Brian Madigan Candidate for Board of Directors ~ RECO Election 2012

By Brian Madigan LL.B.

The election for directors to the RECO Board will commence on 9 April 2012 and run until 17 May 2012.

Under the circumstances, I will release the majority of my platform before 9 April 2012, so that electors may make an informed decision.

I will be dealing with the following:

• Professionalism

• Specialization

• Incorporation

• Education

• Discipline

• Insurance

Let me know if there are issues and topics which you are concerned about?



Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.

http://www.ontariorealestatesource.com/

Home Inspector Misses the Basement Floor Drain ~ Any Liability?

Home Inspector Misses the Basement Floor Drain ~ Any Liability?


Ontario Real Estate Source


By Brian Madigan LL.B.


This is an interesting situation. A buyer is concerned about buying an older home, one that is about 80 plus years old. It was renovated about 5 years ago and is situated in a fashionable part of the city.

Naturally, his agent recommends a home inspection. One of the main worries is whether the house will pass the “water test”. Is any water getting in through the roof, windows, doors, basement or any other place.

The home inspector gives the property an A+.

The home inspection clause is waived, the deal closes and 4 days later there is water in the basement around the boiler in the furnace room.

Further inspection reveals that there was water damage, mould, and a hidden floor drain.

Several months earlier there had been a major sewage backup. The sewage entered the basement through the main drain. It damaged the broadloom. So, here’s what happened:

1) the carpeting was removed,

2) the place was cleaned up,

3) a subfloor was constructed,

4) laminate was installed over the plywood subfloor.

With all this new construction, the floor drain was covered up. It was still there, under the subfloor and the laminate.

Certainly, if there were another sewage backup, the water, moisture, resulting mould and odours would likely be trapped by the laminate and the subfloor.

So, the basic question is this: was the home inspector responsible?

There was no other drain in the basement. Should the home inspector comment on this and point out the fact that there was no drain to be found? And, perhaps mention to the buyer that a drain in the basement should be installed?

Now, I appreciate that you can’t see where it is once it’s hidden under the subfloor, but should it not at least appear on the checklist.

The specific issue that concerned the buyer in the first place was water, and this risk materialized.

Do you think there is any liability on the home inspector?

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888

http://www.ontariorealestatesource.com/

Seller’s Disclosure: the Rules

Seller’s Disclosure: the Rules



By Brian Madigan LL.B.


Real estate professionals are obligated to conduct their own due diligence when taking a listing. That is part of their “professional responsibility”.

They owe that obligation to their clients, themselves and the public.

Here is an excerpt from the RECORD a publication of the Real Estate Council of Ontario (RECO), the governing body, dealing with sellers and taking a listing , made in its Fall 2011 issue:


“Working with sellers


When acting as a listing representative it is possible that the material facts may already be known by the client/ seller, but the obligation to determine and disclose still exists and is relevant because the seller may not appreciate the potential impact of the material facts.


For virtually all material facts, the “reasonable steps” required for determining those facts will go beyond simply accepting the seller’s verbal representations. Some research and supporting documentation will be necessary.


In addition, the “fairness and honesty” provisions of the Code of Ethics oblige a seller’s representative to disclose known material facts to a buyer’s representative.”


Comment


The seller may not appreciate the potential impact. That means the disclosure, or failure to disclose or even the concealment or deceptive representation that may go along with that.


Honesty is the best policy, but some sellers unfortunately will often try to trade-in a little honesty for a higher sale price.

The role of the listing agent is to address that matter and have a full and frank discussion.


Agency is one matter. That means acting in the best interests of the client. But, joining in any arrangement for active concealment or misrepresentation is not allowed. The real estate agent is a professional and must adhere to the rules of their profession. The Code of Ethics applies and prevails over any allegiance one might have to the seller. The truth must be told!


If the seller chooses not to reveal certain facts, the real estate professional must determine whether those facts are material. If they are, then the professional is under an obligation to disclose them. But, not the seller. So, the seller may choose to go it alone. Sell as a private sale. Follow the “wild west” approach for “FSBO’s” and remain silent.


When it comes to sellers, while they may in certain cases have the right to remain silent, silence is not always golden. Silence drives the price down. Just ask any “power of sale” vendor. They are sophisticated, and they have chosen to offer the minimum in terms of information. That translates into the price. No information, and everyone wants a discount.

A real estate professional may have to disclose. The reason is simple: the Code of Ethics. The result then is clear:


1) accept the listing, and agree to make the disclosure,


2) reject the listing.


It is important to note that just acceptance of the seller’s comments is not enough. Questions must be asked, and satisfactory answers must be given. Then, at a certain point, the “professional” will conclude that they have enough information. But, until then, the investigative inquiry must continue.

It is no longer sufficient to say: “the vendor didn’t know”. That may be fine, but what’s the “professional answer”.



Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888

http://www.ontariorealestatesource.com/

Restrictive Covenants on Title ~ Shed in Cottage Country

(Ontario Real Estate Source)

By Brian Madigan LL.B.

Question:

I am confused when it comes to what represents a valid title objection for the buyer to terminate an agreement.

In the case of a cottage property which has a shed built at a distance of 70 feet from the shoreline but the buyer finds out later when his lawyer is doing the title search that there is a restrictive covenant on the property that prohibits the construction of any buildings within 100 feet of the shore line.

Because this restrictive covenant is not being complied with, the buyer has in this case a valid objection to title and may terminate the agreement.

Answer:

The first question here is to determine whether or not it is material. The next question, assuming that it is material, is to determine if there are any remedies. The seller has the right to offer remedies first. Assuming none are acceptable, then the agreement can be declared to be at an end.

Question:

But what about if there was no shed? Would the buyer have to purchase a property if he/she finds out later from the lawyer that there is such a restrictive covenant?

Answer:

Please read the standard form title clause. It says the buyer agrees to accept restrictive covenants that are being complied with. That means “no breaches”. No shed, of course, means “no breach”. Without saying anything else, this buyer will have to accept the title, even if it comes as a surprise.

Remember, that you can change anything you want, so change this clause so that the buyer at least gets the opportunity to decide whether or not the restrictive covenant is acceptable.

Question:

Also what about if you sign an agreement of purchase and sale as a buyer and you find out later from your lawyer that there is a right of way (or any other important restriction on title which was not disclosed on MLS).

Answer:

This sort of matter shows in the public record. Search it first so that
there are no surprises. If you don’t want to pay for the search ahead of time, then change the agreement, because you are otherwise stuck if you use the standard wording.

When the buyer finds out from his lawyer, he will be annoyed. Then, when the lawyer says the he’s stuck with it because that’s the way you worded the Offer, he won’t be too pleased with you.

Question:

Do you have to buy or would this be a valid objection to terminate the
agreement?

Answer:

As indicated, you are stuck with this. Change the Offer. Not everything is on the MLS.


Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Buying Life Insurance from Banks or Refreshment Counters

(Ontario Real Estate Source)



By Brian Madigan LL.B.

Who would ever buy life insurance from a bank? That would be rather unusual.

But, it actually happens quite often. Banks offer life insurance to match the outstanding debt on a mortgage or personal loan. But, it’s not like buying life insurance generally.

The bank’s representative is not qualified or licensed to sell life insurance. That doesn’t mean that they are not trying to get you to buy it. Frequently, they make a commission or bonus based upon your purchase.

So, let’s say you buy it. That means you get to pay premiums until you die. So far, so good. You “qualified” to pay the premiums. But, now you’re dead, does your beneficiary get any money. Now, that’s a totally different question. This would be a good time for the bank to start the underwriting process to see if you are insurable.

That process should have been undertaken right at the outset. The underwriting process should begin at once as it does with most insurers. If there is going to be a potential problem, then the insurer AND THE INSURED both need to know about it from the outset. If there is a slight medical problem, then that issue can be identified and a higher premium assessed.

In this way, both parties are protected. The insurer receives the higher premium appropriate to the increased risk, and the insured knows absolutely that he has life insurance coverage, and can plan his affairs accordingly.

The arrangement is fair to both parties.

Not so with the banks! They just collect premiums and then deny coverage when it is too late. Great scheme!

There really should be a law preventing unlicensed people from selling insurance.

So, the moral of the story is: don’t buy life insurance from a bank. And also, just in case you’re thinking about it: don’t buy life insurance from the people behind the refreshment stand at the movies.

I was going to say that “you’ll live to regret it”, but what I really mean is “your beneficiaries will live to regret it.”


Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Investment Real Estate in Brampton

(Ontario Real Estate Source)

By Brian Madigan LL.B.

This reduction in the asking or listing price now offers substantial investment opportunities.

11 Peel Avenue has now been reduced to $549,999.00

This makes the property an exceptional value for prospective purchasers.

Want to know if you can afford it?

Have a look at:

11 Peel Website

Contact me at 905-796-8888 and request a Financing Statement


Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Toronto Real Estate Market Performance ~ July 2011

(Ontario Real Estate Source)

By Brian Madigan LL.B.

ORES Real Estate Index for July 2011

Here is the "ORES REAL ESTATE INDEX" which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). It also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index.

In addition, the stock market indices for Toronto, and the three largest US markets are also compared.

For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the five year average used as a standard benchmark comparison in the mutual fund industry.

As of 31 July 2011, here is the Index representing average prices with the June 30th May 31st numbers appearing in brackets for comparison:

Real Estate

142.08……….(147.42)...(150.25).....GTA single family homes

Other market comparisons

380.71……….(351.96)...(359.21).....gold (price per ounce)
217.65……….(216.79)...(233.62).....oil (price per barrel)
140.65……….(144.51)...(149.97).....TSX index
142.08……….(147.42)....(150.25).....ORES Index single family homes
113.77……….(114.53)...(113.77) .....CPI index
133.65……….(134.48)...(137.48).....NASDAQ index
115.76……….(118.35)...(119.82)......Dow Jones index
109.40……….(111.80)...(113.880.,....S&P Index

Using the Index

Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of May, the index stood at 142.08. That's a 42.08% increase in 79 months. That means the increase is 0.532% monthly, or it could also be expressed as 6.39% annually. The performance here is shown without annual compounding for the sake of simplicity.

The other statistics are reported in a similar fashion for the ease of comparison.

Observations (on the Index)

As we use index, there are several notable comments:

• Commodity prices are just commodity prices

• There is no other "extra return" for commodities

• The same is true for the CPI

• The CPI is a benchmark to see whether you are keeping pace with inflation, that number is 113.77; increases have been modest and inflation appears to be under control; this is significant.

• For a realistic performance goal, you should aim for CPI plus 3.5% annually

• Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices

• The stock market Indexes only measure the survivors. So, in 2009, both GM and Chrysler would have been dropped due to the bankruptcies

• If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes

• Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself

Comparative Observations Using the New Index

• Gold was the best performer, reaching 380.71 overall, but declined this past month

• Oil was the most volatile, (it dropped in half over our measurement period), but the good news for the economy is that oil has declined slightly this past month

• Real estate was the most stable, with solid predictable returns at about 6.39 % annually

• Our own stock market posted reasonable gains, and is now ahead of single family homes over the measurement period, however, don't forget that the TSX is still well off its highs and is substantially resource based

• All three US stock market indicators now show positive numbers, and may truly be a better overall indication of the true state of the North American economy.
Conclusion

For steady, predictable, measured gains pick real estate. It's a solid performer with lower risk (less volatility) and generally moving in a positive direction.

And remember, when it comes to real estate, it's never "wiped out" completely, like GM or Chrysler stock. So, unless you're sitting on the edge of a tsunami, you'll still own something when the storm is over.

For a benchmark of success, there's 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt, including CanWest Global, and many US Banks) that would have been happy with that return.

The present rate of return although high by historical standards appears to be sustainable in sought after locations like the GTA. At the moment, over our measurement period we are looking at a 1.39% annual premium over the benchmark 5%.


Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com