November 30, 2011
Canadian economy rebounds
By JEREMY TOROBIN
Globe and Mail Update
Third-quarter gross domestic product grows by better-than-expected 3.5%
The Canadian economy grew at an annual pace of 3.5 per cent in the third quarter, as exports roared back after a steep contraction in the previous three-month period even as domestic demand slowed.
The report Wednesday from Statistics Canada showed sales abroad rebounded from a terrible second quarter that was marred by a host of one-time setbacks such as the effects of Japan's natural disasters on North American supply chains, soaring at an annual clip of more than 14 per cent, the biggest quarterly gain since 2004. Overall economic growth also got a boost as energy production that was interrupted by wildfires in northern Alberta resumed, and a jump in housing-related investment.
At the same time, consumer spending and total domestic demand moderated, and business investment dropped an annualized 3.6 per cent, the first decrease since 2009. Still, while the second-quarter drop was revised to 0.5 per cent from the initially reported 0.4 per cent, the third-quarter result exceeded expectations for a 3-per cent annualized gain and indicates some resiliency in the economy over the summer despite the debt dramas on both sides of the Atlantic.
Exports bounced back from a 6.4-per cent drop in the previous three-month period even as threats to the global economy swirled, in part because of a depreciation in the Canadian dollar.
However, final domestic demand grew at a 0.9-per cent pace, slowing from 3.1 per cent between April and June and marking the most sluggish pace since 2009. That suggests weakening momentum towards the end of the year, economists said, even though growth over the second half of the year is coming in at a better pace than Bank of Canada Governor Mark Carney has projected.
The central banker, whose next interest-rate decision is on Dec. 6, is expected to "look past" the third-quarter result as Europe faces a long downturn and an escalating debt crisis, and emerging markets like China also slow. Mr. Carney may keep interest rates on hold at 1 per cent until as late as 2013, as the economy struggles to average more than 2-per cent growth next year, analysts warn.
"An unsatisfactory pace of job growth - zero net gains in employment since July - in combination with weakening consumer confidence and ongoing losses in equity markets are expected to slow the pace of spending growth over the next few months," said Diana Petramala, an economist with TD Economics. "Meanwhile, global economic growth is slowing substantially, led by a likely deep recession in Europe and moderating economic growth in China. Canada will be negatively impacted through weak commodity prices and slower export growth."
On a monthly basis, the economy grew 0.2 per cent in September, after increasing by 0.4 per cent in each of the previous two months, roughly in line with forecasts and suggesting a decent hand-off into the last three months of the year. Nonetheless, policy makers are clearly growing more worried by the day about a European debt crisis that Mr. Carney last week called "barely contained."
Underscoring the concern, the Bank of Canada joined five other major central banks Wednesday in cutting the interest rate on U.S.-dollar liquidity swaps, and also agreed with the Federal Reserve to extend a $30-billion swap facility that aims to ensure banks are able to get emergency access to U.S. dollars if needed to settle transactions.
The co-ordinated action comes as European leaders struggle to contain a debt crisis that has seen the borrowing costs of countries such as Italy and Spain climb to crippling levels. The central banks' moves are an attempt to instill some confidence in financial markets by assuring investors that banks will have easy access to cash for the foreseeable future.
"The Bank of Canada judges that it is not necessary for it to draw or offer operations on any of these swap facilities at this time, but that it is prudent to have these agreements in place," the Bank of Canada said in a statement on its Web site, adding that policy makers are watching closely for further strains in financial markets and will act as needed to support the stability of the system.
The Globe and Mail, Inc.
Wednesday, November 30, 2011
Friday, November 25, 2011
Low Interest Rates Make Home Ownership More Affordable
Back to Low interest rates making home ownership slightly more affordable, RBC says
Low interest rates making home ownership slightly more affordable, RBC says
November 25, 2011
OTTAWA—A new report finds low interest rates are keeping Canadian house prices within reach of homebuyers in many markets.
The Royal Bank’s quarterly report on housing trends, released early Friday, shows housing affordability improved slightly in the third quarter, after two consecutive quarters when things got worse.
RBC chief economist Craig Wright says a lower interest rate environment, which includes mortgage rates, is helping to reduce the cost of a home.
“Elevated uncertainty relating to the European sovereign-debt crisis and the downside risk for economic growth have contributed to keeping interest rates at low levels,” said Wright.
Those lower rates are helping to cushion the impact of rising home prices in many cities even as the economy slow and consumer confidence weakens.
The bank says affordability levels rose for all housing categories, although most improvements were less than one per cent.
“Housing affordability levels are quite good in most parts of Canada and will pose little threat to overall housing demand,” said Wright.
Among the most marked improvements in affordability were for two-storey homes and bungalows in Montreal, two-storey houses in Manitoba, and detached bungalows in Vancouver, Canada’s most expensive housing market.
Royal’s affordability measure for Vancouver fell slightly from the previous quarter, but remained above 90 per cent.
Toronto is next in the index at 52.1 per cent, Montreal is at 40.9, Ottawa 40.8, Calgary 37.6, and Edmonton 33.2.
“The Vancouver area market continues to be a major exception, with sky-high property values in upscale neighbourhoods making it both extremely unaffordable and the most at risk of a downward correction,” said Wright
A reading of 50 per cent means homeownership costs take up 50 per cent of a typical household’s monthly pre-tax income. The higher the rate, the higher the cost.
RBC forecasts that interest rates will remain exceptionally low in Canada until mid-2012 and rise gradually after that.
“We expect to see further slowing in the pace of home price increases next year, as housing demand levels out,” Wright said.
“These factors will set the stage for a period of relative stability in affordability trends in Canada.”
Low interest rates making home ownership slightly more affordable, RBC says
November 25, 2011
OTTAWA—A new report finds low interest rates are keeping Canadian house prices within reach of homebuyers in many markets.
The Royal Bank’s quarterly report on housing trends, released early Friday, shows housing affordability improved slightly in the third quarter, after two consecutive quarters when things got worse.
RBC chief economist Craig Wright says a lower interest rate environment, which includes mortgage rates, is helping to reduce the cost of a home.
“Elevated uncertainty relating to the European sovereign-debt crisis and the downside risk for economic growth have contributed to keeping interest rates at low levels,” said Wright.
Those lower rates are helping to cushion the impact of rising home prices in many cities even as the economy slow and consumer confidence weakens.
The bank says affordability levels rose for all housing categories, although most improvements were less than one per cent.
“Housing affordability levels are quite good in most parts of Canada and will pose little threat to overall housing demand,” said Wright.
Among the most marked improvements in affordability were for two-storey homes and bungalows in Montreal, two-storey houses in Manitoba, and detached bungalows in Vancouver, Canada’s most expensive housing market.
Royal’s affordability measure for Vancouver fell slightly from the previous quarter, but remained above 90 per cent.
Toronto is next in the index at 52.1 per cent, Montreal is at 40.9, Ottawa 40.8, Calgary 37.6, and Edmonton 33.2.
“The Vancouver area market continues to be a major exception, with sky-high property values in upscale neighbourhoods making it both extremely unaffordable and the most at risk of a downward correction,” said Wright
A reading of 50 per cent means homeownership costs take up 50 per cent of a typical household’s monthly pre-tax income. The higher the rate, the higher the cost.
RBC forecasts that interest rates will remain exceptionally low in Canada until mid-2012 and rise gradually after that.
“We expect to see further slowing in the pace of home price increases next year, as housing demand levels out,” Wright said.
“These factors will set the stage for a period of relative stability in affordability trends in Canada.”
Monday, November 21, 2011
Moving to Your First Apartment
Book Excerpt
Flying the coop: Getting your first apartment
Globe and Mail Update
Published Monday, Nov. 21, 2011 6:00AM EST
Last updated Monday, Nov. 21, 2011 10:51AM EST
Excerpted from No More Mac ‘n’ Cheese!: The Real-World Guide to Managing Your Money for 20-Somethings with permission from Self-Counsel Press (a division of International Self-Counsel Press Ltd.). Copyright 2011 by International Self-Counsel Press Ltd.
From Your Parents’ Basement to Your First Apartment
If you put your time and money to good use while living at home with your parents, you will begin life as a self-sufficient adult. Living at home offers you the time to increase your savings for your first apartment and pay down a large portion of student debt. Whether your income is from part-time work or your first full-time position, you will never have more disposable income than while living in the family home. Set a time limit for how long you will stay, and begin now to plan the steps you need to take for a place of your own.
1. Begin with a Savings Plan
Before you bolt out the door, you need to consider how much money you will need to get started.
Prudent financial wisdom recommends that you have an emergency fund equal to three to six months’ income. While you are still living in the family home, create a simple savings plan, which may look similar to this:
• 30 per cent of your (after tax) income to your apartment fund and emergency fund.
• 30 per cent toward your debt (student loans plus credit cards).
• 40 per cent for your transportation, cellphone, Internet, clothing, entertainment, vacations, etc.
Now consider your starting point. What is the value of your assets? How much do you owe? The difference between these two numbers is your net worth.
How much money do you earn each month? What are your fixed monthly expenses? What is remaining? A cash flow statement can show this information and will indicate if there is a surplus or a shortfall.
2. Selecting an Apartment
The first step is to create a budget. Include all of your existing commitments such as transportation costs, cellphone, loan payments, and so on. If you have a vehicle, include the cost of insurance, gas, and regular maintenance.
Start with your budget in mind. A good rule of thumb is that your rent should not exceed 30 per cent of your after-tax income. You may want to consider shared accommodation just to be closer to your job and to reduce your rent. Remember the less you spend on rent, the more money you have left over for other things.
Consider transportation between your apartment, work, and family and friends. Your apartment should be easily accessible to the places you frequent the most. How long will it take you to get to work or to travel to visit friends and family?
Where you live will have a great bearing on the cost. Large cities can have very high rents, forcing you to spend more, live in a less desirable neighbourhood, or live on the outskirts of the city. If you live on the outskirts of the city, that could mean an increase in gas mileage if your job is in the city centre. If you don’t have a vehicle, you will need to consider whether or not public transportation will be adequate. Also consider the amount of time you will spend commuting.
If you have a budget, and you have a good idea of the area in which you would like to live, start looking at some options within your budget. Inspect at least 10 apartments in different buildings. Take a day or two to consider your choices before signing a lease. Once you have identified an apartment you like, ask for a copy of the lease, take it home with you, and read it. Understand what you are signing, and if you are not sure, use a highlighter and ask the landlord for an explanation of highlighted sections.
Make sure you ask what utilities are included in the rent (e.g., electricity, gas, parking, cable, Internet). If utilities aren’t included, you will need to determine how much the additional costs will be. Add these extra costs to the rental amount. Make sure you are still within your budget.
If you are responsible for paying for your own utilities, call the providers and ask about security deposits. Each of these may be several hundreds of dollars.
You should do a walk-through with the landlord. If there is any damage to the place, it should be noted by both the landlord and you – preferably written down and signed by both you and the landlord. It may also be a good idea to take pictures of any damages to the rental property before you move in, so when you move out, you can prove you did not contribute to the previously documented damages (this should also be done with the landlord present). Ask the landlord if, prior to you moving in, the apartment will be painted, carpets cleaned, and appliances cleaned and inspected.
Sometimes it is possible to negotiate the rent. Do not be shy; if you ask politely and you clearly state your other options, you may find you are able to reduce the rent from the original asking price.
When you have found the place you want, you will be asked to sign a lease. Most leases have a one-year term and can usually be renewed annually. As you sign the lease your landlord will request a two-month deposit. Half will be applied to your first month’s rent. The balance will be held as either the last month’s rent or a security deposit.
Congratulations! You are now a fully self-reliant adult. Thank your parents for their love and support as you start your new life in your new home. Better yet, invite them over for a nice dinner!
© 2011 The Globe and Mail Inc. All Rights Reserved.
Flying the coop: Getting your first apartment
Globe and Mail Update
Published Monday, Nov. 21, 2011 6:00AM EST
Last updated Monday, Nov. 21, 2011 10:51AM EST
Excerpted from No More Mac ‘n’ Cheese!: The Real-World Guide to Managing Your Money for 20-Somethings with permission from Self-Counsel Press (a division of International Self-Counsel Press Ltd.). Copyright 2011 by International Self-Counsel Press Ltd.
From Your Parents’ Basement to Your First Apartment
If you put your time and money to good use while living at home with your parents, you will begin life as a self-sufficient adult. Living at home offers you the time to increase your savings for your first apartment and pay down a large portion of student debt. Whether your income is from part-time work or your first full-time position, you will never have more disposable income than while living in the family home. Set a time limit for how long you will stay, and begin now to plan the steps you need to take for a place of your own.
1. Begin with a Savings Plan
Before you bolt out the door, you need to consider how much money you will need to get started.
Prudent financial wisdom recommends that you have an emergency fund equal to three to six months’ income. While you are still living in the family home, create a simple savings plan, which may look similar to this:
• 30 per cent of your (after tax) income to your apartment fund and emergency fund.
• 30 per cent toward your debt (student loans plus credit cards).
• 40 per cent for your transportation, cellphone, Internet, clothing, entertainment, vacations, etc.
Now consider your starting point. What is the value of your assets? How much do you owe? The difference between these two numbers is your net worth.
How much money do you earn each month? What are your fixed monthly expenses? What is remaining? A cash flow statement can show this information and will indicate if there is a surplus or a shortfall.
2. Selecting an Apartment
The first step is to create a budget. Include all of your existing commitments such as transportation costs, cellphone, loan payments, and so on. If you have a vehicle, include the cost of insurance, gas, and regular maintenance.
Start with your budget in mind. A good rule of thumb is that your rent should not exceed 30 per cent of your after-tax income. You may want to consider shared accommodation just to be closer to your job and to reduce your rent. Remember the less you spend on rent, the more money you have left over for other things.
Consider transportation between your apartment, work, and family and friends. Your apartment should be easily accessible to the places you frequent the most. How long will it take you to get to work or to travel to visit friends and family?
Where you live will have a great bearing on the cost. Large cities can have very high rents, forcing you to spend more, live in a less desirable neighbourhood, or live on the outskirts of the city. If you live on the outskirts of the city, that could mean an increase in gas mileage if your job is in the city centre. If you don’t have a vehicle, you will need to consider whether or not public transportation will be adequate. Also consider the amount of time you will spend commuting.
If you have a budget, and you have a good idea of the area in which you would like to live, start looking at some options within your budget. Inspect at least 10 apartments in different buildings. Take a day or two to consider your choices before signing a lease. Once you have identified an apartment you like, ask for a copy of the lease, take it home with you, and read it. Understand what you are signing, and if you are not sure, use a highlighter and ask the landlord for an explanation of highlighted sections.
Make sure you ask what utilities are included in the rent (e.g., electricity, gas, parking, cable, Internet). If utilities aren’t included, you will need to determine how much the additional costs will be. Add these extra costs to the rental amount. Make sure you are still within your budget.
If you are responsible for paying for your own utilities, call the providers and ask about security deposits. Each of these may be several hundreds of dollars.
You should do a walk-through with the landlord. If there is any damage to the place, it should be noted by both the landlord and you – preferably written down and signed by both you and the landlord. It may also be a good idea to take pictures of any damages to the rental property before you move in, so when you move out, you can prove you did not contribute to the previously documented damages (this should also be done with the landlord present). Ask the landlord if, prior to you moving in, the apartment will be painted, carpets cleaned, and appliances cleaned and inspected.
Sometimes it is possible to negotiate the rent. Do not be shy; if you ask politely and you clearly state your other options, you may find you are able to reduce the rent from the original asking price.
When you have found the place you want, you will be asked to sign a lease. Most leases have a one-year term and can usually be renewed annually. As you sign the lease your landlord will request a two-month deposit. Half will be applied to your first month’s rent. The balance will be held as either the last month’s rent or a security deposit.
Congratulations! You are now a fully self-reliant adult. Thank your parents for their love and support as you start your new life in your new home. Better yet, invite them over for a nice dinner!
© 2011 The Globe and Mail Inc. All Rights Reserved.
Tuesday, November 15, 2011
"Variable or fixed? It's no contest"
This article appeared in the Globe and Mail issue of October 31, 2011 by Rob Carrick.
"Fixed-rate mortgage is your best bet; banks have snuffed out variable-rate discounts, while prime rate has dipped," he further says.
"Variable-rate mortgages are so over.
Go fixed rate if you're arranging or renewing a mortgage, and think hard about the four-year term. If you take in all the recent developments in the mortgage market, this is the most logical strategy.
Variable rate mortgages are being sold at the prime rate in many cases right now, which is 3 percent. The traditional discount off prime? Snuffed out by the banks. They've decided they aren't making enough money from discounted variable-rate mortgages, so goodbye discount for the most part. If you shop around, maybe you'll get 0.2 of a point off prime.
Now for the fixed alternative. Global economic uncertainty and sluggish growth mean you'll pay in the area of 3 percent for a four-year term." The preceding is a quote from the article.
Very important information to know if you are arranging a new mortgage or renewing one. The complete article can be read by clicking on Real Estate News- Recent Developments on the right column- 2 pages.
Ten Tips For Getting a Fair Price for Your Home
Mortgages
Ten tips for getting a fair price on a home
Amy Fontinelle
Investopedia.com
Published Thursday, Sep. 08, 2011 2:34PM EDT
Whether it's a buyer's market or a seller's market, all homebuyers have one thing in common: they don't want to get ripped off. But how do you know if you're getting a fair deal on the home you're prepared to place an offer on? Read on to find out how to evaluate the price of any home so you can make a sound investment decision.
Research recently sold, comparable properties
A comparable property is one that is similar in size, condition, neighbourhood and amenities. One 1,200-square-foot, recently remodeled, one-story home with an attached garage should be listed at roughly the same price as a similar 1,200-square-foot home in the same neighbourhood. That said, you can also gain valuable information by looking at how the property you're interested in compares in price to different properties. Is it considerably less expensive than larger or nicer properties? Is it more expensive than smaller or less attractive properties? Your real estate agent is the best source of accurate, up-to-date information on comparable properties (also known as “comps”).
Check out comparable properties that are currently on the market
In this case, you can actually visit other homes and get a true sense of how their size, condition and amenities compare to the property you're considering buying. Then you can compare prices and see what seems fair. Reasonable sellers know that they must price their properties similarly to market comparables if they want to be competitive.
Look at comparables that were on the market recently but didn't sell
If the house you're considering buying is priced similarly to homes that were taken off the market because they didn't sell, the property you're considering may be overpriced. Also, if there are a lot of similar properties on the market, prices should be lower, especially if those properties are vacant. Check out the unsold inventory index for information about current supply and demand in the housing market. This index attempts to measure how long it will take for all the homes currently on the market to be sold given the rate at which homes are currently selling. (For further reading, see Selling Your Home In A Down Market.)
Consider market conditions and appreciation rates in the area
Have prices been going up recently or going down? In a seller's market, properties will probably be somewhat overpriced, and in a buyer's market, properties are apt to be underpriced. It all depends on where the market currently sits on the real estate boom-and-bust curve. Even in a seller's market, properties may not be overpriced if the market is on the upswing and not near its peak. Conversely, properties can be overpriced even in a buyer's market if prices have only recently begun to decline. Of course, it can be difficult to see the peaks and valleys until they're history. Also consider the impact of mortgage interest rates and the job market on the economy. (Knowing your mortgage choices is important. For more information, read Shopping For A Mortgage.)
Are you buying a for-sale-by-owner property?
A for-sale-by-owner (FSBO) property should be discounted to reflect the fact that there is no 6 per cent (on average) seller's agent commission, something that many sellers don't take into consideration when setting their prices. Another potential problem with FSBOs is that the seller may not have had an agent's guidance in setting a reasonable price in the first place, or may have been so unhappy with an agent's suggestion as to decide to go it alone. In any of these situations, the property may be overpriced.
What Is the expected appreciation for the area?
The future prospects for your chosen neighbourhood can have an impact on price. If positive development is planned, such as a major mall being built, the extension of light rail to the neighbourhood, or a large new company moving to the area, the prospects of future home appreciation look good. Even small developments like plans to add more roads or build a new school can be a good sign. On the other hand, if grocery stores and gas stations are closing down, the home price should be lower to reflect that, and you should probably reconsider moving to the area. The development of new housing can go either way - it can mean that the area is hot and is likely to be in high demand in the future, increasing your home's value, or it can result in a surplus of housing, which will lower the value of all the homes in the area.
What Is your real estate agent's opinion?
Without even analyzing the data, your real estate agent is likely to have a good gut sense (thanks to experience) of whether the property is priced appropriately or not and what a fair offering price might be.
Does the price feel fair to you?
If you're not happy with the property, the price will never seem fair, even if you get a bargain. Even if you pay a little over market value for a home you love, in the end, you won't really care.
Test the waters
Even in a seller's market, you can always offer below list price just to see how the seller reacts. Some sellers list properties for the lowest price they're willing to take because they don't want to negotiate, while others list their homes for higher than they expect to earn because they expect to negotiate downward or they want to see if someone will make an offer at the higher price. If the seller accepts your price or counteroffer, you'll get an indication that the property probably wasn't worth what it was listed for and you have a good chance at getting a fair deal. On the other hand, some sellers may underprice their properties in the hope of generating lots of interest and sparking a bidding war. Unlike on eBay, however, the seller doesn't have to simply sell to the highest bidder: Sellers can reject any and all offers that don't meet their expectations. If you have your heart set on the property, be warned that some sellers may be offended by lowball offers and refuse to work with you if you chose to employ such a tactic. Also, when you offer less than the list price, you may increase your risk of being outbid by another buyer. (For strategies that will help you to come out on top in any negotiation, read Getting What You Want.)
Get an appraised value and a home inspection
Once you're under contract, the lender will have an appraisal of the property done (usually at your expense) to protect its financial interests. The lender wants to make sure that if you stop making your mortgage payments, it'll be able to get a reasonable amount of its money back when it forecloses on your home. If the appraisal comes in at considerably less than your offering price, you may not be getting a fair deal. In fact, the lender may not even let you purchase the home unless the seller is willing to bring the price down. A home inspection, which is completed after you're under contract, will also give you a way to gauge your offering price. If the home needs many expensive repairs, you'll want to ask the seller to make the repairs for you or discount the purchase price so you can make them yourself.
Conclusion
When you're shopping for a home, it's important to understand how homes are priced so you can make a sound investment and reach a fair agreement with the seller. Using these tips, you'll be able to make a confident and well-informed offer on any home in any market.
© 2011 The Globe and Mail Inc. All Rights Reserved.
Ten tips for getting a fair price on a home
Amy Fontinelle
Investopedia.com
Published Thursday, Sep. 08, 2011 2:34PM EDT
Whether it's a buyer's market or a seller's market, all homebuyers have one thing in common: they don't want to get ripped off. But how do you know if you're getting a fair deal on the home you're prepared to place an offer on? Read on to find out how to evaluate the price of any home so you can make a sound investment decision.
Research recently sold, comparable properties
A comparable property is one that is similar in size, condition, neighbourhood and amenities. One 1,200-square-foot, recently remodeled, one-story home with an attached garage should be listed at roughly the same price as a similar 1,200-square-foot home in the same neighbourhood. That said, you can also gain valuable information by looking at how the property you're interested in compares in price to different properties. Is it considerably less expensive than larger or nicer properties? Is it more expensive than smaller or less attractive properties? Your real estate agent is the best source of accurate, up-to-date information on comparable properties (also known as “comps”).
Check out comparable properties that are currently on the market
In this case, you can actually visit other homes and get a true sense of how their size, condition and amenities compare to the property you're considering buying. Then you can compare prices and see what seems fair. Reasonable sellers know that they must price their properties similarly to market comparables if they want to be competitive.
Look at comparables that were on the market recently but didn't sell
If the house you're considering buying is priced similarly to homes that were taken off the market because they didn't sell, the property you're considering may be overpriced. Also, if there are a lot of similar properties on the market, prices should be lower, especially if those properties are vacant. Check out the unsold inventory index for information about current supply and demand in the housing market. This index attempts to measure how long it will take for all the homes currently on the market to be sold given the rate at which homes are currently selling. (For further reading, see Selling Your Home In A Down Market.)
Consider market conditions and appreciation rates in the area
Have prices been going up recently or going down? In a seller's market, properties will probably be somewhat overpriced, and in a buyer's market, properties are apt to be underpriced. It all depends on where the market currently sits on the real estate boom-and-bust curve. Even in a seller's market, properties may not be overpriced if the market is on the upswing and not near its peak. Conversely, properties can be overpriced even in a buyer's market if prices have only recently begun to decline. Of course, it can be difficult to see the peaks and valleys until they're history. Also consider the impact of mortgage interest rates and the job market on the economy. (Knowing your mortgage choices is important. For more information, read Shopping For A Mortgage.)
Are you buying a for-sale-by-owner property?
A for-sale-by-owner (FSBO) property should be discounted to reflect the fact that there is no 6 per cent (on average) seller's agent commission, something that many sellers don't take into consideration when setting their prices. Another potential problem with FSBOs is that the seller may not have had an agent's guidance in setting a reasonable price in the first place, or may have been so unhappy with an agent's suggestion as to decide to go it alone. In any of these situations, the property may be overpriced.
What Is the expected appreciation for the area?
The future prospects for your chosen neighbourhood can have an impact on price. If positive development is planned, such as a major mall being built, the extension of light rail to the neighbourhood, or a large new company moving to the area, the prospects of future home appreciation look good. Even small developments like plans to add more roads or build a new school can be a good sign. On the other hand, if grocery stores and gas stations are closing down, the home price should be lower to reflect that, and you should probably reconsider moving to the area. The development of new housing can go either way - it can mean that the area is hot and is likely to be in high demand in the future, increasing your home's value, or it can result in a surplus of housing, which will lower the value of all the homes in the area.
What Is your real estate agent's opinion?
Without even analyzing the data, your real estate agent is likely to have a good gut sense (thanks to experience) of whether the property is priced appropriately or not and what a fair offering price might be.
Does the price feel fair to you?
If you're not happy with the property, the price will never seem fair, even if you get a bargain. Even if you pay a little over market value for a home you love, in the end, you won't really care.
Test the waters
Even in a seller's market, you can always offer below list price just to see how the seller reacts. Some sellers list properties for the lowest price they're willing to take because they don't want to negotiate, while others list their homes for higher than they expect to earn because they expect to negotiate downward or they want to see if someone will make an offer at the higher price. If the seller accepts your price or counteroffer, you'll get an indication that the property probably wasn't worth what it was listed for and you have a good chance at getting a fair deal. On the other hand, some sellers may underprice their properties in the hope of generating lots of interest and sparking a bidding war. Unlike on eBay, however, the seller doesn't have to simply sell to the highest bidder: Sellers can reject any and all offers that don't meet their expectations. If you have your heart set on the property, be warned that some sellers may be offended by lowball offers and refuse to work with you if you chose to employ such a tactic. Also, when you offer less than the list price, you may increase your risk of being outbid by another buyer. (For strategies that will help you to come out on top in any negotiation, read Getting What You Want.)
Get an appraised value and a home inspection
Once you're under contract, the lender will have an appraisal of the property done (usually at your expense) to protect its financial interests. The lender wants to make sure that if you stop making your mortgage payments, it'll be able to get a reasonable amount of its money back when it forecloses on your home. If the appraisal comes in at considerably less than your offering price, you may not be getting a fair deal. In fact, the lender may not even let you purchase the home unless the seller is willing to bring the price down. A home inspection, which is completed after you're under contract, will also give you a way to gauge your offering price. If the home needs many expensive repairs, you'll want to ask the seller to make the repairs for you or discount the purchase price so you can make them yourself.
Conclusion
When you're shopping for a home, it's important to understand how homes are priced so you can make a sound investment and reach a fair agreement with the seller. Using these tips, you'll be able to make a confident and well-informed offer on any home in any market.
© 2011 The Globe and Mail Inc. All Rights Reserved.
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