Quick Hits!

After a week of serious conversations about foreign buyers, and taxation, I’m mentally drained.

There’s a lot that’s gone down this week that didn’t make the news too, so let me provide you with a few quick hits, a few anecdotes, and a few stories from the real estate trenches.

Did I tell you the one about the condo that found a ladder clogging the garbage chute?  No, seriously.  What’s with people?

QuickHitsBoxingGlove

Capital Gains Tax Stays At 50%

There was a lot of talk on TRB this week about the foreign buyer’s tax, and that spawned some conversations about other methods of taxation as well.

The federal budget was set to be released this week, and leading up to the budget, there were rumours swirling about the capital gains tax increasing from 50% to 75%.

I’m sure you know how I feel about that; I don’t like it.  Not one bit.

There were no shortage of opinion pieces on how and why this would have a negative effect on the economy as a whole, but I felt it was yet another “tax on the wealthy,” and the increase from 50% to 75%, which itself represents a 50% increase, was absurd.

How about a 5% increase to start?  Maybe take that 50% and bring it up to 52.5%?

No?  We’re going right to 75%?

Well thankfully, the federal Liberals thought better of it, and there was no increase in capital gains, at least in this budget.

But many experts believe we’re off the hook for now, but not for good.

Rob Carrick wrote a great article in the Globe & Mail this week: “Have Capital Gains?  Now Is The Time To Strategize”

Primary Residence Exemption

Somebody brought this up on the blog last week, and it scared the crap out of me.

Not in my wildest dreams, not even with all the disdain I have for Justin Trudeau and his constant taxing of the middle and upper class, did I ever think he and the Liberals would consider removing the primary residence exemption for capital gains.

Never.

Not until I read it in the comments section of my Monday blog.

Can you imagine?

You buy your house for $650,000, you sell it for $900,000.  You keep the $250,000 profit.  All of it.

That’s how it’s always been.

This isn’t an investment; it’s your home.  Is there nothing more sacred?

Is there anything in this world that isn’t taxable?

They say “death is expensive,” as the government comes calling, and looking for their take.  So perhaps it’s not naive to think one day, the government would start taxing the currently tax-free capital gain on your primary residence.

But if they did, I think it would be the biggest change in taxation in the history of Canada.

And it would drive a lot of people to move.

Maintenance Fees Rise 18% At 25 The Esplanade

I have five clients who live at 25 The Esplanade.

It’s one of the best buildings in the city.

It’s probably the best-managed building in the city, and despite the fact that it was built in 1987, they’ve kept their maintenance fees at $0.49/sqft.

That’s not a typo.  That’s $0.49/sqft, and guess what else it is?  It’s all-inclusive.

Their fees were at $0.49/sqft for four years, after they had risen from $0.46/sqft in 2009, to $0.47/sqft, and then $0.48/sqft.

And this year, the fees were raised a whopping 18%.

They now stand at $0.62/sqft, still all inclusive.

There are some people out there that look at “fee increases” as a bad indicator, and I think this is a mistake.

If the fees just went up 18%, I think it’s fair to say you’re safe from yet another fee increase for a while.

18% sounds like a big number, and it is.

But buyers need to put this in perspective: this is a 1987 building that has fees of $0.62/sqft, all inclusive, and the average fees in the city are probably around $0.72-$0.75, with you paying at least one of your own heat and hydro.

Fee increases happen.

They should happen every year, with every condo, unless we’re in a period of deflation.

So if you’re a buyer, put more emphasis on the current fees, and the history of increases – not just the “big number” in front of you today.

“Playing God” With The Front Door

The market is busy, right?

That’s an understatement.

It’s downright crazy, and if you’re a buyer, you know how many people are viewing a home by whether or not the front door opens as it pushes up against thirty pairs of shoes sitting in the foyer.

In this market, it’s very common for there to be 4-5 showings all at the same time, between 5pm and 8pm, when most people are out looking at houses.

For the most part, things run smoothly.

Agents respect each other, even though they’re competing, and they try to accommodate.  I’ll take my clients downstairs first if I know another agent is upstairs.  I’ll see agents I know, and we’ll greet each other, and be cordial.  We’ll try our best to give another buyer some privacy if they’re conversing in one of the rooms, and we know we can wait a couple of minutes to take a look.

But once in a while, you get a buyer agent who decides that he or she is going to change the game, and dictate the rules.

And I’ve found a few agents this year that have decided to “play God with the door.”

Consider an agent that gets to the property at 5:55pm, for a 6pm showing, right before, say, three other agents with showings at 6pm.

This agent opens the front door, walks inside with his or her clients, then locks the front door.

The agent then takes a “private tour” through the house with his or her clients, while the three agents are outside, knocking on the door, to no avail.

Last week, an agent tried this with me, and I didn’t like it.

I knocked, and knocked, and knocked, and she took ten minutes to come answer.

When she opened the door, she acted surprised to see another human being, and dripping with condescension, almost proud of her actions, she said, “Oh, hello……..do you have a showing too?”

I said, “No, I’m a f****** girl-guide, selling cookies.  If you ever pull this with me again, I’ll take you to RECO.”

She told me I was rude.

The two other sets of agents I was with thanked me.

Two wrongs don’t make a right, I know that.  We learned that a long, long time ago.

But if you don’t call agents out on their poor practices, why would they be motivated to change?

“Seller Reserves The Right To Review And Accept Pre-Emptive Offers Without Any Notice And Without Notifying Any Agents”

Remember when I wrote about this “new practice” earlier in the year?  If you missed it, read the blog post, HERE.

I’m pleased to say that it’s stopped, for the most part.

To pick up the theme from the point above – if you don’t call agents out on their poor practices, why would they be motivated to change – I’ll tell you that on Monday, I found another one of these listings with this line about accepting pre-emptive offers with no notice, which clearly breaches RECO rules.

I sent the listing to my manager, and he sent it to somebody at RECO, then called him directly.

A day later, the listing had been edited to read: “Seller Reserves The Right To Review Pre-Emptive Offers.”

I know it sometimes seems hopeless, but don’t simply say, “Filing a complaint won’t do anything,” because it can, and it will.

No Pre-Home Inspection

If you’re a seller in 2017, and your agent says, “We don’t need to do a pre-home inspection,” then your agent is cheap, lazy, and a liar.

Get rid of him.

To not provide a pre-home inspection in this market is to cost yourself 4-5 potential buyers on offer night, who would have made an offer, but didn’t have the time, or the wherewithal, to do their own inspection.

Last week, I emailed a listing agent and asked for a copy of the home inspection.

He wrote back:

“No, the Seller did not get a pre-inspection.  The seller has decided to allow buyers to satisfy themselves with their own home inspection, should they wish to have one completed.”

Oh what a load of bullshit!

First of all, it’s not really “the seller” who didn’t get the inspection.  It’s the agent.  Sure, the seller could decide, but it’s the agent, if he or she is worth their salt, who is supposed to push the idea as a marketing tool, or really in this 2017 market, a bare essential.

Secondly, the wording of “allow buyers to satisfy themselves with their own inspection” is such an attempt to turn it back around on the buyer, when 9/10 decent listings out there have a pre home inspection.

And lastly, “…should they wish to have one completed,” is their way of saying, “What, you really feel that’s necessary?  Well, okay, I guess…”

Novice Realtors

I’ve been accused on many occasions as being a “Realtor-basher,” since I routinely blog about “the bad actions of a just few.”

Well, maybe it’s no longer “just a few,” so does that make me any better or worse an agent for continuing to write things like the following?

I had a listing two weeks ago that brought out the worst in agents.

I could write a whole blog post on this, with forty different phone calls that would make your head spin, but that would really be Realtor-bashing.

So let me give you just one example.

Just listen to how this one phone call went.

Agent: “I wanted to ask you a few questions about your property.”

Me: “No problem.”

Agent: “Is there an offer date?”

Me: “It’s on the listing.”

Agent: “Do the sellers have a desired closing date?”

Me: “It’s on the listing.”

Agent: “Does the maintenance fee include utilities?”

Me: “It’s on the listing.”

Agent: “Is there a gym in this building?”

Me: “It’s on the listing.”

Agent: “If we do bring an offer, what address should I email it to?”

Me: “It’s on the listing.”

Call me a jerk if you want; tell me I was being unhelpful.

But come on!  I have no time for this crap.

All that agent had to do was pick up a copy of the MLS listing that’s sitting on his or her desk, and read it!

I’ve never seen such poor worth ethic, and such laziness and sloppiness.

The bar is just so low right now, and more and more people are getting into the business.  My buddy went to get fitted for his wedding suit the other day, and the girl said, “Oh cool, you’re in real estate?  I’m doing my phase-two exam this weekend!”

What I’ve seen so far in 2017 is pathetic, and it’s making the experienced agents band together.  I won in multiple offers a couple weeks ago when the listing agent told me, “It’s so great to see a familiar face,” and told me I wasn’t the highest offer, but to come up in price, as the highest offer was somebody with 18 mistakes in their offer, no cheque, and from a brokerage that’s been operating for nine weeks.

Well there you have it, folks!

Some random thoughts, from a pretty scattered week.

We’re starting to see inventory pick up in the single-family housing market though, and that’s exciting.  Things should slow down again the week before the Easter long weekend, but then it’s smooth sailing until the end of June.

Any guesses on the average home price increase in March after we saw a 27.7% increase in February?  I’m thinking it’ll top 30%.  We’ll know in about 8-9 days.

Have a great weekend, everybody!

27 Comments

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  1. Layan says:

    David, the reason there are so many incompetent agents is simple. There’s a scheme going on for some time. Some agents charge over 500 dollars to be your tutor, but they actually just tell you what will be in the exam. And more… they ask you which location you will be writing your test, because they have to make sure they have access to the content. I’ve been wondering for a long time how so many idiots coming up the elevator in my building could pass an exam and become an agent, but my question was answered once I faced a tutor having up to 10 students on 500 per phase. I am sure this is not new, but nobody acknowledges this issue.

  2. Parkhurst.Bessborough says:

    Thank you for providing an overview of these topics. I doubt very much I’d have heard — or considered — any of them otherwise. It’s nice to hear it from someone (you) who is actually on the inside.

  3. IanC says:

    I SEE your ladder down the garbage chute, and RAISE you one full-size folding ironing board.

  4. Condodweller says:

    “Capital Gains Tax Stays At 50%”

    Unfortunately the inclusion rate has a history of large movements between 0% and 75%, mostly between 50% and 75% the last few decades. Considering that historically capital gains inclusion changes have been retroactive and the amount of gains people are sitting on WRT to their RE investments, it may be time to consider crystalizing some gains. I don’t hava access to the G&M article linked but I bet it talks about considering the same this year in case they do make a move next year.

    “Primary Residence Exemption”

    My philosophy on this is don’t poke the bear. The person who brought it up must be a renter with 0 potential to future home ownership or had a moment of temporary insanity. The last thing we need is politicians getting a whiff of people asking for this.

    “No Pre-Home Inspection”

    With regards to the “get rid of him” comment, I would be interested in knowing David how one would go about doing that? I mean with, you know, a 4 months representative agreement signed with another 4 months of hold over period in place.

    “Novice Realtors”

    David, you were a novice realtor once, no?

  5. Joel says:

    Increasing the inclusion rate would have cooled the Toronto market significantly. There are many domestic and international speculators that buy income properties and operate at a loss as they are banking on the growth of the asset. This would have had major effects outside of just real estate, but it would serve to cool the market.

    1. Condodweller says:

      For an investor who looks at two years of 24% and 24%+(which is where we are heading for this year) increases considers selling his/her property(ies) to lock in the gains and diversify away from RE it’s a disincentive. This would also take away supply as an investor selling, but not buying, would actually be new supply.

  6. Carl Warner says:

    David, I’m afraid you’ve dropped the ball by implying that the capital gains tax in Canada is currently 50% and (horror of horrors!) might have been increased to 75% by those evil Grits. Of course, you are by no means the only person who, intentionally or not, misrepresents the capital gains tax by excluding the crucial term “inclusion rate.” The implication is that the tax itself is currently 50% which of course it isn’t. The inclusion rate is what is 50%, meaning you pay tax at your marginal rate on half of your gain. That is, if your marginal tax rate is (let’s say) 40%, you’d pay 20% tax on your capital gain. No one pays 50% and likewise no one would pay anything close to 75% if the inclusion rate were to be increased. Surely most of your readers know the difference between tax rate and inclusion rate, but that doesn’t excuse lazy reporting.

    1. Joe says:

      Your understanding is also false. 50% inclusion doesn’t mean marginal rate is halved. It means 50% of the gain is added to your ordinary income (employment, interest, etc.) and then the new amount is taxed progressively. So for a highly-compensated individual, their overall tax bills are much higher than someone who doesn’t earn a penny in the same tax year.

      1. Carl says:

        It’s two ways of saying the same thing, unless the taxable (50% portion of the) capital gain bumps you into a higher tax bracket. Otherwise, your marginal rate applied to half the gain is exactly the same as half your marginal rate applied to the full gain.

        And of course a “highly-compensated individual” will have a “much higher tax bill” than someone who “doesn’t earn a penny in the same tax year.” Why even point out something so obvious? No income, no tax. What’s your point?

    2. RPG says:

      Sigh. More trolling.

      Everybody knows what “fifty percent” means in relation to capital gains tax. Does he really need to flush it out? Or maybe you need it dumbed down?

  7. Cynthia johnson says:

    I like your realtor bashing! Makes me feel less crazy 😜 haha

  8. Ralph Cramdown says:

    I went back and forth about whether to post this.

    Maybe you exaggerated that phone call for effect, or maybe not.

    I don’t know the details of that listing or that buyer agent. But it’s a fair guess that you were netting anywhere from $6,000 to $40,000 from your seller client to be the consummate professional, and to achieve the highest sale price possible while respecting any of your client’s other goals. It’s great that you put all of that information into the MLS, accurately. Alas, a buyer agent preferred to telephone you than to read or believe the listing. And you blew it. You could read 1,000 books on real estate sales, general sales, or interpersonal relations, and none of them would recommend doing what you did.

    You can never know exactly how much money a mistake like that cost your client. But you can guesstimate. There’s the probability of the buyer submitting an offer before the agent’s phone call. It seems unlikely that your stellar telephone technique increased that probability. Just by showing up, that buyer would have likely increased the bids of the other buyers. And might have been the proverbial “boat thrower” who won it all, maybe for a stupid amount over the next highest. So you multiply those out and come up with a number in at least the hundreds of dollars — maybe the thousands, depending on factors that I don’t know.

    And that’s the EV (expected value) loss on this one deal. Maybe that agent is a two-deal-a-year washout who’ll be gone soon, maybe she goes on to be a big producer. But next time she has a question about one of your listings, she probably won’t look forward to picking up the phone and using it as an excuse to catch up with you.

    Sales can be frustrating [says I, never having cashed a commission cheque in my life, though I did turn a big one down once]. But if I were you, I’d delete your post. Blame it on the lawyers or something.

    1. kramer says:

      Fair comment in some ways.

      In most other industries, I think the salesperson would be fired immediately for treating a customer like this. In that sense I agree with you.

      However, to play David’s advocate, this is a very different situation and dynamic. Most notably, if the buyer’s agent suspended all activity on this potential transaction citing “rudeness or smartassedness of the selling agent”, then the buyer’s agent would be just as guilty – if not more so – of letting their respective client down and not servicing them properly. Like you said, he did his job providing the sales material so that everyone has access to this information, including that buyer.

      It might come down to this as well… Most markets are buyer’s markets… the salesperson needs to suck up to the buyer, press a good relationship, maybe even slide them Leafs’ tickets every once in a while… Quite obviously GTA real estate is the biggest example of a ‘seller’s market’ since Vancouver or the Tulips.

      But I get what you mean.

    2. jeff316 says:

      I had to go back and check that it was, in fact, David being so obstinate on the phone.

      I guess I read it too quickly and just assumed that it was David on the end of that treatment. Ouch.

      It takes a lot of work and creativity to blog regularly and give an on the ground look into the world of real estate. And on top of that, putting yourself out there is always a risk. So it is natural that some of his posts will appeal to some potential clients and discourage others. And I’m sure he’s savvy enough to know this and judge when and with what he attracts more than he puts off.

      But every once in a while he oversteps with something that just does not look good. We all make mistakes. I agree with Ralph here, this post just makes him look bad; and like the kind of real estate agent that, in another post, he would have rightfully trashed as unstrategic, aloof and not service oriented.

      1. Condodweller says:

        Let’s just say if David has a PR person, he should “get rid of him”.

    3. Jason says:

      I’m surprised at some of the comments regarding the phone conversation. I don’t think David did anything wrong. I’ve used David to sell a few of my investment properties over the last 18 months and I think he goes above and beyond other agents. The fact that you think he should spend 15 minutes on the phone regurgitating information that is clearly already available is a waste of his time and if it was my property he was selling, I would have no problem with his actions.

      1. Ralph Cramdown says:

        Best if I try to tell you using small words.

        You do not know if the guy with the biggest cheque has a smart agent who reads MLS, or a dumb agent who does not. You want to sell to the guy with the biggest cheque. So you want your agent to answer the phone and answer all the questions truly and nicely, just in case.

    4. RPG says:

      @ Ralph

      You’re slowly becoming a blog troll and it’s showing in your posts.

      You could have chosen to see David’s actions in a different way as most of the people following up with comments.

      He’s pointing out how lazy agents have become. They won’t even spend ten seconds looking st the listing. They just call the agent and ask questions rather than doing their job.

      The bigger picture is that this is a societal trend. Everybody wants everything at their finger tips. I’m willing to bet the agent that called was either a millennial or an ESL agent.

      1. Laura says:

        I don’t think he was being rude. I think he was bein helpful. He was pointing out to a terrible agent where the information can be found so he or she doesn’t embarrass themselves in front of a top agent again.

        I’ve been selling real estate in Mississauga for over twenty years. I’ve personally witnessesed the deteriorating work ethic in the average agent over the last two or three years, and it’s out of control.

        1. Ralph Cramdown says:

          Hilarious, the both of you. I recommend that you get unlisted numbers, since client service is such a burden.

  9. AT555 says:

    Found this amazing article on Bloomberg (via Globe&Mail) that makes so much sense. George Mason economics professor Tyler Cowen attempted to answer a question that’s highly relevant to Canada’s major urban centres, “will home prices and rents go up forever?”

    Here is an excerpt:

    “We live in a special time where clustered activities are unusually important for economic growth. Some activities, such as dentistry and cement production, don’t cluster geographically very much, for obvious reasons. In contrast, finance (New York and London), information technology (the Bay Area), and entertainment (Hollywood and New York) are the most clustered. For whatever reasons, it makes sense to have many of the top decision-makers in one place… Leading cities have become so expensive in large part because two of these clustering sectors — finance and information technology — have been ascendant. There is no particular reason to expect those trends to continue forever, and that will bind rents in affected cities.”

    “Can rents in megacities keep on going up forever?” – https://www.bloomberg.com/view/articles/2017-03-23/rents-in-megacities-can-t-go-up-forever

    1. Kyle says:

      I also read the article and agree it is excellent. I think it captures what has been behind a lot of the price increases. Lots of people argue back and forth (myself included) whether prices are justified by how “world-class” a city is (i.e. how much do people WANT to live there). But this idea of clusters is probably a much more appropriate measure. Prices are better justified by how many “clusters” of high paying industries exist (i.e. how many people NEED to live there).

      Will prices in these alpha cities go up forever? IMO, no they will not. In the long, long term, the need for these clusters to be concentrated in certain places will gradually wane. Clusters concentrate around where the talent lives which draws more talent, creating a concentration of highly paid people living in one area. But as the trend to working from anywhere starts to become the norm, talent no longer needs to live work they work.

      1. Kramer says:

        I’m happy you shared this. It occurred to me a week ago (in a real estate context) how many of the biggest retailers have their head offices in the GTA (ie Walmart, Loblaws, etc… even Sobeys National Sales/Procurment office is in Mississauga even though they are an Eastern Canada based company)… and in turn, MANY of the suppliers have their head offices or at least sales offices in the GTA as well, so they can be near their buyers here in the GTA to provide service and relationships to keep them in good graces.

        So many reasons why this is the case…, so many that it will never change.

  10. Kyle says:

    They can’t take away the Primary Residence Exemption, without making mortgage interest deductible. If they are going to tax cap gains like a primary residence was a pure investment, then they need to allow for deduction of expenses like it was a pure investment.

    Given the debt levels and the long term potential for rates to go up, this would only encourage even more borrowing, while resulting in much lower tax revenues (i.e. They would reduced tax revenue from many Canadians’ income tax, but only gains capital gains tax from the small percentage of Canadians’ who sold homes that year) , so i have little fear that this will ever happen

    1. Joe says:

      Personally I think they should put a cap on it, like pretty much everywhere else. A 20million dollar mansion shouldn’t fall under the PRE so the super rich can game the system. Nor does a 60K bungalow from the 60s worth 2mil today.

      1. Condodweller says:

        @Joe If I had a 20 million home why should I be treated differently than you? Or are you referring to investors using PRE on their investments?

        1. Joe says:

          I’m simply referring to the fact that any gains over $1mil is excessive. You can have $20mil and waste it all up and no one would care. But if you make more than $1mil+ in profit on a single family house, you deserve to cough up a portion of the amount over $1mil. Call it social transfer, regressive punitive tax, luxury tax, whatever.

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