Radical changes coming for CREA

[JamesB]

QUOTE (housingrental @ Feb 13 2010, 03:37 PM)
Hi James,



Isn't your situation a problem?



Your building a large leverage portfolio without a sufficient margin of safety for when things go wrong.



If 10% down and 25 year amortizations would have hampered your growth, than maybe your growing with significant risks of being wiped if things go wrong?



No one knows the future, and please don't misread this. I'm not pretending to. However reasonable scenario's exist where a few years out your current 2% interest rate 35 year amortization mortgage with 5% down is renewing with a 6.5% interest rate and a lender requiring additional funds from you or pulling your loan. If:



Rents don't move much

Your other expenses balloon or your hit with unexpected major issues to address

You don't have sufficient other assets to prop up your rental properties



You might be stuck with having your legs pulled out from you and being foreclosed - potential when asset values are lower - or forced to obtain financing for portions above 15% interest rates.






No, I don't think I have a problem, (Well, I work too much, and drive too fast, but I don't think your talking about that)



I do agree with your inference that it would not be smart for someone's entire portfolio to be a 5% down buying bonanza. I have PLENTY of equity in my portfolio, but like you (I'm sure) I don't want the value of assets I own to go down.



A 25 year AMORT loan vs. a 35 year AMORT loan will ALWAYS yield less cash flow. (No matter how much equity is in a property) Banks like me because of my high cash flow which would be reduced if I had to do 25 year loans. I am in no rush to pay down the mortgage balance on my rental properties. (For very obvious reasons) a 35 year loan makes a big difference.



Now your point on foreclosures is interesting. Imagine what would happen to an investor's portfolio if more of the houses around you/in your area went into foreclosure. (It would affect the value of your house and your portfolio) Remember, it's not just investors who buy properties, but the average person next door that stretched the heck out of themselves to get into the biggest home the could afford.



Cheers

 

[luckyluciano]

A beautiful summary;



David Murray MacLean says:
November 11, 2009 at 9:51 PM
I cannot quite wrap my mind around why the Competition Bureau feels that allowing members of the public to post their listings directly to the MLS (so called mere postings) will be what “solves” issues of competition in our industry. Of course, this pre-concludes that no alternate means currently exist in the marketplace for consumers when it comes to listing their property for sale without working directly with a Realtor.
In fact, there are already numerous websites in the marketplace where FSBO’s (private sellers) can post their listings, should they feel they possess the means and ability to sell without the services of a Realtor. Examples of these sites include The Property Guys, For Sale by Owner, By The Owner, among many others. And then there is the proverbial, free for all dumping ground of real estate listings, CraigsList. The irony here seems to be that even with the plethoric advent of FSBO websites, a significantly high number of private sellers still end up contracting a real estate professional to assist them with the marketing of their property. The National Association of Realtors (NAR) in the United States has kept ongoing statistics on this phenomenon.
If real estate sales was as simple as many private sellers convince themselves it might be, then wouldn’t the ushering in of the Internet, and the wide range of marketing and advertising it seemed to promise have prevented these private sellers from eventually contacting an agent to assist them; given they should have been able to sell privately via these new, and miraculous electronic marketing means now available.
Competition does exist in the marketplace. Also, these FSBO websites are not free, but charge varied fees for their services, which include mailing out a For Sale sign to stick on a private seller’s lawn. But more importantly, in organized real estate services and commission structures are not set in stone, but are consistently negotiated between sales representatives and their clients across the county on a daily basis. Does anyone remember when listing commission was more commonly six percent? The current lowering of commissions in the marketplace is the result of consumer choice and consumer pressure.
However, The Competition Bureau seems continually obsessed with the singular issue of MLS access, but the lens from which they’re viewing this issue is simplistic and skewed. The larger value of the MLS system isn’t simply about market exposure. If that was true, the multitude of alternative listing websites would have solved the exposure issue for private sellers long ago, perhaps rendering this argument mute.
The often overlooked value of the MLS system resides within its historical data and sales record keeping. This is its core foundation, and the key to what makes it so successful. Realtors assist sellers and buyers in the understanding of market conditions, property market values, neighbourhood sales trends and statistics. Therefore, why should just anyone, and specifically someone whose “choice” it would be to not engage a realtor benefit from the fruits of that profession’s main marketing and sales tool?
Perhaps the biggest mystery to me is why the copyrighted MLS system, which has been built, maintained, and paid for by licensed professionals suddenly has an “obligation” to be utilized by anyone who doesn’t actually want to use the services of the professionals whose site this belongs to? There is something inherently wrong and overly presumptive about this expectation of right to access.
Isn’t this like saying that anyone with a burning desire to sing and dance should have access to the stage of the Royal Alex? I worked in theatre for many years, and if only access to the big time where so easy. No, one had to “pay ones dues”, study, practice, and rehearse, and even that activity promised no guarantees. But this new “entrepreneurial spirit” which is the malevolent undercurrent driving the current assault of CREA seems to think this should be a given.
I cannot think of any other professional organization, database, records system or communication mechanism that would allow the kind of invasive access the competition bureau is demanding. And perhaps the biggest irony central to this current battle is that the complaint mongering and litigation that has brought about this industry maelstrom was not instigated by a throng of irate “Joe Consumers”, but rather a couple of frustrated entrepreneurs who were told that if they didn’t follow long established rules of conduct and professional obligation they couldn’t reap the rewards they were demanding. Is this current fight really about “consumer choice” or actually about sour professional grapes? I think the huge, monetary amounts involved in current lawsuits clearly define it as the latter.
While I am not privy to the resources available to CREA to wage a legal response, or the advice of it’s various legal counsel, I personally feel that the this is a fight worth fighting.
David Murray MacLean, Sales Representative
Royal LePage Your Community Realty, Brokerage

 

[luckyluciano]

QUOTE (JamesB @ Feb 15 2010, 10:37 AM) No, I don`t think I have a problem, (Well, I work too much, and drive too fast, but I don`t think your talking about that)

I do agree with your inference that it would not be smart for someone`s entire portfolio to be a 5% down buying bonanza. I have PLENTY of equity in my portfolio, but like you (I`m sure) I don`t want the value of assets I own to go down.

A 25 year AMORT loan vs. a 35 year AMORT loan will ALWAYS yield less cash flow. (No matter how much equity is in a property) Banks like me because of my high cash flow which would be reduced if I had to do 25 year loans. I am in no rush to pay down the mortgage balance on my rental properties. (For very obvious reasons) a 35 year loan makes a big difference.

Now your point on foreclosures is interesting. Imagine what would happen to an investor`s portfolio if more of the houses around you/in your area went into foreclosure. (It would affect the value of your house and your portfolio) Remember, it`s not just investors who buy properties, but the average person next door that stretched the heck out of themselves to get into the biggest home the could afford.

Cheers

Banks love EQUITY too.

 

[housingrental]

Re equity - Sounds your less leveraged than your previous post implied and you have some safety in what your doing.
Just make sure you have nice margin of safety if the market adjusts.
If there`s a lot of foreclosed properties, you want to have as much cash as possible.



QUOTE (JamesB @ Feb 15 2010, 10:37 AM) I have PLENTY of equity in my portfolio, but like you (I`m sure) I don`t want the value of assets I own to go down.

A 25 year AMORT loan vs. a 35 year AMORT loan will ALWAYS yield less cash flow. (No matter how much equity is in a property) Banks like me because of my high cash flow which would be reduced if I had to do 25 year loans. I am in no rush to pay down the mortgage balance on my rental properties. (For very obvious reasons) a 35 year loan makes a big difference.

Now your point on foreclosures is interesting. Imagine what would happen to an investor`s portfolio if more of the houses around you/in your area went into foreclosure. (It would affect the value of your house and your portfolio) Remember, it`s not just investors who buy properties, but the average person next door that stretched the heck out of themselves to get into the biggest home the could afford.

Cheers

 

[JamesB]

QUOTE (housingrental @ Feb 15 2010, 04:05 PM)
Re equity - Sounds your less leveraged than your previous post implied and you have some safety in what your doing.

Just make sure you have nice margin of safety if the market adjusts.

If there's a lot of foreclosed properties, you want to have as much cash as possible.






Yeah, I should have been more clear about that. Sorry for any confusion. I was trying to illustrate the point about increased cash flow, market stability, and not wanting my assets to go down in value. I think as investors, we can all agree those are three good things.

 

[JamesB]

QUOTE (luckyluciano @ Feb 15 2010, 11:34 AM) Banks love EQUITY too.


They do indeed. But if you have equity and poor cash flow, your are not an ideal client for them and could struggle to get financing.

Both equity and cash flow are needed for consistent long term growth.

Cheers,

 

[luckyluciano]

I hate to tell you but you should count on your assets going down when interest rates RISE. In my experience this is how it works. Interest rates go down-prices go up (liquidity). Interest rates go up-(tightening). Prices go down.


QUOTE (JamesB @ Feb 16 2010, 08:29 AM) Yeah, I should have been more clear about that. Sorry for any confusion. I was trying to illustrate the point about increased cash flow, market stability, and not wanting my assets to go down in value. I think as investors, we can all agree those are three good things.

 

[JamesB]

QUOTE (luckyluciano @ Feb 16 2010, 08:47 AM) I hate to tell you but you should count on your assets going down when interest rates RISE. In my experience this is how it works. Interest rates go down-prices go up (liquidity). Interest rates go up-(tightening). Prices go down.


A lot of people feel that way and it sounds like it makes sense. I thought it too until recently when the facts were presented to me.

Over the past few months at REIN, they have showed (With data and facts) that this in not the case. There seems to be no firm tie between interest rates and housing prices. (Outside of a few 6 month micros bursts) Actually, when graphed, there appears to be an inverse relation. There are so many other factors at work in an economy, its tough to tie just one event to another.

I love the analysis REIN and their partners do. Being able to make decisions based on fact and not opinion is a wonderful thing. I have shown the graph to my clients and it definitely helps put their minds at ease. (It helps me sleep at night as well)

Everyone’s assets go up and down. It’s just part of the ride. If your taking a buy and hold approach, it really shouldn’t bother you that much. Let’s be honest though, we all want our holding to ONLY travel in the right direction. We want EVERY deal to be a home run. Singles and doubles are still ok for me though.

 

[JohnS]

QUOTE (luckyluciano @ Feb 16 2010, 08:47 AM) I hate to tell you but you should count on your assets going down when interest rates RISE. In my experience this is how it works. Interest rates go down-prices go up (liquidity). Interest rates go up-(tightening). Prices go down.

I`d also say that this isn`t correct. At best, you might want to say that as interest rates rise, prices don`t appreciate as quickly. This would include prices decreasing, but also includes the many times that the increase just slows.

Have a good one!

John

 

[housingrental]

For certain James
QUOTE (JamesB @ Feb 16 2010, 08:29 AM) Yeah, I should have been more clear about that. Sorry for any confusion. I was trying to illustrate the point about increased cash flow, market stability, and not wanting my assets to go down in value. I think as investors, we can all agree those are three good things.

 

[wealthyboomer]

QUOTE (JDaley @ Feb 11 2010, 09:54 AM) Exactly! The CREA will likely settle because the CREA can not and will not win. And despite the CREA`s claim that they have been working with the CB to resolve this, the CREA had not gone far enough. If I were a seller today and could wait for a year or two, I`d wait until this case was resolved - the savings could be large.

It looks like CREA is about to `settle`.

 

[JDaley]

QUOTE (wealthyboomer @ Sep 30 2010, 10:53 PM) It looks like CREA is about to `settle`.

Yes it looks like the CREA will in fact `settle`, as expected. I think its members will have to ratify the agreement, however, from what I heard the CB received a flood of support and additional complaints as soon as they went public. With a mountain of evidence and letters, the CREA would have lost and lost big. It`ll be nice to list a property on MLS, pay a reasonable fee and get on it with than having to pay $20,000-$30,000 in realtor fees. Thanks for the update.

 

[gwasser]

QUOTE (JDaley @ Oct 1 2010, 12:35 PM) Yes it looks like the CREA will in fact `settle`, as expected. I think its members will have to ratify the agreement, however, from what I heard the CB received a flood of support and additional complaints as soon as they went public. With a mountain of evidence and letters, the CREA would have lost and lost big. It`ll be nice to list a property on MLS, pay a reasonable fee and get on it with than having to pay $20,000-$30,000 in realtor fees. Thanks for the update.


I wish you all the success with listing in the new Wild West of Real Estate. I for that matter would not provide such a service. I also predict a rash of law suites and teary stories of victim consumers on W5 within a year. Guess we will blame Realtors for that too.

 

[JDaley]

QUOTE (gwasser @ Oct 1 2010, 05:11 PM) I wish you all the success with listing in the new Wild West of Real Estate. I for that matter would not provide such a service. I also predict a rash of law suites and teary stories of victim consumers on W5 within a year. Guess we will blame Realtors for that too.

And how do you think it was done in the 50s and 60s or before the CREA and boards like it were created (I know the CREA has a long history but it really didn`t grow till the late 60s and onwards)? I appreciate the view, but I and many other Canadians aren`t shedding tears for realtors or their high fees. They`ll have to adjust to the new pool of funds and many part-time realtors that shouldn`t have been in the business to begin with, will leave - and perhaps something more professional and more efficient will result from it. In regard to disputes or complaints regarding Realtors, how do you think its handled now ? Its first handled through the CREA - who would have guessed?

The new system that emerges will be just fine and half-hearted-realtors will be weeded-out and a more efficient system with fairer fees will result. I never thought I`d say it, Government works and Melanie Aitken and her team should be thanked. This is a good thing for all of us.

 

[Rickson9]

I embrace change!

But I`m only in my 30s, I don`t know any better.

 

[Conrad5]

It may end up being more expensive in the new system than before. Charging for each showing, listings in all the zillion websites, magazines, etc charge for faxing, copying etc. We pay $25 or more just for a physician to sign a paper that one is sick or forward a request for special authorization for an insurance company to pay for a patient`s medication, $50 for taking your blood pressure etc.
At the end of the day if the listing does not sell who loses after paying for all the above? I dont know how it currently works but how much does it currently cost those whose listings have expired? Would buyers be paying realtors to help them buy in the new system? At what cost would that be? In the long run we may have to take courses at a cost to be able to buy houses without buyers agent realtors.
On the other hand paying less though attractive may not be the best for some as their house may end up selling less than it would have been since there is no control and hence no quality to amount of work involved in putting the house for sell
In all cases everyone wins. I see it as the proverbial musical chair. The more things change the more they remain the same.

 

[Thomas Beyer]

QUOTE (housingrental @ Feb 13 2010, 01:37 PM)
.. mortgage with 5% down is renewing with a 6.5% interest rate and a lender requiring additional funds from you or pulling your loan. ..


With 5% down you have insurance (CMHC most likely) FOR THE LIFE OF THE MORTGAGE.



As this insurance reduces the risk to banks to essentially 0, there will be a bank willing to re-finance at very low competitive rates even if rates rise.



As stated elsewhere, I am also not a fan of only 5% down for new homes or 35 year amortization as it increases the risk. I strongly advocate at least 10% for a first time buyer and a max. 30 year amortization. 20% down for any subsequent home, an investment or a house over 400K. I have written a letter stating such to Jim Flaherty (Minister of Finance) and I encourage anyone who think similarly to do the same.



On the new rules / MLS: even up to now fees were negotiable and low fee realtors existed, as did FSBO's. Thus, I expect little substantial changes, as both FSBO's and low commission realtors did NOT do very well and captured maybe 10% (at best) of the total market.



Good realtors and firms that can deliver will thrive, as before .. and firms that cut their costs to the bones will not as they'll starve themselves !



Expect to pay around 2.5 to 3% to sell a home .. more % wise if a cheap home/condo (say below 150K) and slightly less %-wise if high priced, say over 500K .. JUST LIKE TODAY !!

 

[wealthyboomer]

I wonder if some FSBO sites like Comfree, etc, will hire a manager and get a brokerage licence, and enter the MLS. The FSBO market will die and the MLS WILL THRIVE and the consumer will be the clear winner. Good realtors who can "read" the market, are really knowledgeable in real estate matters and can adjust their self promotion to reflect the new reality, will still control the share of the market they control now.
However, the "mere posting" types will offer a new opportunity. Some will take advantage of it and thrive... others will still be chasing the big bucks... and will be left behind.

 

[wealthyboomer]

QUOTE (RedlineBrett @ Feb 10 2010, 12:09 PM) If the CB wins CREA could decide to just take MLS.ca offline altogether like Don mentions.

Ya, like that is going to happen.

 

[Berubeland]

I`m not sure if all are aware that the original complaint against CREA was from a Discount Broker who had his MLS access terminated for posting all active listings on his website regardless of agent/broker. That broker had to shut down his brokerage and has won 1 civil lawsuit against CREA for damaging/ending his business and has settled? another.

Also I think that that CREA was subject to a lot of internal pressure as a bunch more of the main brokers were thinking of opening another site to compete with Realtor.ca (which is a very poor source of information compared to the MLS.ca from before)

Additionally the FSBO`s have merged/been acquired and have their own site now, which is much better.

This is so relevant in today`s market about 60% of people start their search online with this number only increasing going forward.

So everyone that thinks that this case is about lower fees is horribly wrong, it`s about realtor vs realtor.

As for my opinion on CREA, I think they are a bunch of parasites. Agents do work hard and try to do a good job and between their broker and CREA and their local RE board fees, they have a very difficult time of it. They are just as victimized or more by these organizations, there is no way for them to earn a living and lower fees too. The agent sees as little as 20% of the total commission in their pocket and then pays desk fees, phone fees, logo on business card fees and tons of other fees designed to separate them from their money earned. It`s ridiculous.