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Cottage Life

Realtor.ca launches open offers in an effort to curb bidding wars and inflated property prices

Photo by Michael Vi/Shutterstock

Blind bidding has been the way of the Canadian real estate market for a long time now, but with skyrocketing property prices creating a housing market that many middle-class Canadians are unable to break into, there has been a push to make the market more hospitable to first time-buyers.

In 2022, the federal government released its budget where Minister of Housing, Ahmed Hussen, was tasked with creating a Home Buyers’ Bill of Rights. A major goal of the bill was to end blind bidding and make housing more affordable. Shortly after, the Ontario government announced it would be creating an “open offer” alternative as part of a reform to the Trust in Real Estate Services Act, 2020 (TRESA) blind bidding practice.

On April 1, 2023, realtor.ca officially launched the Canada-wide rollout of the open offer option.

Since real estate is regulated provincially in Canada, regulations differ across the country. This means the information provided in an open offer will look different from province to province, depending on local rules.

Realtor.ca explains the new option: “In certain parts of the country, you may see specific offer details, like the price on the listing page. In other regions, you may only see the number of offers presented.”

Openn, the company in charge of rolling out transparent bidding on realtor.ca, notes that the process in Canada is unique compared to how Australia and the U.S. run open offers.

“The agent selects the transparency settings based on what is applicable in their province,” says Becky Madden, the head of marketing at Openn. “Transparency settings can include the number of offers, the timeline of the offers, offer values, the number of people watching the property, and unconditional offer flags. They must comply with appropriate regulations and the sellers’ choice.”

While sellers might not like the sound of offer transparency, for now at least, open offers are an option—not a requirement. “Sellers must opt in, and based on my experience working with numerous sellers, there isn’t a compelling incentive for them to,” said Ivan Lobo, a real estate consultant at Made in CA.

“Sellers may still favor the blind bidding system, as it grants them a competitive edge by instilling a sense of urgency or scarcity among potential buyers,” says Lobo.

Critics of the blind-bidding system agree, noting that an optional transparent system does nothing to help buyers. The blind system creates a sometimes-false sense of urgency, driving buyers to place offers well above the offer actually needed to secure the bid.

A transparent bidding system therefore removes the obvious advantage sellers have in driving up the offers made on their home. “They could receive lower or fewer offers compared to what they would get under blind bidding, since buyers might become more cautious or conservative when they can see other bids,” Lobo says.

“This could eventually lead to a more balanced market with fewer bidding wars and less inflated prices.”

There is still no word from Hussen’s office on when the Home Buyers’ Bill of Rights will actually come into law, so until sellers’ hands are forced to show their cards, optional transparent offers are likely to remain a rarity.

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Experts predict a price drop for Canadian cottage regions in 2023

Photo by Shutterstock/Alessandro Cancian

After two years of soaring cottage prices, the real estate market is starting to stabilize. In its Spring Recreational Property Report, Royal LePage forecasted a 4.5 per cent dip in cottage prices across the country in 2023, dropping the aggregate price from $619,900 to $592,005.

“General consumer inflation combined with a severe lack of inventory has dampened sales activity. Buyers who are active in today’s market appear willing to wait for the right property—a sharp contrast to what we experienced during the pandemic,” said Phil Soper, president and CEO of Royal LePage, in the report.

A return to in-office work has also caused the market to slow. During the pandemic, cottages offered an alluring escape from the city, especially with the introduction of high-speed internet in rural locations. But now, with many employees required to return to the office a few days per week, and shops, venues, and events back in full swing, buying a cottage has dropped in priority.

But despite the market stabilizing, buying a cottage is still expensive. Across the country, prices remain 32 per cent higher than pre-pandemic levels. To better understand the cottage market, here’s a breakdown of what’s happening in each province:

Cottages in Ontario

In 2022, the aggregate price of a waterfront property in Ontario increased by 8.9 per cent to $1,006,600, compared to 2021. Southern Georgian Bay was the most expensive region with a 7.1 per cent price increase to $1.5 million, followed by Orillia, which saw a 22.4 per cent increase to $1,377,000, and then Muskoka, which saw a 15.7 per cent decrease to $1,062,500.

Muskoka’s price drop may be indicative of a more significant trend. According to a Royal LePage survey of Ontario realtors, 52 per cent of respondents reported less demand this year than last year. The entire province is forecasted to see a five per cent decrease in recreational property prices.

“Activity in the recreational market came to a comparative standstill in the last half of 2022. Rising interest rates, buyer fatigue, and lack of inventory all played a role,” said John O’Rourke, a broker at Royal LePage Lakes of Muskoka. “Early signs this spring point to a more balanced market where inventory levels and sales are trending in line with historical norms.”

The market in Quebec

In 2022, the aggregate price of a waterfront property in Quebec increased 17.3 per cent to $480,200, compared to 2021. Memphrémagog topped the price list after a 24.6 per cent increase to $860,000, followed by Les Pays-d’en-haut with a 4.3 per cent increase to $600,000, and then Les Laurentides with a 25.3 per cent increase to $530,000.

Despite its major price jump in 2022, Quebec is forecasted to have the biggest price drop in 2023 at eight per cent. Similar to Ontario, this price drop is due, in part, to lack of demand. In a Royal LePage survey of Quebec realtors, 76 per cent of respondents reported less demand this year than last year.

“Buyers are more patient; they’re negotiating, and they’re taking time to carefully assess their needs and financial capacity before taking the plunge,” said Véronique Boucher, residential real estate broker at Royal LePage Au Sommet. “Conditional offers to purchase, which were practically unheard of during the pandemic real estate boom, made a big comeback in the latter half of 2022, a sign of a much more balanced and fair cottage market.”

Waterfront property in British Columbia

In 2022, the aggregate price of a waterfront property in B.C. increased 5.6 per cent to $1,065,000, compared to 2021. Invermere was the most expensive region with a 26.6 per cent increase to $2,025,000, followed by the Comox Valley, Denman Island, Hornby Island, and Mt. Washington areas with a 4.4 per cent increase to $1,350,000, and then the East Kootenays with a 0.2 per cent increase to $774,500.

In a Royal LePage survey of B.C. realtors, over half reported that cottage owners remained full time in the area rather than moving back to urban settings after the pandemic. This trend has caused a shortage in supply, keeping prices relatively high. But Royal LePage expects B.C. cottage prices to drop by two per cent in 2023.

“Come springtime, I anticipate that supply levels will rise as more sellers move into the market, but I don’t expect there to be a huge wave of relief,” said Frank Ingham, associate broker at Royal LePage Sussex. “Many buyers continue to wait on the sidelines for prices to fall or for borrowing costs to become more affordable, especially those purchasers who are buying for their retirement or for their adult children to enjoy. This trend is creating more pent-up demand on the sidelines and is causing properties to stay on the market twice as long as last year. However, as the spring market gains momentum, I expect more homes that have been sitting on the shelves will start to move into the hands of buyers.”

What’s happening with housing in Alberta?

In 2022, the aggregate price of a waterfront property in Alberta decreased by five per cent to $641,900, compared to 2021. Wabamun Lake was the most expensive area at $820,200, a 7.7 per cent decrease from 2021; Pigeon Lake at $674,500, a 0.7 per cent decrease; and then Lac St. Anne at $534,700, a 10.9 per cent decrease.

Alberta is experiencing a lack of turnover in its cottage markets, keeping properties in demand and prices high. That’s why, despite the decrease in 2022’s waterfront prices, Alberta is the only province in Canada forecasted to see a price increase of 0.5 per cent in 2023.

The market in the Prairies

In 2022, the aggregate price of a waterfront property in Saskatchewan and Manitoba increased by six per cent to $271,300, compared to 2021. North Central Saskatchewan topped the list with a 20.9 per cent increase to $688,000, followed by Lac du Bonnet in Manitoba with a 10 per cent increase to $550,000, and then Interlake, Man. With a 0.4 per cent decrease to $450,000.

“Business is faring as usual in our recreational markets. Demand and inventory are proportional to one another, creating balanced market conditions. Reduced supply has kept recreational property prices buoyant,” said Lou Doderai, broker and owner of Royal LePage Icon Realty in Prince Albert, Sask.

Despite a stable market, the aggregate price of a recreational property in the Prairies is forecasted to drop by three per cent in 2023.

The market in Atlantic Canada

In 2022, the aggregate price of a waterfront property in Nova Scotia, Newfoundland, New Brunswick, and Prince Edward Island increased by 17.2 per cent to $279,900, compared to 2021. Despite an 18.4 per cent decrease, Shediac, N.B., was the most expensive region in 2022 at $464,500, followed by South Shore, N.S., with a 22.4 per cent increase to $450,000, and then Cape Breton, N.S., with a 22.1 per cent increase to $427,500.

Nearly half of the respondents in a Royal LePage survey of Atlantic Canada realtors reported a decrease in demand this year compared to last year. As a result, Royal LePage forecasted that the aggregate price of a recreational property in Atlantic Canada will drop by three per cent in 2023.

“Parties on both sides of the transaction are waiting for a better deal—recreational buyers are sitting on the sidelines waiting for more inventory to become available, while sellers are holding out for higher offers and competitive bids. But the multiple-offer scenarios and homes selling over asking are not as common today as they were during the pandemic boom,” said Corey Huskilson, sales representative at Royal LePage Atlantic in South Shore, NS. “As we enter the spring market, I expect activity to pick up but prices to stay stable as supply and demand remain relatively balanced.”

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Ontario real estate market forecast: cottage-country realtors predict more inventory this spring

Photo collage by Taylor Kristan

Ontario’s real estate market has been in a dizzying state since the start of the pandemic, especially in cottage country. Prices boomed over the last two years with some recreational properties jumping into the millions as buyers scrambled after cottages, looking for an escape from the city. But then travel reopened, events restarted, and the cottage market cooled.

The Canadian Real Estate Association (CREA) reported that in February, 29 waterfront properties were sold in the province’s Lakeland region, which constitutes cottage-heavy areas such as Muskoka, Haliburton, Parry Sound, and Georgian Bay. That’s a 62.8 per cent drop from the same period last year, and 51 per cent below the five-year average.

In part, the lack of sales is due to low inventory. There aren’t many waterfront properties on the market right now. This has kept cottage prices stable, sheltering them from the price correction happening in urban centres. But the market could change this spring as local realtors anticipate a flood of new listings to hit the scene.

If you’re a buyer looking to get into the cottage market, here’s everything you need to know about what’s happening in Ontario’s cottage regions.

Muskoka

Three hours north of Toronto, Muskoka’s known for its windswept pines, rocky shores, and luxurious cottages. But as the CREA reported, Muskoka is currently short on inventory. According to real estate broker Susan Benson, waterfront property listings in the region are at their third lowest in the last 10 years. This has caused a spike in prices.

“The median list price for January and February is up 27 per cent compared to last year at the same time,” Benson says. The median list price for a waterfront property in Muskoka currently sits at $1.7 million.

This median price, however, might see a dip in the next few months. Benson says that at the end of 2022, properties were sitting on the market for about 15 days. Now it’s closer to 47. “Buyers aren’t biting,” she says. With properties sitting for longer, sellers may have to lower their prices to make themselves more appealing.

“A property that is priced properly can end up looking like a bargain in a market with competing properties that are overpriced,” Benson says.

Plus, the spring season typically brings additional inventory, giving buyers more choice and control. “You should, as a buyer, be able to negotiate conditions that ensure a proper vetting of the property and confirm your ability to pay for it,” Benson says. “This was the piece that was missing at this time last year.”

The Kawarthas

Southeast of Muskoka is the Kawarthas, a chain of lakes that feed into the Trent River. Similar to its northern neighbour, the region is suffering from lack of inventory, which is keeping prices high. “I listed one last Wednesday and had four showings on it. I got two offers, and it still sold $30,000 over the asking,” says Greg Ball, a real estate broker from the area.

The average price of a waterfront property in the Kawarthas currently ranges from $700,000 to $1 million, depending on the size and location of the property.

Ball predicts that the rise of interest rates and the financial burden of variable mortgages might spur an injection of new inventory into the market in May, balancing out prices and reducing the chances of bidding wars.

“From past experience, when a recession-type market hits, you dispose of what you can,” he says. “Something like the cottage will come before the house.”

If you’re planning on shopping around in the region, Ball advises using a local realtor. “We went through three years of people buying from their Toronto agent, and I’m not knocking them, but we are now getting calls from those people that purchased in 2021 and 2022 that can’t get their money back because they bought in a poor area,” he says. “I just can’t stress how crucial it is to use a local realtor that knows the area.”

Bay of Quinte

A little west of Kingston, not far from Frontenac, is the Bay of Quinte, a long and narrow body of water that connects to Lake Ontario. Unlike the two previous regions, the Bay of Quinte is already seeing its inventory bounce back.

“We’re probably up 20 per cent since December, which is typical,” says local real estate agent Doug Peterson. “When you look at the waterfront market, it’s pretty predictable, seasonal up and down.”

He expects more properties to come on the market in the coming months. “I think a lot of sellers have been hesitating over the last six months just because of uncertainty, and now things are starting to firm up a little bit more in the economy,” Peterson says. “It’s still a little topsy turvy, but people can’t wait forever.”

The Bay of Quinte hasn’t seen any recent fluctuations in waterfront prices, with the average hovering around $800,000.

If you’re looking to buy in the region, Peterson says you should act quickly. “The market is pretty tight, and well-priced listings are starting to move fast. There is a little bit of urgency that’s come back into the market,” he says. “We went for a few months where buyers were able to wait and see, and now we have those people saying, ‘Oh geez, I guess I should have done something.’”

Grand Bend

A little north of London on the sandy shores of Lake Huron is Grand Bend. The region is home to an iconic beach, making nearby cottages a hot commodity. But compared to 2022, inventory is down. “Last year, being a pandemic year, the situation was a little bit different, a little bit of a frenzied market. So, we’re looking now at more of a return to normal,” says local real estate broker Emily Carcamo.

As of the end of March, Grand Bend had 39 waterfront listings available with an average price of around $1 million. “That’s actually quite good,” Carcamo says. “If we’re looking at waterfront from Port Franks up to Bayfield, we’re looking at about 11 properties for sale where the average price is over $2 million.”

Grand Bend prices aren’t expected to see any drastic changes, but property on Lake Huron is a niche market meaning there’s always interest. In fact, the average sale price for waterfront properties in 2023 is 14 per cent higher than it was at this time last year. While days on market remains similar. In March 2022, properties sat for approximately 13 days. In March 2023, it increased to 15 days. This means properties are still turning over quickly.

The area has traditionally seen a lot of attention from baby boomers moving to Grand Bend post-retirement, but COVID has pushed an increasing number of young families out of urban centres in search of rural retreats. In many cases, they’re buying older, more affordable properties and renovating them.

“We are seeing more families leaving urban centres where prices were more expensive,” Carcamo says. “They’re re-evaluating their priorities in life and their goals, wanting to live in more of a rural setting by the beach where life is a little bit slower, a little bit more enjoyable—living that vacation lifestyle.”

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Private mortgages have risen 72 per cent in Ontario, and they could have an increased default risk

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Private mortgages have become more common than you might expect in recent years. While they’re still much rarer than the traditional route, there has been a significant uptick in private mortgages in Ontario in just the two-year span from 2019 to 2021. According to the Financial Services Regulatory Authority of Ontario (FSRA), the rate of private mortgages increased by a whopping 72 per cent in that time.

What is a private mortgage anyway?

According to Ivan Lobo, a real estate consultant at Made in CA, a private mortgage is “a flexible option for borrowers who may not qualify for a conventional mortgage, because of poor credit or other financial situations.” When someone doesn’t qualify for a conventional mortgage, they might decide to take out a private mortgage instead, so they can still make the offer on the home.

“Private lenders don’t require borrowers to undergo stress tests, which banks use to ensure that buyers can afford a mortgage rate that is two per cent above the current rate,” Lobo says. “This exemption offers borrowers more flexibility if they don’t meet the strict underwriting standards of banks.”

Basically, a private mortgage avoids the stress test, so you can qualify for a private mortgage easily. They also have shorter terms than the traditional five-year term that you would receive from a bank, at just one or two years.

Is there a higher default risk?

Since private mortgages lack oversight and regulation, this can create a significant risk for borrowers. “Private lenders usually charge higher interest rates and additional fees, leading to higher costs for the borrower over the loan’s life,” says Lobo. These costs “could cause defaults among borrowers who have overextended themselves.”

Because the loans are short term at only one or two years, they also require renewal more often. And those with a private mortgage at a high interest rate may not even be able to renew their loan at all. “For markets where house prices have fallen say 30 per cent or more, it’s very likely for private lenders to call in the loans,” Lobo said.

And if the borrower is able to renew, the rate will likely end up much higher than the initial offer, leading to a significant default risk.

What does this mean for the market?

If default rates rise, this can have a negative affect the market. According to the Canadian Bankers Association, the default rate for November 2022 was at 0.07 per cent. If that number starts to rise in a significant way, it will inevitably affect the market as power of sales start to pop up with regularity.

Currently, the default rate isn’t concerning, but reports on the rate lag by months.

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Ontario is banning NDAs on real estate deals. What does it mean for the market?

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 As of April 1, Ontario realtors can no longer use non-disclosure agreements (NDAs) or confidentiality clauses to obstruct consumers from making complaints to the Real Estate Council of Ontario (RECO).

Before this legislation came to pass, a realtor’s NDA or confidentiality clause would prohibit a client from complaining to RECO. For instance, if a realtor didn’t disclose a property’s defects to a buyer, and the buyer sues the realtor, an NDA would bar the buyer from reporting the agent to RECO.

With the new legislation, a consumer can always make a complaint to RECO, even if the parties legally resolve the issue, according to Joseph Richer, the RECO Registrar.

“The new provision follows existing case law and other regulated sectors that have similar provisions,” says Richer. “RECO is pleased the government agreed with RECO’s recommendation that it be added to the code.”

Will banning NDAs hurt realtors?

This new legislation could be an issue for realtors. The details of the complaint may be posted on the RECO website, and any realtor with a conviction will definitely posted about.

Now, a complaint about a realtor could be searchable when future clients look up their name. This could be damaging to a realtor’s reputation, which is very important in the world of real estate.

But Belleville realtor Doug Peterson isn’t worried.

“I support it,” says Doug, who is the team leader at Rufo Real Estate, Royal LePage ProAlliance. “If a practitioner or a registrant has done something wrong, they shouldn’t be able to effectively buy their way out of it.”

How will this NDA ban affect the real estate market?

Peterson doesn’t think this new legislation will affect home values. In fact, he believes it will make the real estate business in Ontario more professional.

The Ontario Real Estate Association (OREA) would agree. This NDA ban is part of a larger updated code of ethics from the Trust in Real Estate Services Act in Ontario. OREA’s website says the Act was created in 2020 to “ensure that Ontario is a leader in North America when it comes to real estate standards.”

How will the ban affect consumers?

Peterson sees the new regulation as a consumer protection tool. This way, consumers can report a real estate agent who “cuts corners” to RECO.

In some instances, a RECO ruling could mean a realtor would have to complete a course or receive a suspension. Some rulings even lead to a discipline hearing or taking the realtor to provincial court.

Peterson and his colleagues plan to educate their clients about the new code of ethics rules through blog posts. He wants his clients to know that they have rights, and that they should be treated with professionalism and care.

“It’s not a major issue for most realtors,” says Peterson, with a chuckle. “Because we try not to make mistakes that are litigious.”

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New report predicts some cottage regions could see steep price drops

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A new report from economists at Desjardins predicts that the gradual fall of home prices in Ontario will continue, with some cottage country regions seeing drops of up to 50 per cent.

The authors noted that rural areas have seen major spikes over the past few years, with places such as Bancroft, Quinte, Muskoka, and Haliburton seeing the average home more than double in price from December 2019 to the peak in March 2022. “These communities have also seen the largest price declines, and that trend is expected to hold going forward,” the report states. Projections include: Bancroft with a drop of 50 per cent, Muskoka and Haliburton at 39 per cent, and Peterborough and the Kawarthas, 37 per cent. 

This comes as the housing market across Canada is cooling off in the face of rising interest rates and limited supply. While some projected drops for cottage country look alarming, it’s important to put things in context, says Anthony vanLieshout, the broker of record for Royal LePage Lakes of Haliburton. 

“Within Haliburton County from 2016 until the end of 2021, we saw property values appreciate to the tune of 300 per cent,” he said (a cottage around the $300,000 mark would’ve risen to nearly $1 million). After such a dramatic increase, he says it only makes sense that prices are creeping down; but a cottage that may now be in the $700,000 range isn’t exactly a steal.

The data and projections also consider homes in an entire region, not just cottages alone. Peterborough and the Kawarthas, for example, includes homes in the city of Peterborough, a different market than waterfront properties on nearby lakes. 

“I have been selling about three cottages a week for the last eight weeks,” said Jill Price, broker at RE/MAX All Stars Realty in the Bancroft and Kawarthas region. “In September, October it was hurting a little bit, and prices did go down, but now I’m seeing a steady increase in sales.”

Price said that cottages in the $600,000 range have been more difficult to sell, while those around the million dollar mark are moving fine, suggesting that wealthier buyers have been relatively insulated from rate hikes. She also described a “huge influx” of buyers—up to 50 per cent—purchasing strictly for investment, which also contributes to lower inventory.  

Overall, the housing market—and to a lesser extent, the cottage market—is coming down from what vanLieshout calls “unrealistic and unsustainable highs.”

He said one thing that’s not likely to change is the heightened interest in cottage living, a lasting effect of the pandemic. “It definitely featured cottages in a positive way, and the demand is always going to be higher than it ever was for those reasons,” he said. “I think that will hold for all of rural Ontario.” 

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What information are cottage sellers required to disclose to buyers?

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A small beach house in Bayfield, Ont. overlooking Lake Huron has become the focal point of a $2.2 million lawsuit, according to the CBC.

Michael Bousfield and Leah Stumpf, a couple from Guelph, Ont., were in the process of purchasing their dream vacation home when the seller told them three days before closing the deal that the property was uninhabitable due to an eroding shoreline. Having already arranged their financing, the couple was forced to proceed with the purchase and has since launched a lawsuit against the seller, as well as the Ausable Bayfield Conservation Authority (ABCA) and the municipality of Central Huron, after the two governing bodies wouldn’t issue a permit to fix the shoreline without the couple paying for a coastal engineering report.

The case will be heard in a Toronto courthouse.

Negotiating real estate deals can be tricky. As it turns out, sellers aren’t legally required to tell you everything about a property. To avoid any legal troubles, here’s everything you should be aware of when you’re looking at a cottage and whether the sellers are required to declare it.

Patent defects

Roof leaks, foundation cracks, and window breaks. According to the Real Estate Council of Ontario (RECO), a patent defect is any visible issue with a property. They’re easy to spot—this could be a stain on the ceiling from water damage or a missing safety rail. Due to their visibility, the seller is not required to disclose these defects. To ensure you don’t miss any patent defects, RECO advises that you ask the seller and their realtor specific questions about the state of the property, and hire a home inspector to have a thorough look.

Latent defects

These issues are harder to see, so hard that even a home inspector might miss them. They’re the kinds of things that only the seller would know about, such as a basement that floods each spring, a quickly eroding shoreline, or any hidden damage or mould. Sellers are required to disclose this information to buyers. “If a seller is aware of such a defect and doesn’t disclose it, they can be exposed to a lawsuit by the buyer,” RECO says. The latent defect must be disclosed before the buyer enters a contract of purchase. If the buyer discovers a latent defect after purchasing the property that wasn’t disclosed by the seller, they have two years from the day the defect was discovered to launch a lawsuit.

Stigmas

Stigmas don’t affect the property’s appearance or structure. Instead, they’re past events that could cause the buyer to rethink their purchase. For instance: a murder on the property, an illegal grow-op, a notorious individual who lived there, or even rumours about the property being haunted. Since some buyers may be more comfortable with these stigmas than others, the seller is not required to disclose this information unless it affects the price of the property. The onus to uncover any stigmas falls on the buyer and their realtor. RECO recommends asking the seller and their realtor direct questions about the history of the property, researching it online, and speaking to neighbours.

Seller Property Information Statement (SPIS)

When looking at a property, the buyer can request a SPIS from the seller. This is a form filled out by the seller that outlines all of the potential defects and damages they’re aware of on the property. It’s a good way to get an overview of any problems you should be looking for. However, an SPIS is voluntary. A seller is not required to fill one out. RECO emphasizes that real estate transactions operate on a “buyer beware” system. In most cases, it’s up to the buyer and their realtor to uncover a property’s flaws. If a seller is unwilling to provide a SPIS, the buyer should have the home inspected by a professional and ask specific questions about the state of the property before entering a contract of purchase. Sellers are legally required to tell the truth if asked about their property.

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Before you buy, check these 10 things that can be costly surprises

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Cottages or cabins are synonymous with the rest and relaxation many of us crave, and they make for a very inviting escape from the city. Whether you’re deep in search of that dream recreational property or you’re casually browsing and seeing what’s out there, it’s important to know exactly what due diligence is needed when you do find the one.

There may be more work ahead than you’d anticipated, as many people don’t realize that cottages and cabins come with hidden issues or more complicated challenges to navigate than other types of properties. This means asking the right questions and digging a bit deeper than you might initially think is necessary. RE/MAX realtor Rachel Dempster serves B.C.’s Sunshine Coast.

This is one reason Rachel always recommends using a local realtor over a city realtor who doesn’t know the area as well. “City realtors have referral networks to realtors in other areas, so it’s best to work with locals,” says Dempster. “Generally, realtors know right away if a listing falls into a more unique category that requires special inspections and due diligence.” Dempster advises looking into the following key areas, no matter where you’re looking, before you purchase a property.

Septic systems

In Dempster’s experience, about 90 per cent of remote properties require septic testing. For instance, she recently sold a 10-acre property on Nelson Island, B.C. with no septic (or electricity). While this is an extreme case, it does happen.

As a result, Dempster likes to do a quick check when it comes to rural properties just to be sure her clients know exactly what they’re in for. And you should talk to your realtor about doing the same.

“Always add subjects for septic inspection to your contract,” says Dempster. Go through the system’s history—you need an adequate, regularly-serviced system or a plan for new installation within your purchase deal.

Dempster also advises checking the septic is the right size for the property, since septic systems are built based on the number of bedrooms, not bathrooms. This means an older system in a one-bedroom, two-bathroom cabin may not be sufficiently sized and could need an upgrade (which can be costly).

Another key thing to consider when it comes to water systems—where the water comes from (i.e. a well or municipal service) and whether it’s safe to drink.

Archaeological and geotechnical considerations

If you’re looking for a property in an area potentially home to archeological digs (common in places such as B.C.), be aware that your property could be subject to inspection. If anything is found, deals can be cancelled, particularly those for new builds.

Geotechnical considerations such as erosion are important too, depending on the severity. For example, “There’s a part of Half Moon Bay on the Sunshine Coast, which looks great if you go there by land. But, by boat, you’ll see a lot of erosion,” says Dempster. This further illustrates why local knowledge is invaluable.

Road access

Access to your property can come in different forms. The property may be on a township-maintained road or a resident-maintained private road. If the road is private, you may be responsible for paying to help maintain it, for insurance. Check ease of access, especially in the winter, as it can be expensive and time-consuming to clear snow.

Water access and conditions

If you are interested in boating at your cottage, you’ll need to confirm whether boat launches are restricted to owners or whether they are open to the public. You may also want to find what what controls the water level. Is the lake spring-fed? Is it part of a river chain controlled by dams? Does the water level fluctuate to allow you to keep your dock in the water in the winter. You don’t want to be caught off-guard by the water dropping five to six feet by the end of October.

Other due diligence considerations

  • Electrical systems—get an inspection to ensure they’re in good working order
  • Air quality—certain areas of the country have a high presence of radon, for example
  • Dock condition and management on either coast, including permitting and safety
  • Property lines, bylaws, and zoning—there can be restrictions on short-term rentals, for instance
  • Garbage collection—some areas don’t have it and require you to dispose of waste or recyclables yourself
  • Maintenance—ask your realtor and the previous owner, if possible, so you know what to expect

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How much are closing costs when you buy a cottage?

Photo by fizkes/Shutterstock

If you’re looking to buy or sell a cabin or cottage, you may be wondering what exactly you can expect in terms of closing costs. While the standard closing process is similar to that for other property types, there are also cabin-specific closing costs that both buyers and sellers should be prepared to incur—things such as taxes, insurance, leasing, and licensing, along with anything else that comes out in the due diligence process.

Legal fees

Each party will hire legal representation for the property transfer and will incur fees for their lawyer’s time. The seller will also pay for clearing title, discharging liens, any encumbrances, prepayment of any mortgage penalties, and paying real estate commissions and any tax that might apply to the transaction (which is mainly on real estate fees).

For buyers, lawyers are there to act as their stakeholders and ensure the title is clean, the documents needed are complete, and the land title and mortgage (if financing is required) are registered. If the bank requires an appraisal, survey, title insurance, or other items, these would also be additional costs.

Insurance

The biggest expenses for buyers today are insurance and applicable taxes. “Sometimes, buyers go into these transactions assuming that insurance is a no-brainer,” says Jason Zroback of LandQuest Realty in New Westminster, B.C. But, it should be part of the due diligence process. These days, insurance can be very tough to obtain and quite costly, much more so than in the past and more than people anticipate, says Zroback. This is especially true for secondary residences located in unserviced fire districts, which is the case for many cabins or cottages, especially if your property is remote, water-access, off-grid, and tougher to get to. This can have an enormous impact on your insurance premiums.

Taxes

Property transfer tax

Land transfer taxes vary from province to province. B.C.’s property transfer tax, for example, works on a sliding scale as a percentage of a property’s purchase price. So, if you’re looking at a cabin priced at, say, $200,000 or so, the tax will be nominal, but properties in the millions of dollars are subject to much higher amounts.

Provincial sales tax

It’s important to remember that provincial sales tax can apply to some properties. Unfortunately, many people aren’t aware of this and only find out right before closing or, worse, when the lawyers are doing the property transfer. In extreme cases, accountants need to get involved or tax rulings need to be made. So, do your due diligence and ask about provincial sales tax early on. Like other transaction items, who pays the tax is always negotiable between the buyer and seller.

Scenarios where provincial sales tax may apply include a new build owned by a development company (most realtors know this) or a property owned by a corporation or individual who deferred the tax at purchase (meaning the property is usually registered in a company name). For example, say a new landowner has no intention of developing their property but wants to use it recreationally and may have deferred provincial sales tax when they purchased the property. They would still be liable for the tax when they attempt to sell.

Leases and licenses

Different tenures may be part of your cottage or cabin closing costs. Sometimes, there will be a lease or license for remote, rural recreational properties, which you don’t have for other property types. These can include, for example, a foreshore lease, a water license (i.e. if water for your cabin comes out of a creek), a land lease, or a grazing lease on a farm or ranch. The cost typically includes a lawyer’s time to do the assignment and annual lease dues, both of which should be fairly nominal.

Due diligence

When it comes to who pays for what, some fees are very straightforward. For example, each party will pay for their own lawyer’s time, sellers typically pay for all real estate commissions, and buyers typically pay for appraisals. But, if and when market conditions change and problems arise, the market also dictates how deals are done and fees are charged.

For example, say it’s a seller’s market. Each party gets advice and it may be determined that if the seller wants out of a deal at any point, it’s allowed. In a hot market, the buyer will likely have to concede or back out of the deal themselves, yet be responsible for any difference in property value that the seller lost out on while the property was tied up with the buyer. Similar circumstances can be true in the reverse situation, where a seller must concede to a buyer’s requests in a buyer’s market.

However, anything is negotiable. While both parties can get their backs up, most people are reasonable. If, say, a provincial sales tax liability wasn’t disclosed, typically the party that should have known will take responsibility.

The due diligence process before closing is very important, and there’s one thing you can do to help you navigate the pitfalls of the closing process: having a good realtor you can trust.

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Mortgage stress test remains unchanged (for now) despite high interest rates

Photo by Puttachat Kumkrong/Shutterstock

High interest rates over the last 12 months have reduced purchasing power and made borrowing more expensive for Canadians. But the outlook isn’t all doom and gloom for cottage owners and cottage buyers to-be.

Last year, the Bank of Canada raised its key interest rate seven times to 4.25 per cent, its highest level since 2008, in effort to cool consumer spending and lower inflation. Canada’s five major banks moved to increase their prime lending rates 50 basis points, which increases borrowing costs for anyone with a variable rate loan.

In December, the Office of the Superintendent of Financial Institutions (OSFI) announced it would keep the minimum qualifying rate—a mechanism to test whether borrowers will still be able to afford their mortgage if interest rates rise—for uninsured mortgages unchanged at 5.25 per cent.

“In an environment characterized by sustained high inflation, rising mortgage interest rates, and potential risks to borrower income, it is prudent that lenders continue to test borrowers for adverse conditions,” said Tolga Yalkin, the OSFI assistant superintendent for Policy, Innovation, and Stakeholder Affairs, at a media briefing last month.

While the federal banking regulator’s stress test still hovers around 5 per cent, cottage buyers must show they can pay interest payments at 7 per cent—which reduces the size of a mortgage buyers can qualify for, says Ottawa-based mortgage broker Andrew Thake.

Experts say that the high interest rates have worked as intended to slow the demand for big ticket items such as housing and vehicles. Home sales in Canada declined by 3.3 per cent from October to November in 2022, according to CREA.

However, high interest rates have made paying off home and cottage mortgages a strain for those who have them and made it even more difficult for those who want to secure one.

For those looking to buy

Buyers looking for cottages who don’t qualify for a mortgage that is large enough to purchase the type of property they’re interested in may be able to qualify in a year and a half when the stress test rates go down. Those applying for a mortgage today will qualify for less than they would have, had they applied a few years ago.

“You’d either have to put more down, or you just have to settle for a smaller place,” says Thake.

Thake suggested that people looking to buy while interest rates are high could also look at a fixed-rate mortgage for a shorter period of time—think two or three years—and if rates settle down after that, they could look at renewing.

Sometimes, when rates go up, cottage buyers can find savings elsewhere. “Even though interest rates are a bit higher, the price of the cottage is probably substantially lower than what you paid a year or two ago in some markets.”

This month, the OSFI is reviewing Guideline B-20, which includes the minimum qualifying rate (MQR) and other mortgage lending measures. The office launched a public consultation on January 12, which will take place until April 14, 2023.

Among the measures the OSFI is considering are restrictions on how much banks can lend to people whose mortgage exceeds a certain percentage of their gross income. This is something banks already do, but the changes may include tightening up the restrictions, says Thake.

Other changes may also include new debt servicing coverage restrictions, which would limit how much borrowers’ mortgage payments comprise a percentage of their income. Currently, most banks limit a borrowers’ housing obligations to 39 per cent of their gross income, but some major banks push that to 49 per cent.

Additionally, the OSFI is considering implementing a new minimum interest rate that is applied in debt servicing calculations.

“They want to reduce risk in the industry. The OSFI is worried about exposure to heightened risk from a lot of debt, plus a potential recession and high interest rates,” Thake said. “They want to reduce the probability of borrower default.”

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