Selling your house; for what it’s worth.

arms-lengthThe Appraisal Institute of Canada released a document encouraging Canadian homeowners to do their own due diligence and have their house appraised before putting it on the market.

You can read the entire document here: Homeowners encouraged to do their own due diligence when selling their home

If you have sold your home before, you understand the importance of getting the listed price right! A qualified, independent, accredited appraiser can help you do that. Both seller and prospective buyers will be more confident in the listed price, and it sets the table for an honest negotiation. It should also lead to a timely sale.

Another good reason to hire an appraiser has to do with the bank’s policy on “market value”. Whoever buys your home, assuming they will need a mortgage, has to satisfy the bank’s criteria for market value. Understand, banks lend money against a property’s market value. What is the bank’s criteria for establishing market value? Simply put, it’s the lessor of purchase price or appraised value.

In an arms-length purchase transaction, where the property was listed on the open market, determining market value can be an easier exercise. Typically, the appraised value will match the purchase price. However, as we have seen many times in markets like Toronto and Vancouver, buyers can pay well over the listed price. When that happens, there is a risk the appraised value will be less than the purchase price. This can potentially increase the buyer’s down payment necessary to obtain financing. For example, listed property for $450,000 sells for $480,000. Maximum financing from the bank will be 95% of appraised value, NOT, purchase price. The buyer will need to come up with the difference. The aforementioned risk is directly related to the amount paid over the listed price, assuming the property wasn’t listed below market value. It’s not exact science, but you get the idea.

Therefore, any effort to establishing the property’s market value in advance can be beneficial to both sellers, who want a timely sale with no surprises, and prospective buyers who can more readily determine their financing requirements.

Canada’s new federal mortgage rules

FCPPI recently read the document released by the Frontier Centre for Public Policy titled, “Canada’s New Federal Mortgage Rules: Right Diagnosis, Wrong Medicine?” 

You can read the entire document here:  Canada’s New Mortgage Rules

I decided to write the author, Wendell Cox, and share my opinions with him.  I am now sharing them with you 🙂

Hi Wendell, I enjoyed reading your editorial above, and thought I would share my opinions with you.  First of all, with respect to the disconnect between the Feds intervention and the real problem vis-à-vis land use regulations in Vancouver and Toronto, your closing comment summed it up best: “The solution is in Vancouver and Toronto, not Ottawa”.  It raises the question, again, should CMHC be privatized?  If CMHC was privately owned and operated, like the other two default insurance providers, would the Feds be able to impose this type of policy?  I think not, which would leave policy control at the municipal and provincial levels, where it belongs.

Having said that, I don’t agree with the assertion that the new rules are affecting the wrong people.  There is no disputing the new rules will not impact homes purchased at $1M and above since they do not qualify for the default insurance.  But I don’t think the people buying homes above $1M fall into the same high risk category vis-à-vis total debt to income ratios.  Perhaps the Feds got this part right, and the people buying homes under $1M are the target group.  Your concerns about Alberta’s economy and the new rules are fair.  Yet another reason why this type of policy should be handled at the provincial and municipal levels.  But that doesn’t dismiss the need to rein in the high debt to income levels affecting most of the country, and targeting the consumer groups most guilty.

My own personal opinion, as someone who has worked in the mortgage industry since 1992, addressing total debt to income ratios should be done more directly.  Forget about tinkering with down payment restrictions.  The debt service ratios (GDSR and TDSR) would be a better alternative to focus on.  Also, blanket policy changes that paint everyone with the same brush are unfair.  First time home buyers are a different animal than move up buyers.  Refinancing represent a different risk than purchases.  I would like to see greater government consultation with our industry associations (i.e. Canadian Mortgage Brokers Association) on policy reform.  Now there’s a novel idea 🙂

Thanks for listening.