Jun. 26, 2009

Real estate prices mystery solved

Have you ever thought about the reasons for the changes in property prices? In the following article, I will try explain the main factors behind the property prices’ shifts. This knowledge has been gained from over two decades working as a Toronto realtor.

Following the trend
How to calculate the next price move? How does one determine when it is best to invest? What majority buyers do is they simply watch for the previous direction of prices. In other words, their expectations are mostly affected by the previous movement. If the prices rise they expect the growth to continue, and vice versa. Although such a strategy does not consider the real factors that have an impact on the price, it is applied. Relying on this method alone can produce very painful experiences, just as we saw not too long ago. (picture by kevinzhengli)

Fundamental economic factors

What economic factors have the most significant impact on how prices are formed?
- Economic growth
- Nominal interest rates (before inflation) and structure of mortgage products
- Inflation
Let’s look at these factors in more detail.

Economic growth

The stronger the state of economics, the better it is for business as well as for real estate. One of the reasons is that when economics is stronger it raises property prices because the buyer gets reassured that there will be a rise in the demand for housing, and a rise in the value of his property which will enable him to sell it again for a profit. In accordance with BIS Quarterly Review, 1% of GNP increase is connected with 1% to 4% property price rise after 3 years.

Nominal interest rates and structure of mortgage products

In order that property prices grow, the very first thing needed is eager buyers. One implication of the fact that house lones have to be made when anyone wants to buy property, is that there will be many buyers who will go rather for houses with interesting mortgage products that includes low nominal rates. According to the mentioned source, a 1% drop in the nominal interest rate can be linked with 1/2% to 1% rise in property prices after 1 year. Equally, the buyers seem to be very sensitive to even a slight rise of nominal interest rates, causing the property prices to settle. But there are exceptions to the rule. For instance - a credit crunch occurs when official interest rates become of less importance and the loan market gets driven by different factors. Likewise is the real estate market.


Property prices are strongly impacted by the rate of interest while changes in interest rates are influced by inflation. High inflation has a varied impact in different countries. Some countries see investing into property as balancing inflation in which case higher inflation will result in a rise of property prices (for instance Germany). Such countries may be characterized with fixed interest rate loans with no equity withdrawal. Although, high inflation will have a bad impact on property prices in countries where interest rates are floating, as in the UK, or with equity withdrawal as in the USA.


As with most rules there are exceptions and numbers and values do not always have to apply to your area. It is realtor's business to see the exceptions and differences. However, it is important to note that a general system is used by means of which real estate prices are created on the market. Don't let shallow attitude get thebetter of you. Think about every aspect of the market.

Jun. 24, 2009

Tips how to win the real estate offer

Here are some tips a and tricks on how to win an offer of the house you've always wanted. For a worthwhile house, it is not unusual to have 15 or even more candidates in the competition, which can be very disappointing for an inexperienced buyer. I know this very well from my daily work with clients, being a real estate broker for more than 25 years. Well, I cannot make sure that even if you follow my advice, you will finally win the offer, but anyway it might be useful for you and even save you some money. (picture by on1stsite)

Important: Get pre-qualified

Prospective clients who can get prequalified for a bank loan always have a better chance of getting the deal than candidates without a proper financial background. Of course, it wouldn't make a good impression if your financing was not sure and the vendor found out about it - in that case all other tricks won't be able to save you.

Explore the seller's wishes

Try to find out about the seller's expectations, as it would be a waste of time if there were some details that you were not able to meet. It is therefore advised to find out all the prerequisites accompanying the sale of a property you want to bid on. It is better to stop trying in case you find out you are not able to meet them. However, if you can satisfy all the requirements, contact your realtor and ask for help writing a letter to go with your bid. That will give you a chance to let the seller find out more about you and will highlight the positive aspects of your offer.

No low-ball, no even cut off marks

Now it is important not to propose an offer that is significantly below the fair price of the home, as this would probably make you an unsuccessful candidate and the seller would choose another buyer. And that's even if you deliver a comparative offer in a later stage. Thus the best way is to offer around $1,800 to $4,800 more than the highest estimated bid. For example the most the owner expects is about $470,000. Try adding some money and come to $473,164 - the offered price doesn't have to be an even number!

The deposit

The usual, best looking amount of the deposit is between 10% and 20%. Of course in most cases you can try to bargain the final amount of your down payment with the seller after the contract has been secured and usually with a success outcome. The crucial point is that you actually pay the deposit after you sign the contract, otherwise you wouldn't seem to be a respectable buyer.

Good faith deposit

The next technique is quite aggressive but produces some great results. Try to make the earnest money deposit as big a part of the down payment as possible (this deposit is not returnable if you back out later). You have to pay this money anyway, as the earnest money deposit is included in the down payment, but it sends a strong signal to the owner. It tells the owner that you really want to go through with the deal. After closing the business, you can usually rearrange the down payment value, so what matters here is the good faith deposit, showing how interested you really are in the property.

Come up with a free lodging offer

In the summary accompanying your offer, propose a free-post occupancy agreement to the seller in case they need a week or two in the property after it's been sold to settle their affairs. This might be the final aspect that plays for you to win the deal, as in a different situation the seller would have to pay some rent, being no longer the owner of the property.
And finally some dream home tips...

Jun. 10, 2009

Do You Think Reverse Mortgage the Best Choice for You?

Reverse mortgage: are you considering it? You surely don’t have to work with finances for you to know about this financial product: As realtor expert from Toronto, almost every day I hear about someone who went for it. Reverse mortgage is a unique kind of home loan that gives you the opportunity to get a part of the price of your home in cash.
This financial product may be also called "Equity Release", as in England, where it is quite popular. If you are older than 60, you feel you don´t have enough funds and the idea of monthly payments is somewhat horrifying for you, the reverse mortgage might be the right solution for you.

The system

Briefly explained, when using the equity release, you get paid the money according to the value of your home, while the interest is accumulated as the time goes. The client or his/her spouse is allowed to stay in their home as long as needed, since the liability has to be paid back only after they sell the house or the client (or spouse) moves out or passes away. Typically, clients can take credit ranging between $20,000 and $500,000. It should not exceed 30% of the home price, or 40% if the client is over 70. In the next part of this article, we will examine some pluses and minuses of the reverse mortgage.


The mortgage is tax-free. You don't have to pay any monthly amount. The ownership of your home does not change. If you still have a mortgage on your home or any other debts, this may be a perfect form of paying them up, while freeing yourself from the monthly payment obligation. The interest can be paid step by step. In this case the debit sum does not increase. Another realty may be mortgaged instead of the original one (full price or part only). If you wish to end your mortgage any time, you can do so with no additional charges, provided that you have used this product for the minimum of 3 years.
Gradually, the interest rate becomes smaller. The financial institution has no chance of foreclosing in case the client borrowed more money than his home is worth. If it happens that your home loses part of its market price with time, the bank cannot demand more money than the market value of your home.


Before you enter the program, you have to pay about $1,300. After a few years' time, the amount of money you had borrowed may be equal to the value of your home you bought using your lifelong savings. If you borrowed $50,000 at the interest of 10%, the loan reduplicates every 7 years. In specific numbers, the loan will equal $100,000 after 7 years and $200,000 after only 14 years. Even if you are lucky and the home price is growing gradually, the debt is growing too and finally there might be nothing left.

Briefly, for home owners who don't have enough money and need to get some in a short period of time, the reverse mortgage might be the right way to go. Differently to the home equity line of credit, your home still remains in your property as long as you live there, and you can get the release mortgage no matter how insufficient your salary might be or how much you owe elsewhere. It is important to acknowledge the fact that the debt multiplies within not such a long time, therefore if the client starts using the reverse mortgage when still young and with insufficient income so that he/she is not able to keep the regular payment schedule to pay off the interest rate, the debt may become close to the total house value, leaving the client with not much financial supply left. If you are interested to find out more about this option, contact your financial planner.

Jun. 7, 2009

New video site

One short notice - Toronto condominium professionals are bounded with new technologies, that's why we started ellidavis.tv. Enjoy this site with video testimonials of our clients!