Tag: selling a cottage

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

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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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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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How much are closing costs when you buy a cottage?

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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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New policy allows B.C. buyers three days to back out of a sale

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As of January 3, British Columbia is requiring a three-day “cooling off” period for real estate transactions after the buyer has signed a contract.

The B.C. government introduced the new policy in response to the staggering real estate demand seen throughout 2020 and 2021. To stay competitive, buyers were omitting home inspections and other requirements from their offers. The three-day period should provide buyers with extra time to complete home inspections and arrange financing, the government said in a statement.

“Lack of time for buyers to complete due diligence can exacerbate risk or be used to hide property defects that otherwise may have been discovered,” said housing analyst Leo Spalteholz, in the statement. “Though the market has cooled dramatically in recent months, it’s good to proactively put buyer protections in place.”

The buyer can back out of the sale at any time during the three-day period, which doesn’t include weekends or holidays. If the buyer does back out, they’re required to pay the seller 0.25 per cent of the purchase price. This cancellation fee is meant to prevent buyers from placing offers on multiple properties and then backing out last minute. Prior to the new policy, if a buyer backed out after signing a purchase agreement, they could be sued by the seller for money lost on the sale of the home.

The three-day period applies to almost all real estate transactions, including detached homes, townhouses, condos, and cottages. The only exemptions are real estate on leased land, real estate bought at auction, or real estate bought under a court order. Otherwise, the cooling off period is mandatory and can’t be waived.

But with changes to the market, experts are questioning whether the new policy will have any impact.

After hitting a peak in 2021, the province’s real estate market has seen significant drops in recent months. The B.C. Real Estate Association reported 4,512 sales this past November, a 50 per cent decrease from last year. And prices are trending downwards. In November 2021, the average B.C. home price was $992,245. In November 2022, it was $906,785.

This drop in competition is what’s allowing buyers to include home inspections once again in their offers, not the addition of three extra days, said B.C. Real Estate Association CEO Trevor Koot.

“Anybody that’s bought a house in the last 10 years can tell you, you can’t get an appraisal or an inspection done within three days of an accepted offer. The resources are just not there,” he said. “It’s our concern that it then provides a false sense of security to buyers in a heated market, that they go in thinking, ‘Oh, I’ve got time to do my due diligence,’ when really, what realtors will suggest, is that due diligence is done in advance.”

There’s also concern that the three-day policy puts sellers at a disadvantage. “Very often sellers are buyers themselves,” Koot said. “They’ve got a purchase going on that they’re going to be moving into, and all of a sudden, for three days, they have uncertainty. They don’t necessarily know whether the buyer will follow through.”

When the government introduced the three-day policy in 2021, the B.C. Real Estate Association responded by creating a list of 34 recommendations they felt could help improve the province’s real estate market. Koot said the association worked closely with the B.C. Financial Services Authority (BCFSA), the industry’s governing body, to develop the list. But when the list was passed on to the Minister of Finance, it was ignored.

This is where the government dropped the ball, Koot said. Rather than a three-day cooling off period, the B.C. Real Estate Association had proposed a five-day pre-offer period. This would require all listings to advertise for five days before accepting an offer. The five mandatory days would prevent bully offers where buyers swoop in with aggressive bids, telling sellers they only have a few hours to respond.

“That disrupts everything,” Koot said. “It changes the dynamic, it creates pressure, and it pushes the market into an unhealthy environment.”

A five-day pre-offer period would prevent bully offers and provide buyers with time to assemble their bids without leaving sellers in the dark for three days.

“We shouldn’t have to implement policy and adhere to new rules that don’t have any relevance and impact,” Koot said. “We need policy that’s based on good information, good data, and good research.”

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Market outlook: What fall brings for Ontario’s cottage country real estate market

While the cottage real estate market was hot over the summer, literally and figuratively, it’s expected to cool down in the coming fall months, according to Re/Max’s 2022 Fall Real Estate Market Outlook. But you can still expect a strong market, says Rick Laferriere, a Re/Max sales representative based in Barrie, Ont.  

What buyers and sellers can expect for the fall 2022 cottage real estate market

Based on his observations, Laferriere notes that there are many buyers, but not enough properties. He estimates there’s been a 30 per cent drop in the number of available properties compared to the summer. 

This means that for those looking to sell their cottages, Laferriere says you’re in a strong position to do so. Besides, spring and fall are prime months for selling; while owners typically devote other months to preparing their cottages for sale or rent. He recommends sellers work with a local real estate company familiar with the area’s values and prices. “If you overprice something in today’s market, it won’t sell.” Even if you’re not ready to sell this year, Laferriere recommends owners take photos of their cottages now against the fall foliage, rather than waiting until the winter months when their lawns are covered in ice or snow. 

In May, Re/Max forecasted average cabin and cottage prices in recreational markets would rise by 20 per cent for the remainder of the year. The report found around 40 per cent of Canadians living in recreational markets, such as the Kawarthas and Southern Georgian Bay, are drawn to its affordable pricing. But the recreational market in other parts of Ontario could look different depending on how high interest rates go. (The Bank of Canada has two more policy rate announcements left in 2022, one on October 26 and the last on December 7.) 

Ontario cottage regions with the biggest and lowest price jumps in 2021

The Muskoka cottage market is still hot, Peterborough cools off

There were two cottage-country areas of note in the fall Re/Max report: Muskoka remains an outlier and affordability has taken a hit in Peterborough. Muskoka region is still expected to experience a five per cent increase in average prices this fall. Over in Peterborough, interest rate hikes and mortgage stress tests may have finally put a damper on the market. The area is expected to see a seven per cent decrease in average sale price for residential and waterfront properties in the next few months.

Will cottage prices go down in Ontario?

If you’re in the market for a cottage, Laferriere says patience is key. With inventory low and prices high, it’ll take time to find a property that is in your price range and one that you actually like. According to Laferriere, a cottage on Lake Simcoe, Ont., costs an average of $1.9 million. “There hasn’t been much change in that price.” Even a waterfront condo in the Lake Simcoe area can cost an average of $790,000. 

On the other hand, prices for cottages in areas with weeds or the water nearby is silty have dropped by about 20 per cent from the summer. “Don’t settle for something just because that’s what’s available on the market,” he adds. 

Ultimately, the availability of properties can lead to major swings in the recreational market. Laferriere says availability can shift a buyer’s market to a seller’s market or a seller’s market to a buyer’s market.

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