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There are several tricks that you can utilize (some with caution) when pricing your home. I usually like to leave pricing of a property up to the realtor that is listing it, but from time to time you may want to provide a bit of your own input. The price of your home is important because it is usually the first thing that a buyer looks for on a MLS Listing. They want to know if your home is in their price range before they even look at the features it possesses. Many buyers simply walk away from homes due to them being poorly priced and/or confusingly priced before the buyer even looks at the property.

The five points I am summarizing below are from www.canadarealtynews.com and I found it to be a fairly good write-up on the issue.

1. PRICE IT RIGHT

In order to set the right price, check out the competition first. This is normally the job of your listing agent who will answer the question: what are similar homes selling for. Note that i wrote “selling for” and not “listed for” because there can be a large difference between the two. You need to look at how long the other properties listed and sold were on the market, what amount of price negotiation took place between list price and final price? (Only your realtor can provide this information as the final sale price is not publically available very easily). Pricing your home lower than the competition may result in many more offers that drives the price higher. Alternatively, pricing it too high may result in buyers walking away or not evening looking at the property due to “sticker shock.”

2. THE MISSING PENNY TRICK

To grab the attention of potential buyers, take a tip from discount retailers like Wal-Mart. For example, $19.99 versus $20.00. While only one penny apart in price, the brain perceives the $19.99 lower due to some psychological reason whereby people make snap judgments based on the the first number they see. As we read from left to right, if we see a 1 instead of a 2, we may, subconsciously, assume that the $19.99 is a better bargain. Therefore, listing a home at $199,999 may generate more business than listing it at $200,000.

3. RAISE THE REFERENCE POINT

If you ask a higher price, people will also instinctively assume that they are getting more value, and you will have raised their reference point. You can affect the reference point of buyers by telling them the selling price of other properties in the area. Use this information with caution however, and only if the comparisons you are drawing are in your favour.

4. SEND THE RIGHT MESSAGE

People associate precise numbers with a bargain. They assume that if you price something at $493,495 that you have thought very carefully about the price of the home and the value you are offering. Setting a round number such as $495,000 conveys openness and a willingness to negotiate. Note, however that setting too specific a price may convey that you are not very open to negotiation as you have a very specific value in mind. Use this trick with caution.

5. MAKE PRICE CUTS EASY TO UNDERSTAND

We perceive easily computable (but smaller) discounts as better than larger (but confusing) discounts. When a home has been on the market for a long time, the logical move is to reduce the asking price, but by how much? The trick here is to reduce the price by an easily computable amount. For example, if you were asking $495,495 you would want to reduce it to $485,485 as this is an easy to calculate $10,000 price reduction. You wouldn’t want to drop it to $478,995 as this is a confusing discount that cannot be easily calculated in one’s head. Make the number nice and easy to calculate so buyers can see how much they are saving easily and without a calculator.

This article was re-printed and summarized from www.Canadarealtynet.com

This is part three of my three part series on refinancing to invest or buy other property types.

Many buyers assume that the rules that apply to buying a recreational (vacation) property are the same as those that apply to buying a home. This is incorrect. The rules for obtaining financing on a recreational home are very different as there are a number of new concerns that the buyer likely doesn’t face on their existing home.

When purchasing an owner-occupied property (your home in which you live) the government will let you purchase with 5% down (until October 15, 2008 you can actually buy with 0% down). However, when purchasing a vacation property (which likely does not have a steady rental income) you will be expected to put up a larger down payment. If the property is VERY rural and is, say, located on an isolated lake with no power and a gravel road, you likely will have to put up a much larger down payment (could be as high as 35% or 40%) depending on the property. When most buyers see 35% down they immediately ask “why???” and the answer is not straightforward. However, if it was summed up in a single word, it would be “property.”

HOW PROPERTY AFFECTS THE BANK’S SECURITY
When the bank does a mortgage on a property, they are looking at the deal as a “what if the worst case scenario happens ” type of basis. They want to be sure that if they have to foreclose on the property and take it away from you, that they can sell it in a reasonable amount of time and get their money back. Recreational properties (rec properties for the rest of this article) are much harder to sell in a quick sale, and often stay on the market for many months (or even years) before a buyer makes an offer. This problem is amplified even further if the property is located in a very remote location. If the property is just raw land that you intend to use for future construction, financing may not even be possible at 50% of the price as lenders will have an even harder time offloading the property in the event of a foreclosure. If you go far into arrears and are unable to make payments (regardless of the reason) the bank could be using that money elsewhere with a paying client. There is an opportunity cost that they face by lending you the money – that cost is the opportunity of lending it to someone else. If you are in arrears, and as the arrears pile up, the equity you have in the property gets eroded more and more with each passing month. If the bank is foreclosing and they want to drop the price a bit to get a faster sale, they can’t if the interest has piled up and if you didn’t have a large down payment in the first place. For this reason, they will want a larger down payment the further and further out the property gets and the more remote its location. For this reason, the property is the most important issue.

A FEW NOTES ON INCOME
You will need to be able to show sufficient income to cover your existing mortgage payments (if applicable), all other debt payments, and the new mortgage payments. While this sounds straightforward, it becomes surprisingly hard if you are paid commissions, work a lot of overtime, or are self employed. While proving the income might not be impossible, doing so in a manner that satisfies the lender that you can afford the payments may be difficult.

WHAT ABOUT THE SEASONAL RENTAL INCOME THAT THE PROPERTY MAY GENERATE?
Perhaps you have plans to rent out the property most of the year to vacationers and only use it yourself for a few weeks a year. This could generate a healthy bit of income. However, this is a very tough number to predict unless you have a regular tenant in the property, and in most recreational areas, this is not possible. Unless there is a contract with a certain amount of rental income guaranteed every month, the bank will not factor in any rental income. If they do, this property couldn’t be used for recreation and would be a standard investment property and would fall under standard investment property guidelines. Given the importance of property to a bank’s lending decision, a recreational property would likely make a poor investment as rental income would be very limited if at all available – depending on the property’s location.

THE IMPORTANCE OF RATE
Many times, banks flat out refuse to finance certain recreational areas or rural areas due to internal policy. There can be a number of reasons for this, but it is usually driven by the bank’s own guidelines and desire to lend on properties in “prime” areas that are saleable quickly and with minimal hassle in the event of foreclosure. If the banks decline you, that does not mean you cannot get financing, however. There are several non-conventional or non-conforming lenders that will charge a higher rate of interest, but who WILL lend on hard to finance properties. Many of these lenders (perhaps 99% of them) only deal with mortgage brokers, and for this reason you should seek out the services of a qualified mortgage broker who can connect you with lenders across the country that will lend on rural or rec properties. This is commonly referred to as “Private Financing” and is often more expensive. Private mortgage rates, historically, have ranged from 9% to 15% depending on how rural the recreation property is, what percentage of the property’s value you will be borrowing, and the credit worthiness of the borrower. The good thing about private financing is that income often doesn’t matter, and for this reason, a lot of recreational properties are financed this way.

WHAT IF THE LAND MAY HAS A LOT OF DEVELOPMENT POTENTIAL OR LARGE ACREAGE
This actually makes financing even harder as the banks generally do not like to finance raw land. They usually will only lend based on the house (or cabin) on the property and 10 acres of land. Otherwise the deal becomes predominantly a land deal and they treat it as such, even if it has two homes on it! Development potential is also very difficult to finance because the banks are being asked to lend money TODAY based on the value TOMORROW. This is something that they simply will not do. If a property has a lot of development potential built into the price, or is very large acreage, this can make financing it very difficult.

DETERMINING VALUE
When you are buying a rec property for, say, $200,000 the banks will only lend whatever they will lend. However, they will not base it on the purchase price. They will base their willingness to lend on the “appraised value” of the property. They will almost certainly demand that an appraiser (often from their list of approved appraisers) drive to the property, walk around on and in it, take photos, and prepare a lengthy and detailed report. In a normal purchase of a normal property in a city, the cost for this usually is less than $300. However, with a recreational property, often in a remote location, the appraiser has to drive far out of their way to get to the property and the cost can run as high as $800 or $1,500 depending on the lender’s requirements. For this reason, it is good to have an appraisal in hand BEFORE going to bank for financing as it will guide their decision much more strongly than in traditional purchase situations.

Clearly, there are a lot of concerns when buying a recreational property, and it is a good idea to talk to a mortgage broker that is used to financing properties in remote locations with unique characteristics. As their advice often costs nothing to obtain, it is in your best interests to seek one out to shop for you and get the best rate, terms, and structure that fits your unique financial situation.

This is part two of the three part series on refinancing.

Many clients have built up equity in their home and would like to use this equity to purchase an investment property. The benefits of this can be large, but there are costs and concerns that an investment buyer needs to be aware of. It often is not enough just to have the equity in your home. In 99% of cases you will need to restructure your current mortgage and physically take the cash equity out of your property to put as a down payment on the new property. This may result in you paying an interest penalty with your current mortgage lender roughly equal to three months worth of payments (this is the standard in the industry, but not always applicable – contact your broker to determine what penalty will apply). This brief report will outline the costs and process for buying an investment property.

For the purposes of this discussion, we will assume that you bought a home 4 years ago for $250,000 with 5% down. The property has since appreciated and is worth $400,000 and your mortgage has been paid down to $200,000 leaving you with $200,000 of built up equity that is not working for you. You see a condominium that you want to purchase as an investment and want to minimize the fees and taxes that you will pay, so you speak to your broker about the best financing option to make this happen for a condo that costs $300,000 to buy.

It is best to put at least 20% down payment on the new property as this avoids costly CMHC fees, and also keeps the mortgage amount lower so that the rental income may cover most of the payments that you have to make to hold the property. In this case, the scenario looks as follows:

$400,000 Value of Your Current Home Today
$200,000 Mortgage remaining on your current home
$200,000 Equity built up in your property

$300,000 Price of the new investment condo (rental property)
$60,000 20% cash down payment required to avoid fees
$240,000 New mortgage required

In this case if you talk to your broker, they can advise you on the best way to tap into that equity. It may be to keep your existing mortgage and get a line of credit. The best option for you, depending on your situation, may be to refinance your home, pay out your existing mortgage, absorb the penalty, but get a lower overall rate and payment with savings sufficient to offset the payment over the term of the mortgage. This is a complicated analysis that is VERY dependent on your job, the stability of your income, your other debts and payments, and the values of the properties in question. Unless you are a financial analyst by profession, don’t leave this type of analysis up to yourself. Using a mortgage broker costs you nothing, and they are experienced in advising clients on what the best structure is for them. There are many permutations and ways that this structure may look, so take the time to seek professional advice.

Once you have decided to purchase the property, and you have been approved by your broker, you need to consider your “closing costs” as well as your “carrying costs.” Closing costs are those costs that you will need to pay up front, in cash, to buy the new home. Carrying costs are the monthly ongoing costs to carry the mortgage and own the new property as a rental.

The closing costs you will face when buying an investment property are (not all are always applicable):
1. Property Transfer Tax (in BC, on the $300,000 condo this would be $4,000 of tax)
2. Legal Bills to purchase the property (roughly $1,200)
3. Appraisal Costs to determine the value of the new property by a qualified professional (roughly $250)

The carrying costs that you will need to budget for are:
1. Your monthly mortgage payments (on the existing home AND the new property)
2. Annual Property Taxes (as this is not owner-occupied you pay the full property taxes without the $570 BC grant)
3. Monthly strata fees (if the unit is a condo, townhouse, or other multi-family unit)
4. Utilities not covered by your tenant agreement (can vary widely)

The costs you will face when you eventually sell this property are:
1. Realtor commissions (Assuming you sell it for $400,000 in 5 years, the stand commission will be $14,500 in BC
2. Capital Gains (you have to pay taxes on your profits!)
3. Legal Fees to sell the property (roughly $1000)

Do not overlook the taxes! Oftentimes this is the single largest number and has turned many an apparently lucrative deal into a break-even scenario. You should be prepared to sit down with your broker and do a cost analysis before putting in an offer on the property.

Lastly, it is important to mention the just because you have built up equity in the property does not mean that you automatically can be approved for the new mortgages. There are many factors that the bank takes into account when “qualifying” you for the mortgages such as verifiable income (in Canada), credit history, other debt payments, potential rental income on the new property, and a myriad of other factors. Your broker is the best person to talk to about all of these issues as the can answer you, before you spend any time and money, on whether or not the situation is realistically going to get approved. As your broker charges no fees for this consultation (at least, they shouldn’t), you can get the free advise required up front and no fee for their services if and when you decide to buy a rental property.

This post is the first of a three part series that I will be writing detailing how and when to use the equity in your existing home or rental properties for investment, recreational properties, and maximizing returns.

The equity in your home can be accessed and utilized to earn even greater returns for those clients willing to look at alternative strategies to doing so. Many Canadians view their home as an investment, but this is incorrect thinking. Everyone needs a home and will have a housing payment unless they own their home clear title. During the time in which they own the home, a person will benefit from the appreciation of the home by building equity in their home. However, it is possible to take advantage of that equity and put it work while still also benefiting from further appreciation. In effect, you can use the bank’s money to go out and make more – and the interest on this is tax deductible!

Before jumping into refinancing, it is important to look at your existing mortgage and determine if there will be penalties to get out of your existing term and into a new product. In over 90% of cases, unless you have an open term, there will be a penalty that is roughly equal to three months payments. The banks have the legal right to exact this penalty, but there are ways to get around it or mitigate if you are using a mortgage broker familiar with the lender’s policies. The options to get the equity out of your home are many, but the most commonly used are:

* 1. Blend and Increase
* 2. Refinance

With a “Blend and Increase” you will leave your existing money at the existing rate, and borrow the new money at the current rates. This will keep your mortgage with your existing lender, and will, in most cases, avoid an interest penalty. However, for blending and increasing there is no guarantee that you are getting the best possible rate on the overall structure. This is where it pays to have a broker shop around for you and go to multiple lenders and see if any promotions or specials are available that would result in a lower overall rate even if you take the penalty into account. Once you’ve made a decision on the most cost effective structure, you can decide on whether to keep your existing lender or go to a new one. Oftentimes, banks compete most aggressively to get new clients, and moving your mortgage instead may be the best option.

By paying out your existing mortgage and getting a new one at another lender but facing a penalty, you would be doing a “refinance” where we would be restructuring the debt and possibly starting the mortgage over again. This may result in substantially reduced monthly payments, more cash flow (to invest, if you wish), and a better overall rate.

Once you have the equity out of your home, how you invest it is up to you. You could buy stocks, bonds, mutual funds, real estate, or invest it in your own company. The choice is yours. At this point you still own the home and are still benefitting from the appreciation of the home, and at the same time can use that newly tapped equity to invest and earn additional income. This is a way of using the bank’s money to make money and is commonly referred to as using “Other People’s Money” to invest. So it is possible to earn double the returns using just your mortgage when it is properly structured. And oftentimes, if you restructure the mortgage properly, you may end up with lower overall payments, and the added benefit of using Other People’s Money to invest.

A couple of caveats here:

You will still need to “qualify” for the extra money with the bank. Just because you have the equity built up in the property, does not mean you can automatically borrow against it. The bank will want to see a good track record of credit repayment and solid, verifiable, taxable income (in Canada) in order to approve you for more money.

Just having a small amount of equity will not allow you to put this plan into action. In general, to avoid any fees (such as CMHC fees which can be thousands of dollars) you will need to have at least 20% equity in the property. Put another way, your mortgage will not be allowed to exceed 80% of the market value of the home. Who determines this value? A qualified appraiser will provide a report to the lender that supports the value of the home, and so long as your mortgage is not greater than 80% of the value, you can avoid any fees from the bank or CMHC to set this up.

Doing a proper analysis of which lender, which product, and which rate is not a simple task and should be left to a qualified professional. Speak to a mortgage broker about the best option, and whoever you choose to deal with, make sure they respond to your inquiries promptly, and clearly understand the concept of refinancing for investment purposes.

A December 2007 report written by Dale McClanaghan and Jason Copas, prepared for the Homeowner Protection Office (HPO), says that nearly 60% of B.C.’s leaky condos still need fixing. Estimated costs for these repairs over the next five years could top $700 million, according to the report.

The problem was and is most pervasive in condos built between 1982 and 1999, and the report estimates over 72,000 units are affected province-wide.

The Homeowner Protection Office is a provincial Crown Corporation that offers resources, funding, financing, and solutions to owners of homes that suffer from water damage due to building envelope penetration. According to an article by the Tri-City News, the report was done so that the Crown corporation could estimate the future demand for funds and analyze patters and trends in loan demand. The office was established in 1998 in response to the Barrett Commission that sought to analyze the leaky condo crisis.

According to the article in the Tri-City News, some 30,000 homes have already been repaired, but an estimated 42,000 further homes require work. Around 6,000 to 10,000 units will be repaired in the next five years, and this could result in assistance loans of anywhere from $445 million to $696 million. The article goes on to say that only 38% of leaky condo repairs have been funded through the Homeowners Protection Office since the program began. The official line is that owners are eligible for assistance if they have less than $10,000 in liquid assets. However, from my personal experience, I have seen many people that have the assets also get the funding if the Homeowners Protection Office looks at their unique situation and deems the loan the best option. Typically, they don’t want to see someone having more than 20% equity in the home, as it could be borrowed from the bank. That said, I have recently had clients with 25% equity in a high end Yaletown Condo get an HPO loan despite the guidelines. It pays to ask the questions and at least apply!

In 2000 the average loan was $24,144 and this has more than doubled by 2007 to $63,511.

My own personal experience in these matters shows that this cost has a lot to do with the skyrocketing price of trades. However, in a meeting today with a large developer, he was explaining to me that the cost of trades is no longer climbing and that a high rise they are building currently actually received bids far under their budget for the first time in the past 10 years. With construction easing all over the lower mainland as home sales slow down, many people in the trades are looking for work and the bids for large projects are tightening up as tradesman seek to get work in a slowing market. The rise in the amount of loans may also have to do with more and more problems being found now that we (the market) have awoken to the problem and started looking harder at every building that is out there. I would expect the amounts of the loans to level off, but that is just my opinion at this point – as is everything else on this blog.

If you are considering buying a building, you should do your due diligence to read the strata minutes, disclosure statements, and ask the property manager if there are any known issues with the building. Find out who built the property, and do a check with a lawyer to see if they are named in any litigation stemming from their building or warranty practices. Ultimately, the best defense against having to pay these fees is to not buy the property in the first place. The age of the build (1982 – 1999 with an emphasis on 1990 – 1997)) tells you a lot about its construction. Some developers are better than others. Ask around when you buy your place. If the building turns out to need repairs, and you go back and look at the strata minutes and documentation, make sure that you don’t regret your decision in hind-sight. The home buying process is an emotional one, and people often forget to cross their “T”’s and dot their “I”’s when they are in the thick of the process. If you won’t do it, as your broker or realtor to do it for you. You’ll be glad you did.

A few weeks ago the Vancouver Sun ran a couple articles on oil tanks and even provided a few horror stories about experiences that certain home owners have had. Many people in the industry scoffed at the idea, and a local broker function, I heard the words, “the oil tank problem is pretty much cleared up in Vancouver now.”

Nothing could be further from the truth.

There are still thousands of oil tanks out there in the ground, and oftentimes even the owner of the home doesn’t know it is there!

WHY ARE OIL TANKS IN THE GROUND IN THE FIRST PLACE?

Oil tanks were installed in the ground of all homes build prior to 1962 (approx) when heating oil was used to heat homes instead of the natural gas we are all familiar with today. When the natural gas was installed and become the norm, many owners opted not to dig the oil tanks out of the ground due to the prohibitive cost, and instead usually just back-filled them with sand, or pumped them dry (as dry as could be) or filled them with cement. Rarely did owners have the environmental forethought to dig them out of the ground. As a result, they were left in the ground forgotten, as the property passed from owner to owner over the years, every trace of them disappeared… for a time being.

Several of those tanks are now rusted through, and the small amount of heating oil left in them is leeching into the ground and spreading throughout the property, contaminating the soil on the subject and nearby properties!

Nowadays, if banks get wind that an oiltank is in the ground on a property, they will demand that it be removed prior to the completion, or that a holdback be established from the sale proceeds to pay for its removal. This can be a deal killer in many instances where knowledge of the oil tank only arises a few days before the completion date.

If the vendor selling the house knows about it, they are obligated (in BC) to disclose this fact when they sell their home on the PCDS (Property Condition Disclosure Statement) which accompanies any MLS or realtor-involved sale. However, many sellers take the easy way out and fail to disclose the tank, or legitimately don’t know about it as the property may have changed times 10 times since the original owner who knew of the tank sold it, or passed on. The obligation is on the seller and the seller’s realtor to disclose the fact that the property has an oil tank on it. However, failing that, the buyer’s agent should always put the oil tank clauses in the contract on any homes build 1962 or earlier such that if there IS an oil tank, it will be the responsibility of the seller to take care of its removal.

The B.C. Fire Code demands that the tanks be removed and have environmental engineers assess the damage. The rules on how to deal with it vary by municipality, so check with your municipality to see what is required in your area.

I have worked with a pair of clients through an oil tank horror story, and had a few contractor friends of mine tell me their own stories, so I thought I would publish these stories for people to read and learn from. It is better to be informed as this is a potential environmental disaster, as my second story will demonstrate.

CONTRACTOR NIGHTMARE IN KITSILANO

One of my friends was working on a massive refurbishment of a single family dwelling in Kitsilano. The owner of the home was a general contractor that bought homes, fixed them up, and flipped them for a profit. He wasn’t just your average “flipper” of real estate. This guy added real value, and in this case they jacked the entire heritage home up into the air, and installed a basement underneath the house. Hardly a typical renovation!

As part of the renovation, they wanted to add some paver stones as a walkway around the side of the house. It was a very narrow lot, and the side of the house had a bunch of loose gravel and limestone crush. My friend was a general labourer on the job. The owner had decided he wanted to remove a lot of the loose gravel and limestone from the side of the house as it was uneven, and had my friend using a shovel, pick-axe, and wheel barrel to get the excess out so the pavers would sit flat on the ground. After taking about 6 inches off the top, there was a large sink-hole that they hit and the ground sunk a couple of inches and some water leached into the hole overnight leaving a lot of mud when they returned the following morning.

Dismayed, the owner had the guys dig all the mud out and they were going to put in some drainage rock. The city inspector was coming onto the property this morning to ensure the lifting of the house and installation of the basement was done according to code. It was during the inspection that my friend heard his shovel make a resounding “clonk” on something in the mud. The owner and city inspector came over when it happened as they thought they may have hit the water main servicing the house. As they uncovered more and more of the metal, it became clear they had run into an oil tank buried, unknown, on the property.

The owner looked at the inspector, who raised his eyebrows when the depth of the problem become evident.

“You are going to have to get that removed, and the environmentals done,” he said to the owner. The owner just nodded at this point, knowing there was no easy way out of this situation.

The following week a tractor and crew arrived and dug out the hole and took all contaminated soil and mud away in a large bin. Fortunately, the tank had NOT been leaking, but the problem cost $5,000 to fix when the cost of removal, disposal, and environmental studies had been done. In this case, the owner was a skilled contractor with healthy profit margins who could afford this type of thing to happen, but to the average family the $5,000 is a hard hit. Had the tank been leaking, it could be hundreds of thousands more.

BURNABY ENVIRONMENTAL DISASTER

One of my best clients was buying a piece of property in Burnaby at the bottom of a very large hill. The home was an older home build around the turn of the century with 6 rental suites in it. It was a character home, and surely had an oil tank at some point in the past, but no mention of it was made on any of the property disclosure statements and listings.

As I was personal friends with this client, I agreed to meet him there for the home inspection as he wanted me to see the house he was buying, but also to let him know if any of the older homes features would restrict the available financing that he needed.

We stood in the back of the property with a view of the surrounding farm land and green houses when I turned to the house and noticed an old pipe hidden under a piece of flashing running along the side of the house and into the ground.

“Was there any mention of an oil tank on the property?” I asked casually.

Everyone around me froze and got uncomfortable. I knew there was no mention of it in the contract, nor on the disclosure, but the selling realtor looked white as a ghost.

“No, why?” asked the client.

I walked over to the wall and gestured to the pipe and explained that there were usually iron pipes that ran from the tanks to the furnace in the house. I followed the pipe to where it went into the ground, and about 10 feet from the house could see a threaded pipe of about 1.75″ diameter sticking out of the ground by about 1 inch. It was hard to see, and if I didn’t know what I was looking for, I wouldn’t have noticed it.

As soon as I pointed it out, all hell broke loose with the realtor claiming they had verbally told the buyer about the “possibility” of the property having an oil tank, and that they had all agreed to keep it out of the contract and have it dealt with quietly before completion. The owner also stated he was sure it was backfilled with sand and that there was nothing to worry about, but he was a 90 year old man owning 12 properties around the area and was sketchy on whether or not that occured with THIS property or some other. I realized I was walking on thin ice, and told them that with only 2 days until completion, we would need an extension and probably a price reduction to compensate my buyer for having to pay to have it removed. They agreed to a 2 week extension and a $10,000 price reduction. In hindsight, that was the worst deal we could have taken!

We had a company that specializes in oil tank removal come and take stock of it the next morning. He put a measuring tape down the hole, and it came up with 2 inches of clean heating oil on it. It had to come out. The bank, when they got wind of this, immediately said they would not fund the mortgage until the tank was removed and an environmental report furnished showing that any contaminator was gone and that no environmental threat existed as the house and land was their security. If it was contaminated, it could be a liability far greater than its value as an asset.

The following day a tractor and crew arrived and began digging. It took them 2 days to dig a hole big enough to get the massive 100 gallon tank out of the ground. It was larger than the usual oil tanks because it had to feed a massive 6 unit house. When they got it out of the ground, we found that it had several holds…. all about 2 inches off the bottom. The soil in the hole was black and greasy, and the smell of heating oil was thick in the air. The crew looked worried at how bad of a job this was going to be.

They decided to wait until the next morning to use a pump truck and get the oil out of the hole. When they returned the following morning, the hole was filled with oil, water, and fecal matter! What no one had realized was that they managed to break the sewage line on the property in the process, and given that the property was at the bottom of a major hill, all the groundwater had run down the hill and flooded the hole. As the oil is lighter than water, it floated to the surface and was now spread over the entire back yard. The buyer was grim when he saw the work the following day, and the pump trucks came and took three loads of contaminated water away to be destroyed.

Water was literally pouring through the sides of the soil, and the workers had to dig with their backhoe as fast as possible, with the pump trucks going crazy trying to keep the oil from further spreading the oil. Twenty five dump trucks and over thirty pump trucks later (not to mention $50,000 in cost) the job was done.
The entire back yard had been dug up and replaced, and the environmental company that came was worried that given the length of time, and the water table running under the property, that the full damage would never be known. It was possible, they hypothesized, that the tank had been FULL when the rust holes had appeared in the side and that it had drained down over the years so that only the 2 inches below the hole remained. If that was the case, the water table that poured under the soil and through the drainage rock beneath the house could have taken the oil far and wide. Given that the property was surrounded by farmland and greenhouses, this could (and may yet be) a disaster of epic proportions. However, testing of the surface soil of the surrounding properties showed no contamination, but an in depth study of all surrounding commercial, farm, and residential property has not been undertaken.

WHAT TO DO TO AVOID THESE PROBLEMS:

1. If you are a seller, get that tank out of there!
2. If you are a seller, disclose, disclose, disclose! Tell your buyer about it and save the legal hassle later.
3. If you are a buyer, and the home is built pre-1962, make sure the “oil tank” clauses are in the contract.
4. If they aren’t in the contract, make sure that all disclosures are there and indicated that no tank exists.
5. If you are a buyer, do a personal inspection of the property and have your inspector do the same

There are still some homes running on heating oil in Surrey, Burnaby, and North Vancouver (and a few other areas but these are the ones I still encounter them in), and as an investment I would just steer clear of these homes. Other opportunities exist. Unless you are dealing with a surface tank, or one that you know is not leaking, just walk away.

So, these are a couple examples of stories that involve oil tanks. I have a few more of them and they have killed a couple deals for a couple of my clients. Take the high road: disclose, and do your part for the environment and get it removed. You will be glad you did.

So yesterday the Vancouver Sun shamelessly published more sensationalism by making the Vancouver real estate market sound a lot worse than it really is. There are a few highlights I would like to point out from the stats released and they are as follows:

The benchmark price of a home in Vancouver, excluding Surrey, fell by 2.1% from May of 2008 to July of 2008. So in a three month period of time, the market has dipped by 2.1% in the first pull-back that has occurred in prices in around 8 years.

In Surrey, over roughly the same time frame, prices fell 6%. When you consider the average home was over $500,000 this means that someone (every home owner – allegedly) has lost $30,000 in the last few months in real estate.

Is this true?

Short answer: Yes.

It’s right there in the math. The benchmark price of homes has fallen. The real estate market has taken a backwards step, and my opinion is a steadfast, “So What?”

This is what markets do: they fluctuate. You should expect it to happen. In fact, a 10% swing up and down is not only uncommon, it is NORMAL! What we have seen over the last 8 years has not been “normal” with prices steadily increasing by percentages in double digits… 12%… 18%…. 23%… or MORE in some markets. Are people’s wages and income rising this fast? Absolutely not. So why should this type of price increase be sustainable? It simply isn’t.

Now, for those that had the gumption to read beyond the sensationalist headlines, you would see that the actual opinions of the experts is more upbeat than the headline suggests. In fact, Cameron Muir, Chief Economist for the B.C. Real Estate Association, said he does not believe that a housing bubble existed and has now burst. “Typically, at the end of a market cycle you will see home prices remain flat, or even come off a few percentage points a year, until the next cycle begins,” said Muir in an interview.

Note that he said “a few percentage points a year” and not “a few percentage points.” Yes, the market could down trend for the next few years. It is possible, and likely long overdue. People can say, “it’s different this time,” or, “but the olympics are coming,” or, “but this is the best city in the world for x y and z reasons,” and this is the self same rhetoric that people hear before ever major price decline.

So, what is my opinion? Is this the end of the market? Should you NOT get into real estate?

I think that a slight down trend, or a long levelling off period is long overdue. Prices have gotten away from earnings and wages, and as a broker that sees how people qualify for mortgages, almost ALL of them we do are 40 year mortgages, and we do them because without them, the people don’t qualify for the home. When the average family cannot afford the average home, something is out of whack, and one thing about nature and markets is that when something is out of whack, it will eventually be brought back INTO whack.

Does this mean a market meltdown? I don’t believe so. I believe that over the next year or two, there will be a lot of inventory on the market as speculators and “flippers” have to sell their projects or “spec homes” to get out of under the mortgages. I suspect this will extend the already existing “Buyer’s Market” for quite some time with properties staying on the market longer, fewer “multiple offer” situations, and create lots of great buying opportunities for shrewd buyers looking to buy and hold: the only universally successful real estate investment strategy, in my opinion.

I still think that real estate is a good investment. Even if the market repeated the fall of 1981-1985, those people that stayed the course always came out ahead. There has been virtually no 5 year period where someone has bought real estate and lost money except in specific isolated markets with unique market forces at work. Real estate as a whole in Vancouver has been a very lucrative investment for a very long time, and given the attractiveness of the geography, the great employment and jobs, the tourism, and all the things that make a city great, I do not see real estate ever falling off the map as a viable investment.

So what do you do? I still suggest the same thing now as I did before: buy as much house as your wallet can afford, live there for five years, take a fixed 5 year mortgage (or longer) to ensure payment stability, and start paying down the mortgage. Worst case scenario is that you make no money after five years and stay in the home for another five. By that time, no matter what market we are looking at, you will have made money. What is the alternative? Renting? Long term that isn’t a great plan either with no appreciation potential despite the lower risk that renters face of market forces.

So there is my plan: business as usual. Buy a home in a desirable area, close to amenities, close to schools or schopping or other attractiveness, and it will always have value. Try to make a buck on a quick flip and you will be the author of your own misery unless you are very very shrewd and able to move and flip faster than the market currently seems to allow.

Happy hunting!