Comet Settlement Real Estate

Latent defects are those hidden or concealed defects that would not be discovered in the course of a reasonable inspection. Latent defects are the opposite of patent defects, which by definition are defects plainly visible or that can be discovered in the course of a reasonable inspection. In real estate, although misrepresentation normally requires a statement to be made to the Buyer silence can also result in some liability on the part of the Seller.

Prior to entering into a Contract to sell real estate the Seller is required to disclose to the Buyer any latent defects the Seller is aware of. Failure to disclose will not affect the consent of the parties, but will have similar consequences as misrepresentation.

Technically speaking, latent defects are facts that :

1) are unknown to the Buyer and are so crucial to the enjoyment and value of the property that the Buyer might not have entered into the Contract had he known they existed and
2) cannot be discovered upon reasonable inspection of the property.

An example of a latent defect in one case was the presence of an underground water culvert which was not apparent from a normal inspection of the land and which the Seller was aware of and failed to disclose. If the Seller does not disclose the existence of a latent defect, the Buyer can rescind the Contract and/or recover damages. Other more typical examples of latent defects are the existence of urea formaldehyde foam insulation or asbestos insulation in a property offered for sale. However, the Seller will not be held liable for failing to disclose a latent defect he was unaware of unless a reasonable person would have been aware of it.

Some latent defects are out of the ordinary but must still be disclosed if known to the Seller. For instance, properties rumored to be haunted are one such example, as is a property previously used as a site for a marijuana grow operation. In one recent court case, a luxury condominium where someone had committed suicide was held as a property with a latent defect that the Seller had a duty to disclose to the Buyer. These are known as ’stigmatized properties’ because they are associated with a ’stigma’ , an unusual, distressing event or circumstance such as murder, suicide or criminal activity. These properties may be worth less or could be hard to resell because prospective Buyers might not consider them. As such, the market for stigmatized properties is drastically reduced - and so is their value.

Luigi Frascati

Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.

[tags]real estate chronicle, real estate,economics, latent defects,finance[/tags]

Tags: economics, finance, latent defects, real estate, real estate chronicle

Money is the source of all evils - so goes the popular saying. Money is also what makes real estate spin around. So the critical question of the year becomes: where are real estate prices headed? Short of using a crystal ball, there are indeed a few considerations that can be made to have a general idea as to whether prices will continue to surge - at the average rate of 15 percent a year for the past four years - or, alternatively, if we are poised for a shift in the market.

Record-low mortgages, pent-up demand and improving consumer confidence have made this the fourth consecutive best year for home and condo sales in the Greater Vancouver area. The sales-to-active listings ratio, defined as the number of sales at any given time relative and directly in function of the number of inventory listings available at the same time, is over 30 percent compared to about 20 percent in a balanced market. If we want to be even more technical, price increases have been rising at about 7 to 8 times the national inflation rate, a sure sign that demand has consistently exceeded supply which, in turn, has made real estate a Seller’s market for the most part of the past four years.

And the consequence of this all, albeit you may not have directly noticed, is that Canadians are getting richer because of built-up equity. You bought a condo, for instance, in 2003 for CAD $150,000 using a $100,000 mortgage at 4.5 percent interest calculated semi-annually, not in advance. Your condo is worth, today, $195,000 in 2005 Dollars. Your loan has now diminished to an outstanding balance of approximately $97,770 so that, therefore, you have acquired a built-in equity of CAD $97,230. Since you initially invested CAD $50,000 of your own money, your return has been $47,230 in two years or a hefty 47.23 percent per year. Not too shabby. That sure beats the stock market.

Will you be making another 47.23 percent at the end of 2006 ?
You probably will, unless certain economic forces will conjure up against you. These forces - or variables as they are known in economics - are: energy cost, interest rates and affordability. Now, here there are a few clouds looming on the horizon that may make the future look somewhat different from the past.

Energy costs are on the rise. And Hurricane Katrina and Hurricane Rita and the hurricanes that will come afterwards do not help. To be sure, energy prices were on the rise even before the hurricanes that have devastated the Gulf region came around. In fact, most economists still predict no overall long-lasting impact from Katrina. Yet, the same economists also predict that energy costs will not come down to pre-2004 levels. The rises are here to stay, and that applies to all motor vehicle fuels, natural gas, electricity. Everything that affects our capitalistic economies, and not solely in North America.

Prices of consumer goods, henceforth, are on the rise as well because it is costing more to produce and to ship them all around. Each and every house component is bound to cost more as well. And the people that are in the process today of building your future dream home or your next real estate investment … they too will have to pay more to go to the work site. And, taken globally, a rise in manufacturing and shipping costs typically translates in an overall currency devaluation, a noble way to avoid mentioning the infamous i-word: inflation.

Fed Chairman Alan Greenspan - Mr. Monetarist as some affectionately call him - has been saying this all along this past year. Except that nobody wanted to listen. Reality was much rosier than the somewhat gloomy outlook offered by the venerable Chairman. And the Fed has been keeping the steady course of raising interest rates, albeit not hurriedly or in a draconian fashion. And they continue to hold this course.

Which, then, brings us to the third variable: affordability. Let’s take a look back at the initial example of you buying a condo in 2003 for $150,000 with $50,000 of your own money. Ask yourself this question: could you, today, buy the same condo for $195,000 with the same $50,000 downpayment ? If you are like the majority of real estate consumers, the answer is probably no. You would need a $145,000 mortgage today as opposed to the $100,000 mortgage you took in 2003. Which means you would have to show your lender that your gross income has increased of $15,000 per year - which probably has not. Bankers say they cannot lower their qualifications standards as they are working on the bare minimum (I still have to meet a banker dying of starvation, but …). Which, therefore, leads to the conclusion that you would not qualify today for the mortgage. Such being the case, you would no longer be what we in real estate call a ‘market participant’ . And if a lot of people are or will find themselves into the same situation, the end result will be a lower demand.

So, therefore, what’s the verdict? Are prices going to continue to surge or are we heading for Apocalypse Now? Probably neither. But if the foregoing models hold true, it is reasonable to expect a slowdown in appreciation of property values - which in turn implies a correction in prices. Those of us who are involved into real estate on a professional level are beginning to see this already: asking prices are somewhat shifting down, although asking prices are not really reflective of market trends due to their very subjective nature. And it must also be noted that a shift downwards in asking prices is a far cry from the dreaded real estate bubble some people have been prognosticating all along. But it looks more and more that the market is due for an adjustment.

Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.

[tags]real estate,real estate prices,economics,real estate bubble,investment,finance,[/tags]

Tags: economics, finance, Investment, real estate, real estate bubble, real estate prices

If you are presently a Tenant anywhere in North America, before you plan to remain a Tenant you should read this Article. There are several good reasons for ownership to prevail over tenancy and the real estate profession is littered with extremely clever pointers as to why Tenants should buy - and buy now. But quite aside from all the hype characteristic of real estate sales, there are five solid economic reasons for Tenants to purchase instead of renting. Here they are:

CAPITAL APPRECIATION

Real estate appreciates over time. This is due to a variety of factors, the most important of which is that bare land does not depreciate. The economic rationale behind this is that bare land cannot depreciate because free, available land diminishes as population increases. You may not notice this immediately if you live right in the middle of the Sahara desert, but in urban environments everywhere there is no question that land is scarce and, in turn, pricey. What depreciates in real estate is the structure, such as the walls, plumbing and electrical circuitry. This is normal functional depreciation due to the constant use - and subsequent wear and tear of the place. But functional depreciation almost never offsets land appreciation, with the end result that even if you mistreat your property you still end up building up equity.

Capital appreciation applies just as well to single-family detached houses as to condominium units. The ‘land’ of a condominium unit is the strata lot, so that if you so happen to live - say - on the twenty-fourth floor of a highrise tower in downtown like I do, your condo unit still sits on a strata lot. And on the twenty-fourth floor your strata lot does appreciate while the structure of your condo is subject to functional depreciation.

RENT MATCHES INFLATION

Inflation, as it is widely known, is defined as the loss of purchasing power of money. Inflation is due to a variety of economic factors and political choices but no matter what our governments do - or fail to do - at any given time, it all boils down to increased borrowing and increased monetary supply and availability which, in turn, decreases the purchasing power of money. In layman’s terminology what this means is that it will cost tomorrow, for the sake of an example, ten cents more to buy a certain good in the economic basket than it does today. You still end up buying the same good, but you pay more for it.

These days inflation is not a problem in North America - at least not the way it used to be. But every year our currencies still lose value, albeit minimally: two percent in the United States and almost three percent in Canada on the respective currencies as of last year’s count. Rent typically increase at the rate of inflation, so that a tenant in Vancouver that was paying - say - CAD $1,000 per month in 2005 can expect to pay CAD $1,030 approximately in 2006. Rent paid is, in essence, the cost of just another service this time offered by a Landlord , and once the rent money is into the Landlord’s pockets it can never be recovered.

MORTGAGE CAPITAL AND INTEREST PAYMENTS

Naturally when you go buy a house and contract out a mortgage with a lender, you will have to pay interest because you are using someone else’s money. But every time you make your monthly mortgage payment you also pay back some of this money. This builds up your equity which then grows over time. Equity growth is typically more evident in the United States where mortgages are amortized in a straight line over the term of the loan. In Canada lenders are more complicated and apply a process known in the business as compound interest, i.e. interest on the interest. Still at about halfway through over a typical 25-year amortization span, in Canada too principal repayment takes over interest payment, so that equity growth builds up faster.

CAPITAL GAINS

Capital gains are not to be confused with capital appreciation, although they are a consequence of it. Simply put, there is a realized capital gain when the amount of money you sell your property for minus the price you paid for it is positive. The real estate market may fluctuate, but it is a matter of fact that house prices increase over time. Economic capital gains are adjusted for inflation and expressed in Dollar/Year. For instance, here in Vancouver a single-family detached home that sold in 1975 for CAD $57,000 in 1975 Dollars may very well sell today for CAD $525,000 in 2005 Dollars.

On a cursory count, CAD $57,000 in 1975 are equivalent to approximately CAD $80,000 in 2005, so that your economic capital gains from the time you bought the house in 1975 to the time you sell it in 2005 are the difference between CAD $525,000 and CAD $80,000 expressed in 2005 Dollars, or a whopping $445,000. You can easily determine from this example how much real estate has appreciated over time in my hometown, with the appreciation already adjusted for inflation.

PRIVACY AND CONTROL

In a Tenancy Agreement you are entitled to privacy typically for the period you pay rent for, subject to the Landlord’s rights. These rights include the Landlord’s right to inspect the tenanted premises on reasonable notice, the Landlord’s right to sell the tenanted premises, the Landlord’s right to repair and ameliorate and so forth. In essence, just because you pay rent that does not make you the owner. The rent simply guarantees your exclusive use of the premises for a certain period of time, again subject to the Landlord’s rights.

Likewise, in most cases you as the Tenant have no control over items such as remodeling, repainting and redecorating. It is true that in most jurisdictions Landlords have a duty to rent premises reasonably fit for human habitation, but then it is also true that many Landlords do not go one inch over and above the minimum threshold required by law. But from an economist point of view, if you spend money you should be entitled to reap the rewards - something you entirely miss out in a tenancy situation.

Too many tenants and renters think that owning a property is a farfetched goal. Yet, now more than ever it is the best time for them to take the plunge and buy real estate. Mortgage rates are still historically low and the buying process is easier than ever.

Are you missing out, if you rent? You bet.

Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.

Luigi is very proud to be an EzineArticles Platinum Expert Author. Your rating at the footer of this Article is very much appreciated. Thank you.

[tags]real estate chronicle,real estate,economics,finance,tenancy[/tags]

Tags: economics, finance, real estate, real estate chronicle, tenancy

Dear fellow Realtors, if there is a gratuitous piece of advice I can offer it is never to tell a Buyer with ‘cold feet’ that he needs not worry because it is not his money. I did it once and the result was catastrophic. ‘Cold feet’ is that special mental state by and through which someone - typically a real estate Buyer or a groom - can’t bring himself to say ‘Yes’. And it is surprising how many people, mostly men, are afflicted by it. Women do not seem to suffer of the same ailment, at least not nearly as disproportionately as men: a lady real estate Purchaser, just like a bride, will say ‘Yes’ anytime, anywhere. I am teasing you ladies, of course, but it is a matter of fact that men, come time to remove the conditions precedent, suddenly become fearful of completing the transaction. They are pervaded by all sorts of doubts about what they are purchasing, their financial future, and the Agent that is sitting at the table right across from them all of a sudden looks in their eyes much better dead than alive.

The origins of the expression ‘to have cold feet’ are in and by themselves very pictoresque. ‘Cold feet’ originates from the Italian ‘piedi freddi‘, but the nuance is different. To have cold feet in Italy means to be penniless and rather financially stuck. There is no connotation of fear in the Italian expression, rather the meaning is more sarcastic - as in the case of someone who has squandered his riches foolishly away and is now financially stuck. To become suddenly fearful better translates in Italian with ‘la gola secca‘ or to have a ‘dry throat’. So, in essence, if you have ‘cold feet’ in America you have a ‘dry throat’ in Italy, and if you go to Italy and say that you have cold feet chances are they will give you money, or at least will offer food and clothing - but I digress.

Buying a home can be an overwhelming process. There are so many decisions to make and any of them can bring serious financial consequences. The darkest side of purchasing a home, after all, is that it is your greatest financial debt even while it puts a roof over your head. As it appreciates, it also needs repairs and maintenance. Yet, you really want to buy a home because you know that few purchases will provide the quality of life that a home of your own does. There are plenty of advantages as well - rising real estate values, a stable environment for the family, increase in your net worth to name only a few. But then, what is it that routinely makes thousands of homebuyers literally freeze in front of their agents when they have to complete the deal ? Here are the most common causes of cold feet and their remedies:

Fear of spending too much

Lenders will loan you money at the top of your ability to borrow. Realtors will suggest that you will be happier in a “bigger, better” home, eliminating the need to “trade up” in a few years. Stretching to buy the most home you can possibly afford is a good strategy, but only under certain conditions - for instance if you are confident that your salary will rise, that your income is stable or secure and will remain like that, and that you can handle large surprise expenses, should the need ever be there. If you do not feel confident in any of the foregoing situations, then just do not take the step longer than your leg. You can’t go wrong by buying slightly under your ability and maintain a certain room for financial manouvering, should you ever be in need of it.

A conflict in goals

Many couples purchase homes with the idea that they will have a child, so stretching buying power to have the extra space makes sense. But if you are trying to accomplish two big financial goals at the same time - buying a home and adding to your family, then you will have to make a choice. You can’t have it all - peace of mind, a large mortgage, and burgeoning expenses at the same time. It is imperative that you prioritize your goals and adjust your financial resources accordingly. If you are worried about cash flow, then making disproportionately large mortgage payments will tarnish the joy of home ownership. Work to improve your cash flow by, for example, accelerate your credit card payoffs and by not incurring into new debt. Re-budget your outlays and eliminate unnecessary expenditures. And above all, do not be influenced by others to live beyond your means.

Fear of the future

All humans are fearful of the future one way or another because of what psychologists refer to as the ‘fear of the unknown’. We are raised and educated in our culture to be in charge of our livelihoods and deeds, but we can possibly be - or pretend to be - as such only in the present time. The same psychologists, however, will tell you that fear can be tamed by looking at the worst case scenarios compared to the best case scenarios. So face reality and examine the question that is really bothering you : what if you can’t make your payments? This question can be balanced by the best case: what if you manage your money so well that you can double your payments? You can easily see that fear is manageable in this terms. It all comes down to how confident you are about managing your money. If you aren’t sure of yourself, get advice from a disinterested party like a financial adviser or ask someone whose money management style you admire.

Fear that the value of your investment will diminish

Look at the properties surrounding the home you are considering purchasing and ask your Agent how much he/she would think they were worth one, two, five years ago. There isn’t a single real estate agent in North America - nor for that matter is there a single lawyer, notary, banker or appraiser - who will tell you that those homes in the neighborhood were worth more yesterday than today. It is a fact of life that real property appreciates and that such appreciation is in direct function of scarcity of available land. The secret in good, wise real estate investing is not to over-extend yourself.

Cold feet is an irrational behavior that has more to do with yourself and how you see things than what you are about to buy. Money may not be the root of all evil, but it is the root of your indecision - at least when you are paralyzed about buying a home. Think through the process that has led you to hire the services of your good Agent in the first place, the exhilaration you proved when your offer was accepted, the dreams and projects you and your spouse have mentally constructed while waiting to finalize the transaction, the soundness of both your financial situation - as proven to you by your own banker - as well as the integrity of the house you are about to purchase - as verified by the appraiser the bank has hired on your behalf - and be confident that the step you are about to take is the correct one. In ultimate analysis, we are the ones that lay out the foundations of our own future.

Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.

Luigi is very proud to be an EzineArticles Platinum Expert Author. Your rating at the footer of this Article is very much appreciated. Thank you.

[tags]real estate chronicle, real estate,economics, buyers remorse,cold feet[/tags]

Tags: buyers remorse, cold feet, economics, real estate, real estate chronicle