on severe flooding

Photo published for Ottawa-Gatineau flooding: Maps of road and path closures

We have a lot of parts of the city where homes are constructed on flood plains; in some areas, like Britannia Heights, berms that were constructed a few years ago are holding, but in others, anxious homeowners are watching their belongings float away.

What can you do to protect your home now and in the future?

If you know you’re in a flood plain, move your valuables to the second floor and put your furniture up on blocks if you can. But the most important thing once the flooding starts is to get out of there ASAP.  Evacuation in Ottawa is not mandatory at the moment, but it’s not a good idea to stay in your home; it’s going to be very hard for first responders to get to you if there’s a problem. (Photo courtesy of 1310 News)

Turn off your power. If  water has reached your wall plugs or is above your baseboard heaters, do not enter the basement: there is a serious risk of electrocution. Don’t take any chances by going back in again on your own, either. And once you do re-enter, after the water level has gone down, do not turn the power on yourself: let your utility company do that. They will have to disconnect the meter first.

 

Once you are safely out of your home, call your insurance company to find out if you’re covered.  Flooding is considered an Act of God and may not be included in your policy unless you paid the extra premiums for a rider.

If you are insured, your insurance company can give you advice on what to do next: you may be covered for hotel and other expenses while you are out of your home.If not, call your city councillor. In some parts of the city, hotel rooms have been reserved and other spaces have been set aside. You’re not alone.

Once the flooding is over, take pictures and make a list of the damage. But don’t just assume that because  the water is gone that your property is safe to live in. There may be mould  behind the drywall.

If  you are insured, your insurance adjuster will take care of remediation, but if you aren’t, get someone with a thermal imaging camera over to take a look and  see what’s damp (most home inspectors have these). Drywall wicks water: whatever is wet needs to go. Pull it all up: carpet, drywall, plywood, anything that’s wet.

Mould can ruin a house quickly and the spores travel from room to room. With warm weather around the corner, you’ve really got to get anything damp out of the house or dry it out as soon as you can. Use plenty of fans; open the windows.  Wipe down walls with bleach or a product specific to mould, and be sure wear a face mask. Throw out anything that got soaked that can’t be salvaged. That includes the appliances if they got wet, too – don’t take a chance on anything electrical. Wires  might short out and cause a fire or worse.

After all your efforts if you see signs of mould, hire a contractor that can deal with mould remediation.

Flooding can happen any time — it isn’t always from weather, it can come from burst pipes or a sewer backup. Be sure you have that extra coverage when you renew your policy next year; for the extra $ 80 or so bucks, it’s well worth it.

One more thing: Ontario has a Disaster Recovery Program that can help with repair costs once you’ve dealt with insurance, or don’t have it. It’s a $ 500 deductible and you only have 120 days to apply. Be sure to keep a list of all damaged items, and remember to hang onto those photographs. Here’s the link.

And if you aren’t affected and want to help, the City of Ottawa doesn’t need volunteers but Gatineau does need help with sandbags. You can call 819-595-2002 to find out more or call 3-1-1 if you are in Gatineau. Finally, Constance Bay Community Centre has put out a call for volunteers to help with sandbagging efforts.

 

 

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Bridge Financing – what is it? Do I need it?

Bridge financing refers to a situation where you have to pay for your new house and you haven’t sold your old one, or where you’ve sold the old one but the closing date falls after the closing date for your new home.

You essentially will be carrying two properties, one of which has to be completely financed until you can get the money out of the other. And so you need to “bridge” that period with new financing.

Bridge financing used to be relatively easy to obtain, but not any more. The new financing rules introduced last year have tightened up lending and made it much harder to borrow. I was shocked to learn recently that banks no longer pay much attention to your equity, only income. The  fact you have a clear title home, a great  credit rating, and money in the bank, isn’t enough —  you have to have enough income to qualify for the loan and with higher debt-service ratios and new stress tests, it isn’t easy.

And that makes it difficult for folks who are asset-rich but self-employed or on a pension.

I’ve spoken to two mortgage brokers about this. Both  confirmed that bridge financing is a lot harder to get than it used to be.

They suggested taking out a secured line of credit if you own  your existing home clear title  (you can borrow up to 65% by a LOC and you don’t have to use it until you need it). You can get another 50% secured LOC on the new house. But there are costs: appraisals on both properties (around $ 450 each) plus legal fees and registration fees. And if you tell your lender you’re planning to sell, you may not get the loan at all: lenders don’t like secured LOCs on houses that are going on the market.

If you don’t own your existing home free and clear, this option won’t apply. You may have a portable mortgage, but you may need more than that.

If so, you may be looking at alternative lenders or specialty products. There is one for realtors, for example, but we have to have 20% cash down. Even then, the lender wants to charge a fee of one per cent of the amount of the loan, so if we are buying a $ 600,000 house and have $ 120,000 in cash, we’d have to pony up $ 4,800 in fees, even if the loan is only for a few days or weeks. I find that a bit draconian, don’t you? Frankly, it’s verging on usurious, in my opinion.

Other options require that you have one-third in cash, or as much as fifty per cent as a down payment, and even then you’ll face a higher interest rate. How many of us have two or three hundred thousand sitting in a bank account? Not too many, I’d guess.

Some lenders want you to actually put a mortgage on the new house, or face a three month penalty to pay it out. Any way you look at it, it’s expensive. So there are no easy answers, not even for people with great credit who, like me, assumed that borrowing would be easy.

So what can you do?

Well in a slow market, you might be able to persuade a seller to accept a right of first refusal, allowing you to sell your home first before you have to firm up your purchase of theirs. But that’s a lot harder to get in a hot market, and even then, you may find that you are forced to close on the second house before the proceeds from the first sale are in the bank.  You had better be sure you qualify for bridge financing, just in case a firm deal collapses — it’s been known to happen.

My advice to buyers used to be to buy first and then sell, because it’s usually a lot harder to find a place you love than it is to sell your house.

But because of the problem with bridge financing, my advice has completely changed. I think you have to sell first and arrange to stay in rental accommodation, or at the cottage, or with relatives, until you find the home you want. Or have lots of cash on hand, and be ready to swallow some very big fees and penalties.

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I’m buying a new build home – do I really need a realtor?

So you’ve decided to buy a brand new home, built from scratch – how exciting! The builder has a salesperson who seems very knowledgeable and the price is non-negotiable. Is there any reason to have your own realtor?

Well, that salesperson acts for the builder, not for you, so my short answer is “yes.”

I recently helped a client navigate the purchase of a new build condo. I prepared a long list of questions (these appear on a previous post). These included things like, for example, where the HVAC was going to be located (turns out the A/C was going to be on the balcony, which would reduce the usable space, but not on the roof above, which can be noisy), and whether there was any rental equipment where the costs would be passed onto the buyer (yes, a tankless hot water system, at $ 40/month). I won’t go over them all again, but there were probably a good twenty or thirty things I wanted to have information about so I could make sure there were no red flags.

I negotiated a $ 5,000 decor upgrade package for her as well, as an incentive. That upgrade meant she could put in granite countertops and a granite breakfast bar instead of laminate and also covered the cost of a deeper, double stainless steel sink and a kitchen faucet.

In a new build condo in Ontario,  the buyer has a ten day cooling off period under consumer protection legislation where they can change their minds, no reason required. Most use that time period (or should) to have their lawyer review what is often a very lengthy, confusing agreement.

I referred my client to a lawyer who deals with the new condo builds even before we had an accepted offer from the builder’s head office (i.e. before the ten day period began) so that we could get that review done quickly. To do so, I got a copy of the draft deal from the sales centre and sent it to the lawyer for review.

The reason for wanting to move quickly was because the sooner we reached an accepted offer, the sooner the builder would move to finish the unit, and my client wanted a summer move-in date, so earlier was better.

I followed up on things like making sure the decor package was referred to in the written agreement and that the parking spot that was pointed out to her during her site visit appeared in the schedule. I also liaised with the sales centre, lawyer and client, and made sure that verbal promises were put in writing.

After the legal review was completed by her lawyer, and we got a final copy of the accepted offer, I made sure that it said what it was supposed to say and that my client’s lawyer signed off on the changes.

Then, with the deal firmed up, I went to the Design Centre with my client to help pick out finishes. While we were there, she mentioned that the salesperson at the Sales Centre had shown her a different type of hardwood/stain  than the designer indicated was standard; I was able to negotiate the inclusion of that hardwood for free for her as well. The value of that upgrade was about $ 1,000, so in total, I saved my client $ 6,000. in decor upgrades.

The builder, I should mention, pays my commission so none of these services cost my client a penny. She’s thrilled, and I feel that she got good value by having me involved.

One thing you should know if you do wish to use a realtor is that most builders require that the client be registered by their realtor when they first show up in the showroom , or they won’t cooperate with us (i.e. won’t pay us a commission). So if you want a realtor’s help, don’t just drop by the Sales Centre — call your realtor first so s/he can set things up with the builder directly. Sometimes they want us there; other times, they agree that it’s okay for us to register later, but if you don’t give us that opportunity, we can’t help you at all.

And remember — that ten day cooling period only applies to new build condos. If you’re signing an offer for a house or a freehold townhouse, once you sign on the bottom line, you’re bound by the contract. If it doesn’t give you a ten day grace period to have your lawyer review the deal, you could find yourself stuck with terms you don’t like. All the more reason to have your own realtor to advise you.

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The New Ontario Fair Housing Plan – my thoughts on today’s announcements.

Premier Wynne announced new legislation today to curb housing prices in Toronto.

Here are my thoughts:

A non-resident speculation tax. Premier Wynne says it will apply only to non-Canadian citizens or residents who don’t live or work in Ontario, and only in the Golden Horseshoe. It will apply immediately.

If the tax doesn’t apply to those living and working in Ontario, I don’t have a problem with it. Where it was problematic in BC was where it applied to people who were planning to live and work in the province.

It will not apply to steelworkers and other exempted groups, refugees, and those who work for four years or study in Ontario for one year afterwards (I think I got those timelines right). But instead of exempting these folks upfront, it sounds as if they will get a rebate  after those time requirements have been met. (I’m not sure if I heard this correctly.)

My question is: how much of a factor are foreign non-resident buyers in the Toronto market? If it’s only 3-4%, as I’ve heard anecdotally, it’s not going to make any difference in prices.

There are no statistics, however, as there is no current data. Charles De Sousa, the housing minister, says there are around 6,000 vacant units in Toronto but I’m guessing that’s an estimate as there is no real way of knowing.

How will this tax apply to students and workers who are in the queue , i.e. who have purchased a home but are waiting to close the deal? The new rules may come into effect today but do they apply to purchases entered into before today? If so, and if those folks have to come up with that additional 15% now and then wait to get the rebate, it could be a real problem for them and create real hardship. Waiting for the details on this one.

Expanding rent controls. These will now apply to units built after 1991 as well as those before. I don’t have a problem with this at all.

New Standard Lease. This is a good idea; I’ve seen some pretty wonky leases that were drafted by landlords that included some pretty bizarre and one-sided clauses that (surprise!) favoured the landlords.

A new development charge rebate program. The plan is to work with municipalities to reduce some of the development charges imposed by them on developers. This is intended to reduce cost of building new rental buildings. Good plan if it helps; recent mortgage financing changes at the federal level has made it harder for these developers to get financing at all. If the federal government stepped in to reverse those changes and make financing easier, this could make a huge difference.

Provincial lands. Ontario will use some of the surplus Crown land to build new housing.

Paper Flips. This will apply to assignment clauses, where a purchase is assigned before closing to another buyer at a higher cost. It doesn’t sound like the practice will be prohibited; instead, the government will require disclosure so it can make sure it collects the appropriate land transfer taxes.

It doesn’t seem to address the situation where the seller gets less than fair market value for their property because they rely on a realtor who brings them a buyer, and then “flips” the property to another buyer by assignment, which is what the BC legislation addressed. (Apparently this was a big problem in the Lower Mainland). In BC, to address this issue, they required not only disclosure but also that the seller get all the profits from the assignment.

One situation I hope isn’t caught up in the new rules are the purchase of units in pre-construction condos, where investors buy several units with no intention of living in them, counting on the underlying value of those units to go up before the building is completed. If that practice is banned, it will be hard for a lot of developers to move forward, as it is often those buyers who provide the 70% in presale value needed for developers to actually build those buildings. Again, I look forward to seeing the details.

Lower municipal tax on new apartment buildings. This should help increase supply, again, if developers can get financing. Hoping the feds loosen up those new mortgage rules a little.

Real Estate Agents. Wynne promises a review of the rules around things like double-ending. Frankly, I’d be thrilled if they ended this practice –I think it is rife with conflict of interest. I simply don’t do it. In multiple offer situations, it absolutely gives the listing agent an advantage. I’ve posted before about the conflict of interest in trying to represent buyers (who want to pay as little as possible) and sellers (who want to get as much as possible) should be obvious to everyone. I’ve also seen situations where listing agents have held off on presenting offers while they rustled up their own. But for now, nothing’s changed.

Vacant Home Tax. The new legislation will empower Toronto to enact one. I’m not sure how this would work. Snitch line? Self-reporting? Watch for a whole new underground business to develop around house-sitting.

So overall, did I hear anything that’s going to reduce those crazy Toronto prices? Not much, to be honest. They all seem like good ideas, and down the road, it may help tenants if there are new builds going up as rentals. But I’m not sure the foreign buyer home tax will make a difference for long, and if it’s not implemented fairly, it could cause hardship to those who come to Toronto to work or study.

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