Monday, June 06, 2005

It's going to cost how much?

Babble on.

Seeing as I live in a house I can barely afford - or barely not afford, depending on the month - over an hour's commute from work, on a postage stamp lot, in a shiny new development with no mature trees and a park that's still being built, I think about housing prices. A lot.

So, it seems, does the irrepressible Sean of PolSpy fame. Especially since he's selling his house at this very moment - or trying to. And of course, Sean thinks about all of it in much funnier terms than I do.

Being Canadian, the best way to deal with stress is to hand it over to the government. We obviously need a massive federal program that buys homes from Canadians at the listed value and then takes care of selling it on their behalf after they have moved out. I think this is a very viable idea with tremendous social engineering opportunities. In fact, I think I’ll write a letter to the PM suggesting this right away.


My old comrade Not the Pointy Haired Boss is thinking about this stuff as well, having just completed a move to a locale about ten minutes' drive from my own (sounds like backyard barbeque time!).

Let's assume that you have a two-storey home and that your overall tax burden nets out at 27%. Based on this, 42.6% of your pre-tax income becomes a whopping 58.4% of your post-tax income! That's a little scary.


Yup. Lie-awake-at-night sort of scary sometimes. Snap-at-your-wife-for-no-good-reason sort of scary. Or, um, so I've heard.

But here's a little good news, for a change, on the cost of buying a home.

With a national average home price of almost $250,000, having a real estate agent sell your house could cost as much as $12,500.

Are you okay with that? Most people are, but in case you're not there's a new website you should know about that aims to change the way people sell their homes in Canada.

BuyOurHouse.ca is building a national database of on-line home listings that you can get your house into for $99 to $179 (free trials available). You also get a sign for your front lawn, open-house signs and legal documents.


Full disclosure: one of my family members is behind this site, and I'm hoping he does well by it. But I also just think it's a good idea, for the same reasons as Rob Hyndman:

To my mind, real estate agents provide three types of service. First, they help project manage the sale process. Second, the provide information about similar sales to help with valuation of a home to be sold. Third, they help with information about homes for sale.

#1 continues to be a useful value-add, for some people. But the internet, had it been left alone to do its business, would by now have obliterated the traditional value proposition for #2 and #3. And if it is allowed to do that, the only way for commissions to move, of course, is down. Which they will, once we can get past the obfuscation.


It won't help with the ongoing costs of owning a home, or the unexpected ones that seem to crop up when you can least afford them, but if it can save you thousands of dollars up front by using it, and drive down the costs of those who insist on using a real estate agent as a side benefit, a venue like BuyOurHouse.ca is worth supporting.

Babble off.

5 Comments:

At 1:20 PM, Blogger Declan said...

Like legal fees or accounting fees or so on, real estate commissions are one of those hefty (and like you say, increasingly less necessary) transaction costs which is a real drag on the economy.

So I say good luck to Buyourhouse.ca.

 
At 4:26 PM, Blogger BCM said...

It is scary. I'm moving up to Aurora in August for my first house.

I've just picked up the "Smith Maneuver", which teaches you how to convert your mortgage interestr into deductible interest. I'm a CFP and I've been going over it and have not yet found anything "wrong" with it.

 
At 12:54 PM, Blogger J said...

I'm a licensed real estate agent, though I deal in negotiation of commercial lease documents, rather than home selling or sales of commercial buildings. My license is more of a legal requirement than anything else; I rarely even earn commissions, usually just working on a contract basis.

I've never bought or sold a home, but in my mind, the cost of a professional (and by professional, I really mean qualified, reputable, capable, and experienced) representative in the home selling process is probably well worth the money in many instances.

Like I said, I don't know much about selling homes...but Wells Fargo provides the following checklist for the home-selling-process:

Develop a home-selling plan
It’s important to set clear goals and decide at the outset how involved you want to be in the selling process.

* Make sure that this is the right time for you to sell. Evaluate market conditions and your reasons to sell in light of alternatives, such as home improvement or refinancing.
* Choose a listing agent to sell your home for you.

Do necessary repairs
Walk through your home as a prospective buyer would. Check:

* Flooring
* Plumbing fixtures
* Lighting fixtures
* Heating and ventilation systems
* Doors and windows
* Interior paint
* Exterior paint
* Outdoor drainage systems
* Driveway and walkway (for cracks)
* Outdoor watering systems
* Roof

Make minor improvements
Add small cosmetic touches that might help you sell the home. For example:

* Spruce up the entryway to make it more inviting.
* Plant flowers in the front yard to increase drive-by appeal.
* Remove and store belongings that clutter up rooms.
* Make other home improvements deemed essential.

Price your home
Set a realistic price. You want your home to sell in a timely fashion, not make buyers speculate on why it is just sitting on the market.

* Check sales prices of comparable homes.
* Consider getting a home appraisal.
* Know whether it’s a buyer’s or a seller’s market.
* Settle on a price.

Market your home
Now the real adventure begins — will the home sell?

* Advertise with "for sale" signs, print listings, and/or online listings.
* Obtain necessary purchase contract forms. (You may want your attorney to review these forms for you.)
* Decide your contingencies and other terms of contract.
* Show the house through open houses and walk-throughs.
* Negotiate an offer. (You may want your attorney to review the offer before you sign the contract.)
* Sign purchase contract with buyer.

Close the sale
After working through any remaining considerations, you simply need to get through all the paperwork.

* Choose an escrow company or lawyer, as appropriate, to administer the closing.
* Deliver the legally required disclosure documents to the buyer.
* Meet required inspections.
* Receive loan commitment letter from buyer.
* Obtain title report (through escrow company or closing agent).
* Meet all other contingencies and legal obligations.
* Sign escrow instructions.
* Arrange to pay off the existing mortgage(s).
* Pay all closing fees.
* Consider tax implications.
* Celebrate!

They also offer advice on how to set your price, another key factor.

It seems to me that if someone can help me with all of that, especially since I've never done it before, and especially since I wouldn't really care to spend what sounds like a TON of time doing it, for...I dunno...10 or 15 K, that's sounds like a pretty reasonable deal.

 
At 1:16 PM, Blogger Babbling Brooks said...

Johnny, I work in the insurance industry, solely on commercial accounts. From my background, I am fairly familiar with commission-based selling, and with justifying said commissions based upon value-added expertise.

Years ago, the property and casualty insurance industry went through a transformation similar to what we're about to see in home sales, with the introduction of 'direct writers' like RBC Insurance and BelAir Direct into the personal-lines market (home & car insurance for individuals).

Overall, this shift has been good for my industry. Personal lines policies are fairly standardized, and those consumers who feel they can navigate these relatively simple shoals (compared to other forms of insurance, at least) have the option of buying direct - over a 1-800 line or on the internet. Insurance professionals no longer have to spend valuable time arguing with consumers who refuse to see the value of a broker.

Those who see the benefits of expertise, and are comfortable with the price of that expertise stay with a broker.

I see the real estate market in much the same way - a do-it-yourself option will separate those who see value in expert guidance from those who don't. It will also force those agents collecting hefty commissions for very little work (and you and I both know that many sales don't follow the Wells Fargo road map you cite) to either improve their service, lower their rates, or get out of the business.

As I said, overall, this is a good thing.

 
At 12:10 PM, Blogger Fraser Smith said...

Hi Damien,

We'll get along. I was on the national executive of the Reform Party for 6 years.

BCM is a financial planner and indicates he has found nothing wrong with the mortgage strategy in my book "The Smith Manoeuvre". The concept revolves around the idea that people with mortgages pay huge amounts of interest on their mortgage loans each year but the interest expense is not tax deductible like it is in the USA. The Manoeuvre changes all that. If your readers will take the time to sit with a financial planner like bcm who understands how the strategy works, they will be able to turn their mortgage interest into tax refund cheques every year for the rest of their life. In addition, they will knock years off their mortgage and build a personal pension plan for their family in the bargain.

This is in the category of too good to be true, as I know only too well, but if your readers will spend a few minutes on my website they will read dozens of testimonials from financial planners, financial gurus and citizens who have done it or are doing it.

I am doing free public seminars for Bick Financial the evening of June 22 in St. Catherines, and the 23 in Ancaster. Info at their website www.bickfinancial.com

My website is www.smithman.net

Thanks for the plug.

Fraser

 

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