Wednesday, September 12, 2012

Real Estate Performance in Toronto Compared to Indicies

ORES Real Estate Index for August 2012

 Ontario Real Estate Source

By Brian Madigan LL.B.

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

In addition, the stock market indices for Toronto, and the three largest US markets are also compared.
For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the five year average used as a standard benchmark comparison in the mutual fund industry. In fact, it tracks over 7 years.

As of 31 August 2012, here is the Index representing average prices with the July 31st, June 30th, May 31st, and April 30th numbers appearing in brackets for comparison:

Real Estate
148.26…..(147.60)…..(157.40)…..(159.93)…..(160.16)…..GTA single family
Other market comparisons 
385.39…..(379.19)…..(373.70)…..(364.23)…..(386.03)… (per ounce)
219.45…..(200.36)…..(193.45)…..(199.70)…..(230.60)…..oil (per barrel)
129.83…..(123.98)…..(123.44)…..(125.09)…..(122.56)…..TSX index
148.26…..(147.60)…..(157.40)…..(159.93)…..(160.16),,,,,ORES sgl fam
115.39…..(115.47)…..(115.95)…..(116.05)…..(115.57)…..CPI index
124.79…..(124.01)…..(122.79)…..(118.15)…..(125.96),,,,,Dow Jones index
118.07…..(116.77)…..(115.31)…..(110.92)…..(118.34)…..S&P Index

Using the Index

Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of August, the index stood at 148.26. That’s a 48.26% increase in 92 months. That means the increase is 0.524% monthly, or it could also be expressed as 6.29% annually.
Performance can always be difficult to interpret but the longer the period, the more accurate the number becomes. There can, of course, be many short term swings.

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

Observations (on the Index)

As we use index, there are several notable comments:
· Commodity prices are just commodity prices
· There is no other “extra return” for commodities
· The same is true for the CPI
· The CPI is a benchmark to see whether you are keeping pace with inflation, that number is 115.39; increases have been modest and inflation appears to be under control; this is significant. It is also noteworthy that the CPI actually fell slightly last month, as it did for the previous 2 months
· For a realistic performance goal, you should aim for CPI plus 3.5% annually
· Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices
· The stock market Indexes only measure the survivors. So, in 2009, both GM and Chrysler would have been dropped due to the bankruptcies
· If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes
· Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself

Comparative Observations Using the New Index

· Gold overall is still the best performer, reaching 385.39, nothing else comes close, however, it is well off its highs (425.72 in September 2011). To some extent gold appears to be losing its favour, however this past month the price seems to have stabilized from its previous 3 month downward trend
· Oil has been the most volatile, (it rose to 320.88 in July 2008 and it has declined to 193.45) we are seeing slight upward trend this past month where it now sits at 219.45
· Real estate was the most stable, with solid predictable returns at about 6.29% annually
· Our own stock market posted reasonable gains, however at 129.83 it is just showing stability over the last few months. The TSX still falls substantially behind single family homes over the measurement period, however, don’t forget that the TSX is still well off its highs and is substantially resource based
· All three US stock market indicators are now showing positive numbers, and may truly be a better overall indication of the true state of the North American economy. The S&P matches inflation, the Dow is now measurably under the Nasdaq which now exceeds our own TSX. This is very positive for the US economic recovery.


For steady, predictable, measured gains pick real estate. It’s a solid performer with lower risk (less volatility) and generally moving in a positive direction.
And remember, when it comes to real estate, it’s never “wiped out” completely, like GM or Chrysler stock. So, unless you’re sitting on the edge of a tsunami, you’ll still own something when the storm is over.
For a benchmark of success, there’s 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt, including CanWest Global, and many US Banks) that would have been happy with that return.
The present rate of return although high by historical standards appears to be sustainable in sought after locations like the GTA. At the moment, over our measurement period we are looking at a 1.29% annual premium over the benchmark 5%.
And, what a difference a few months make. The longer term performance numbers were:
8.20% at the end of April
8.08% at the end of May
7.65% at the end of June
6.28% at the end of July
6.29% at the end of August
That’s an almost 2% decline in long term performance over 5 months (all periods commencing 1 January 2005). That’s significant in terms of measurement.
If the past can be used as a reliable source of information for future trends, we should see some recovery in September. It already looks like that started in August, which is rather unusual.

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

Wednesday, August 8, 2012

Can You Witness a Document if You’re not there ?

By Brian Madigan LL.B.

(Ontario Real Estate Source)

A problem frequently arises in real estate transactions when people say they witness signatures, but they don't.

In Ontario, there are only three legal documents which require witnesses:
1)     Domestic Agreements,
2)     Powers of Attorney, and
3)     Wills.
Other documents are still valid without a “witness”, but on the basis of “best practices”, there should be a witness to the signature. That’s the case with real estate transactions. Any enforceable agreement to convey real property must be in writing. That is set out in the Statute of Frauds. Domestic agreements and powers of attorney can in fact serve as companion documents, even without a witness. A holograph Will, if completed properly can

Here's a quick scenario. Bob wants to sell his house, so he hires Jack, a realtor. An offer is faxed into Jack's office. Bob is on vacation out of the country. Jack e-mails Bob, and Bob gives him the fax number where he is staying. Jack faxes it over, and discusses the offer with Bob by phone. Then, Bob faxes it back to Jack's office.

It's not witnessed! So, Jack decides to witness the document, and signs his own name just above the line where it says "witness".

What's wrong with this scenario?

Jack said he witnessed the document but he didn't. That's the problem!

Now, you can appreciate that Jack's involvement was helpful. The correct and proper procedure would be to properly document Jack's involvement.

So, what should Jack have done?

Jack should "authenticate" the document. He really can't witness it, because he wasn't there. He should strike out the word "witnessed" and insert ‘authenticated not witnessed".

What's the difference? A witness needs to be personally present, and see the person sign the document in front of them. They become a compellable witness in any legal proceedings. They would be expected to comment on several aspects concerning the signing of the document. They should be able to say that the person appeared to have capacity to sign. They knew they were signing a legal document. The person did not appear to be under the influence of alcohol, drugs, medication or fatigue. In all respects, they appeared to be knowledgeable and execute the document without duress or coercion from any other party.

Authentication is somewhat different. The person was not personally present, but can state with a reasonable degree of certainty that the signature is that of a specific individual. They know the signature. They have the signature on file. The signature compares favourably with the signature on file, or they "recognize" the signature. Banks will undertake this task regularly.

You will appreciate that just because the signature looks similar that there is no real guarantee. It's just a best guess, but it's a best guess by someone who has certain business records on file, or a certain professional (or otherwise competent) recognition of the signature.

There is obviously one further step. The signature could be "guaranteed". This means that the authenticating party is absolutely certain, and offers a contractual invitation to a third party to rely upon the truth of the statement.

In the case of the Bank manager: "Authenticate" could lead to a tort liability, a "Guarantee" could lead to a contractual liability.

In Jack's circumstances, he could raise his involvement and "certification" to the next level. He could state "authenticated and guaranteed". That would be as close to actually witnessing as possible. But, you will appreciate that it still falls slightly short. He wasn't physically present, so he truly cannot say anything about intoxification or other factors that might have been an impediment to Bob's signing of the document.

In real life, all too often someone in Jack's position will simply sign above the witness line. That's risky!

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

Tuesday, August 7, 2012

Be Careful Using Joint Tenancy ~ It's not Creditor Proof


joint interest
Ontario Real Estate Source

By Brian Madigan LL.B.

We looked at a case where a joint interest in a matrimonial home effectively thwarted bankruptcy.  But, that was a peculiar case. In Re: Cameron, it was the bank which placed the deceased’s estate in bankruptcy, months after he had passed away. That was too late!

Had the bankruptcy taken place during the lifetime of the deceased joint tenant, then the one-half interest in the property would have been available to satisfy the debts owed to creditors.

This is due to the fact that the bankrupt’s assets are conveyed to the Trustee. This conveyance severs the joint tenancy and the property is now held as tenants-in-common. This statutory severance allows the creditors to seize and liquidate the bankrupt’s interest.

As you know, for joint tenancy to continue, four unities must be present:

1)     Unity of Interest
2)     Unity of Possession
3)     Unity of Time
4)     Unity of Title

However, if there is really no expectation of bankruptcy, and the widow acquires the title by survivorship on death, then the deceased no longer holds title, and it’s too late for the bank to take proceedings.

Here’s an excerpt from the reasons for Judgment by Judge Mesbur:

·        “When a joint tenant becomes bankrupt and the joint tenancy is severed, the bankrupt’s half interest in the property as a tenant in common then vests in the Trustee, and is available for the creditors.  In a case such as this, the joint tenancy is never severed, there is nothing to vest in the Trustee, and nothing is available from the property for the creditors.

·        When one joint tenant dies, its interest in the property is extinguished, and the rights of the remaining joint tenant or tenants are correspondingly enlarged.  The enlarged interest immediately vests in the remaining joint tenant or tenants.

·        The characteristic of an estate in joint tenancy is that the joint tenants have the same interests ... and upon the death of one of the joint tenants the entire estate remains in the survivor in whom the whole estate immediately vests.”

In Re: Cameron having property registered in joint tenancy actually worked quite favourably.

But, you have to remember, that you have to be “dead” to take advantage of the opportunity.

For someone who is concerned about their creditors, joint tenancy does not afford protection during their lifetimes, only after death. So, this is not a good estate plan.
Take the reasonable precaution to ensure that property is held in the name of the spouse who does not have an exposure to creditors. That step works well during one’s lifetime and afterwards as well.

It is also noteworthy to remember that the joint interest is available to execution creditors. Those who have judgments may obtain an execution. It is not simply a remedy available in bankruptcy.

Be sure to obtain legal advice from a lawyer or solicitor practicing real estate law or estate law before making a determination with respect to title.

See the decision of Judge R. Mesbur in the Cameron Estate ats. Bank of Nova Scotia (31 October 2011, Ontario Superior Court).

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

Friday, August 3, 2012

Which way is the Toronto Real Estate Market Moving?

Toronto Market Trends

Flat Trend
Ontario Real Estate Source

By Brian Madigan LL.B.

Actually, that’s an interesting question. Let’s first have a look at the report just published by the Toronto Real Estate Board (TREB):

GTA Home Prices Up in July

TORONTO, August 3, 2012Greater Toronto REALTORS® reported 7,570 sales in July 2012, representing a decline of 1.5 per cent compared to 7,683 sales reported in July 2011. The decline was most pronounced in the condominium apartment segment in the City of Toronto. Total sales in the rest of the Greater Toronto Area (GTA) were up compared to the same period last year.

“Very strong annual sales growth in the first half of 2012 and an earlier peak in sales this spring compared to 2011 help explain more moderate sales this summer. New mortgage lending guidelines and the additional upfront cost of the City of Toronto land transfer tax also prompted some households to put their buying decision on hold,” said Toronto Real Estate Board (TREB) President Ann Hannah.

The average selling price in July 2012 was $476,947 – up by four per cent compared to July 2011. The MLS® Home Price Index (MLS® HPI)* composite index, which allows for an apples-to-apples comparison of benchmark home prices from one year to the next, was up by 7.1 per cent year-over-year.

“The GTA housing market became better-supplied in recent months. Buyers benefitted from more choice in the market place, resulting in less upward pressure on the average home price in July,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.

“The mix of homes sold in July 2012 versus July 2011 also appears to have changed, further influencing the average selling price. This is evidenced by the different annual rates of growth between the overall average price and the MLS HPI®,” continued Mercer.


Well, it certainly seems pretty clear from the headline that the market was up. And, TREB goes on to point out that it compared July 2012 to July 2011. When you do the calculations, that works out to a 7.1% increase, year over year.

But, have a look at the monthly numbers. The average price for a single family home in the GTA was $516,359 in April 2012. In fact, the decline since April has been 7.63%. May, June and July all reflect a steady decline.

We could have used another headline that said: “GTA Home Prices Drop 7.63%”. But, nobody wants to read that.

So, is that something to worry about?

Let’s add a little more perspective to this. Last year the market peaked in May at $485,362 and dropped to $450,694 in August. That was a 7.14% decline over that time period.

This year the market peaked one month earlier. Is this just a cyclical trend or does it reflect something in the underlying economy? Actually, that type of decline is commonplace over the last decade.

Could we have a headline that just read: “GTA Prices Fairly Stable”. We probably could, but that doesn’t seem very exciting, and we would soon be fired from the editor’s desk.

However, let’s have a look at some numbers over the last two years:

April 2011 ~ $476,802                                                                                 
November 2011 ~ $477,573
July 2012 ~ $476,947

That looks fairly stable to me. We roughly have the same price now as we had last Spring.

It’s always interesting to look at the numbers behind the headlines. Which headline did you like?

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

Friday, July 27, 2012

Deceased Joint Interest Extinguished Upon Death

joint ownership
Joint Tenancy Thwarts Bankruptcy

Ontario Real Estate Source

By Brian Madigan LL.B.

Having property registered in joint tenancy actually worked quite favourably.

A doctor acquired a matrimonial home and placed the title in his name together with his wife as joint tenants. The doctor then obtained a loan to finance his medical practice from the Bank. His wife was not asked to co-sign the loan.

When the doctor passed away, there were insufficient funds in his estate to pay the Bank in full. The doctor’s wife had already acquired full title to the matrimonial home by “right of survivorship” which goes with joint tenancy.

As luck would have it, Parliament had made some recent amendments to the Bankruptcy and Insolvency Act (BIA).

Section 96 of the new BIA allows a creditor to make application to Court to set aside a transfer of property:

1)     to a non-arms length party,
2)     at less than fair value,
3)     made within one year of the bankruptcy.

The previous applicable provision under the old Bankruptcy and Insolvency Act would have required proof of intent to deprive one creditor at the expense of another. Proof of intent is no longer required.

So, what did the Bank do? Write off the balance of the loan as a bad debt?

No, it sued the widow!

It placed the estate in bankruptcy and claimed that one half the value of the matrimonial home should transfer back to the estate to satisfy the amount outstanding on the loan.
This matter came on for hearing in the Superior Court of Ontario. It required the Court to analyze just exactly what happens in joint tenancy, and just precisely how does that “survivorship provision” really work.

Many legal decisions have often said that the deceased’s interest in the property is transferred upon their death to the surviving joint tenant. And, for the most part, such an analysis is more than sufficient.

However, in this particular case, because of the new wording contained in the Bankruptcy and Insolvency Act, the real method of acquisition of the deceased’s interest by the survivor is at issue.

The Court concluded:

1)     the deceased joint tenant’s interest is extinguished upon death,
2)     by operation of law, the survivor acquires the whole,
3)     there is no “transfer” within the meaning of the BIA,
4)     if there is no transfer, there is nothing which can be set aside.

You might like to think the joint tenancy is “the answer”, however, it is actually fraught with difficulties. In this case it worked out, and the widow kept the house, but not always.

Be sure to obtain legal advice from a lawyer or solicitor practicing real estate law or estate law before making a determination with respect to title.

And, if interested have a look at the decision of Judge R. Mesbur in the Cameron Estate ats. Bank of Nova Scotia (31 October 2011, Ontario Superior Court).

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

Building Permits in Toronto ~ Better Safe than Sorry!

half house value

Building without a Permit can be Costly!!!

Ontario Real Estate Source

By Brian Madigan LL.B.

This is the lesson learned by an elderly Toronto couple. Mr. and Mrs. Tseng purchased their older turn of the century home on Brunswick Avenue in the Kensington Market area of Toronto in 2006 for $718,000.

That seemed like a lot of money for a house, particularly when the wooden two storey extension at the rear was falling apart. They hired a contractor to tear it down and replace it with a new modern, soundly constructed two storey addition. So, what was the problem? Simple, they never obtained a building permit.

Sometimes, people go by the mantra “….it’s easier to obtain forgiveness… than ask for permission…”.  However, when it comes to governments and courts, that’s not always the case.

In this case, not everyone was happy with the new construction. It was bigger than the old wooden addition and blocked the sunlight. The resident’s association didn’t want this sort of cavalier approach to building to take place in their neighbourhood.

The Tsengs sought permission after the fact. Their application was turned down at every level, including the Building department of the City of Toronto, the Committee of Adjustment, the Ontario Municipal Board, the Divisional Court and the Ontario Court of Appeal.

Ultimately, they even went to the United Nations in Geneva, Switzerland with a human rights complaint.

The new addition cost about $80,000 to construct, or about 11% of the value of the property, and it should have added that much or more to the house.

However, you probably guessed it: all the appeals are over and the Tsengs have been ordered to demolish the addition. Their costs are not insignificant. Last year, they estimated that their legal costs exceeded $200,000. They also owe at least another $20,000 to the City. On top of that, there will be the cost of demolition. Conservatively, we have $220,000 in legals, $20,000 in costs to the City, $30,000 in demolition expenses, and the original $80,000 to build. That all adds up to $350,000 for an addition that isn’t there. And, of course, there is the loss of value associated with the removal of the old addition.

All in all, this is a mess!

Almost half the value of the property was simply thrown away. This isn’t the way a good investment in real estate is supposed to work.

What should have happened?

The original wooden addition likely represented a legal non-conforming use. The Tsengs only wanted an additional one meter in depth. They should have applied for a building permit and if denied, would have had the opportunity to go to the Committee of adjustment for a minor variance. Instead, the contractor demolished the older structure. That left them without the legal non-conforming component for their application.

Now, the “new” addition needed to comply with the current zoning and building standards. This meant that the new addition was 10 meters too deep, rather than just one. But, the old addition had now been long since removed. This legal escapade took over 6 years. And, as you can well imagine, you couldn’t sell this property to anyone in the meantime.

Their worst case scenario would have been to repair, rectify and improve their old wooden addition. From a construction perspective, it would have been cheaper to tear it down and rebuild, but from a legal perspective, it would have been permitted to stay.

If there are some lessons here:

1)     apply for a building permit,
2)     don’t demolish anything until you have the new permit in hand,
3)     get legal advice,
4)     don’t let your contractor give you legal advice “for free”, you know what that’s worth,
5)     don’t throw money at the legal system,
6)     invest in the property by having the funds expended add to the value.

And, of course, forget about that mantra: “….it’s easier to obtain forgiveness… than ask for permission…”.  

Get the building permit!

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

Wednesday, April 4, 2012

Time to Amend the Code of Ethics ~ RECO Election 2012

Candidate Brian Madigan LL.B.

Ontario Real Estate Source

By Brian Madigan LL.B.

As many of you know, I have offered to let my name stand as a candidate for election as a Director of the Real Estate Council of Ontario for a three year term commencing in June 2012.

Let's look at an issue which I believe is topical for the 2012 election?

There are offers commonly known as “Bully offers” which present a problem for the industry. Few participants are on the winning end. As part of the process, the existing ethical obligations apparently suggest that by placing the client in a higher position than the profession as a whole, that the consumer is well-served.

To me, the result is the opposite. The consumer loses faith in the integrity of the system. Those who breach the rules are encouraged and those who follow the rules become disgruntled.

Consumers and the public understand the rule of law and the basic system of fairness. What they do not understand is the bully offer loophole.

In my view, there are times when a professional must honour a professional code of ethics first and follow the client's instructions thereafter. This occurs every day in the legal and medical professions. It is a matter that should be honoured here too.

As the real estate business moves from an "industry" to a "profession", the Professional Standards and Code of Ethics need to form the primary responsibilities of the registrants.

While it is always possible to contact a lawyer for legal advice on such matters, I would suggest that appropriate amendments to the Code of Ethics be made under the Real Estate and Business Brokers Act, 2002 be made to ensure that a professional's responsibilities are primary.

The related and important consequence would be the elimination of the bully offer loophole. This will add to the inherent integrity of the system, ensure fairness and encourage the consumer to respect the registrants and the profession.

A seller would then be able to set up rules related to the presentation of offers, and everyone would be obligated to follow those rules, without the risk that a “bully offer” might arrive earlier. There should be no breach of ethical obligations if the registrant simply followed the seller’s rules and guidelines.

Here's the political promise: if I am elected I will support the appropriate amendments to the Real Estate and Business Brokers Act, 2002, to place adherence to the Professional Code of Ethics as the primary duty of the registrants.

The effect in my view will be "increased professionalism".

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