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Welcome!!

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Welcome!!

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  1. This presentation is designed with the slides advancing automatically. If they go too fast (or too slow) you can click on the arrow buttons on the bottom left corner to advance or go back.

  2. DreamScape Realty“Turning dreams into reality”Is Pleased to PresentAn Information SeminarFor Home Buyers

  3. Welcome!! Here is an outline of what we will quickly cover in this seminar. • The Decision, should you Buy or Rent? • Use a REALTOR® or buy “For Sale By Owner”? • Choosing a REALTOR® • Agency • Qualifying & Financing • New Home or Pre-owned? • House or Condo?

  4. Style - bungalow, bi-level, two storey, split etc.? • Location? • The Search • You’ve Found It!! The Offer & Negotiation • A Home Inspection? • Legalities • Conclusion Now, on with the show!!

  5. The Decision, Buy or Rent? Should you purchase a home, or should you rent? Let’s look at the two options.

  6. Rent vs. Buy • Renting may be less expensive to start • Damage deposit is generally less than down payment • Rent may be less than mortgage payment for a short time. • Buying is likely cheaper over the long term • Rent tends to rise with inflation. • Mortgage payment remains constant (subject to interest rates) because the cost is locked in for a given amount of debt. • Because of this, rent will very likely be higher than mortgage payments in a few years.

  7. Equity = Value of Home minus amount owed on property. • Buying builds equity • As prices rise, so does equity. • As the mortgage is paid down, equity increases. • Renting does not build equity and costs continue to rise. • Buying builds equity and controls long tem costs

  8. Average Calgary Residential Sale Price1975 to 2010

  9. Avg. Increase/Decrease in the last 40 Years + 7.98% Avg. Increase/Decrease in the last 30 Years + 5.46% Avg. Increase/Decrease in the last 25 Years + 6.89% Avg. Increase/Decrease in the last 20 Years + 6.18% Avg. Increase/Decrease in the last 15 Years + 8.01% Avg. Increase/Decrease in the last 10 Years + 9.02% Avg. Increase/Decrease in the last 5 Years + 10.68% Please note that there are no guarantees. All we can do is base our assumptions on the historical numbers .

  10. A Rent vs. Buy Scenario Let’s assume John has $20,000 and he is paying $1,500/month rent, plus utilities. He can’t decide whether to continue renting and invest his money, or buy a house. If John buys a home for $350,000 and uses his $20,000 as a down payment, his mortgage will be $340,725 (including mortgage insurance, more on this later). At an interest rate of 5.0% and a 30 year amortization, this will make his mortgage payment $1,825 / month plus taxes, say $175 / month (estimated) which is a total of $2,000 / month. This payment will remain basically stable (subject to interest rates) until the mortgage is paid in full. After five years, with inflation (4%), the home is worth $425,825. The mortgage has only been paid down to about $320,282. This means that he has $105,543 in equity. John has paid $120,000 in mortgage payments. Subtract the $97,490 rent payments (assuming 4% per year rent increases) and he has paid $22,510 more in mortgage than he would have in rent. Subtract that amount from the $105,543 in his equity and he has a net increase of $83,033. Capital gains on a personal residence are not taxable.

  11. If John decides to continue renting and invests the $20,000 at 8% interest, after five years he will have $29,387 which is a $9,387 profit. This profit, however is taxable so even at a nominal rate of 15% tax he ends up with a net gain of about $7,979. The long term outlook is even more dramatic, if all the assumptions above are used as average figures for the next 30 years. At the end of 30 years, if John buys the house, he will have over $1,135,000 (future value of the home at 4% inflation for 30 years) in equity and since the house will be paid off, there will be no mortgage payments left to pay. If he rents, in less than ten years, his rent will be as high as the mortgage payment. Because rent will continue to rise, in 30 years his rent will have climbed to over $4,800 per month and he will still be paying rent. His $20,000 will have grown to less than $296,000 before deducting taxes. What do you think John should do?

  12. REALTOR®or“For Sale By Owner”? A Brief Discussion

  13. Realtor or “FSBO” • The Choice is Yours. • Since the seller pays the commissions, (from the proceeds of the sale) it does not cost you more to have the services of a REALTOR®. • Most “FSBO” sellers have had market evaluations done and are trying to save the REALTOR® cost for themselves, not for the Buyer. • Knowledge & Experience • REALTORS® have vast resources with which to analyze a property. • REALTORS® probably see more properties in a month than most buyers will in five years. They can suggest what to look for and suggest clauses in the contract to protect the buyer.

  14. Why use a REALTOR®? Not all licensed or registered brokers and salespeople are REALTORS®. Only real estate licensees who are members of the Canadian Real Estate Association (CREA) are REALTORS®. These REALTORS® are committed to a high standard of professional conduct, ongoing education, and to a strict Code of Ethics and Standards of Business Practice. Using the service of a professional REALTOR® helps in disclosing maximum property information and facts therefore reducing your risk. Your Benefit • Teaming up with a REALTOR® provides you with invaluable access to professional real estate expertise and knowledge. You benefit because: • Your REALTOR® can help determine your buying power and refer you to lenders best qualified to maximize your loan and minimize your cost. • Your REALTOR® has full access to all the features of the Multiple Listing Service®, Canada's most powerful real estate marketing network. • Your REALTOR® provides local community information on utilities, zoning, schools, etc. REALTORS® assist you in making the best choice selecting an environment where you and your family can grow.

  15. Your REALTOR® has a finger on the pulse of the housing market and is knowledgeable about developments and trends in real estate; and, • Your REALTOR® has the facts on comparable pricing, neighborhood trends and housing market conditions, data you can use to set your best course of action and maximize your homes resale value when you are ready to sell. • Your REALTOR® can negotiate the best deal. There are myriad negotiating factors, including price, financing, terms, date of possession and often the inclusion or exclusion of repairs, furnishings or equipment. By negotiation alone, your REALTOR® often saves you more than the cost of their service. • Your REALTOR® assists you in providing due diligence to evaluate the property. This may include inspections for mold, dry rot, asbestos, faulty structure, roof condition, septic tank and well tests, just to name a few. Your REALTOR® can assist you in determining what conditions to recommend and assist in finding qualified professionals to investigate and provide report to you. • Your REALTOR® can guide you through the sales process making sure everything flows smoothly from initial offer to closing. • You are protected when you work with a REALTOR® for a number of reasons: • All REALTORS® are graduates of a real estate education program and are committed to pursuing ongoing professional development courses; • REALTORS® must adhere to a strict Code of Ethics and Standards of Business Practice; your guarantee of professional conduct and service excellence.

  16. All REALTORS® carry errors and omissions insurance; • The Real Estate Assurance Fund is available to you in the rare event of fraud, or breach of trust by a REALTOR®. It is your protection against financial loss. This fund is financially supported by our members; and, • A licensed brokerage supervises the business conduct of all REALTORS® to ensure their compliance with Alberta law. Why the registered “®” after the word REALTOR®? Only REALTORS®, who are members of the Canadian Real Estate Association and a local real estate board, can call themselves REALTORS®. Calgary Real Estate Board members adhere to a strict Code of Ethics and Standards of Business Practice, that non-board members and independent listing companies do not. REALTORS® take mandatory education every two years to ensure that they are knowledgeable in every aspect of the ever changing real estate industry. Above content from the Calgary Real Estate Board. Peace of Mind The experience and advice of a good REALTOR® can be invaluable, and at virtually no cost to the Buyer!

  17. Choosing a REALTOR® What should you look for in a REALTOR®?

  18. Choosing a REALTOR® There are several things to consider when choosing a REALTOR®. Here are a few. • First, and most importantly, choose a REALTOR® that you like, know and trust. Without these things, the relationship is off to a rocky start at best. • If you like, don’t hesitate to ask for references. • Choose a REALTOR® that has experience with the type of home you plan to buy. If you are looking at a condo for example, choose a REALTOR® that has condo experience. If the REALTOR® you choose isn’t experienced, they should have experienced back-up to call on for help. • Your REALTOR® should be available. He or she should answer your calls or at least return your messages in a timely manner. Waiting several hours or even days is not acceptable. • Find a REALTOR® that will be patient with you. One that will show you as many homes as you want until you find the right one. And, answer all your questions. One that will take as much time as it takes to get it right. This is a big decision and investment for you. Get it right.

  19. Agency What is Agency?

  20. Types of Agency Sole Agency Sole Agency occurs when one Brokerage represents the Seller as the Seller’s Agent and another Brokerage represents the Buyer as the Buyer’s Agent. Transaction Brokerage Transaction brokerage occurs when one or more industry members in the same common law brokerage, or the same designated agent from a designated agency brokerage, represent both the buyer and seller in the same real estate transaction. Transaction brokerage is permitted with the fully informed, voluntary and timely consent of both parties to the transaction. The industry member must obtain your written informed consent to transaction brokerage before this relationship may occur and before any offer is presented to buy or sell a property.

  21. Agency Relationships Agency is a relationship established when two parties agree to have one party act on behalf of the other. If you decide to have a REALTOR® act on your behalf, the agency relationship exists between you (the client) and the Agent (the Brokerage and its REALTORS®, including the Broker, Associate Brokers and Associates). When the Agency relationship exists, the REALTOR® owes you the following duties: • Undivided Loyalty – the Agent must act solely in your best interests • Confidentiality – the Agent must keep your confidences • Full Disclosure – the Agent must inform you of all facts known to the Agent that might affect your relationship or influence your decisions. • Obedience – as long as your instructions are reasonable & legal • Reasonable Care & Skill – the Agent must exercise reasonable care & skill • Full Accounting – the Agent must account for all money and property placed in their hands while acting for you.

  22. Sole Agency Sole agency is a relationship in which the brokerage or industry member acts as the Agent for only one party in a trade. The essence of the agency relationship is that the Agent has authority to represent the Client in a real estate transaction. In sole agency, Agents are obligated to protect and promote the interests of their clients. Buyer’s Brokerage Seller’s Brokerage Buyers Agent Seller’s Agent Seller(s) Buyer(s)

  23. Transaction Brokerage Transaction brokerage occurs when one or more industry members in the same common law brokerage, or the same designated agent from a designated agency brokerage, represent both the buyer and seller in the same real estate transaction. Transaction brokerage is permitted with the fully informed, voluntary and timely consent of both parties to the transaction. Brokerage Brokerage Broker or Agent Broker or Agent One Broker or Agent Buyer(s) Seller(s) Buyer(s) Seller(s)

  24. Transaction Brokerage Rules In real estate sales, the Transaction Facilitator: • Will not, without prior written permission of the applicable Client, disclose to the other Client: • : That the Seller will accept a price less than the asking price (or a countered selling price) • : That the Buyer will pay a price higher than the price offered, & • : The reason the Seller is selling and the Buyer is buying. • : When representing multiple buyers, the terms and conditions of competing offers. e: Personal information relating to the Buyer or the Seller. • Will disclose to both parties all facts known to the Transaction Facilitator that materially affect or may materially affect the marketability or value of the property.

  25. Customer Status (Non-Agency) If you do not want to be in an agency relationship but want to work with a brokerage, you should choose customer status. The Brokerage is not your Agent and does not owe agency duties to you. Duties are limited to honesty, limited care and skill and not negligently or knowingly providing you with false or misleading information. The Brokerage might recommend Customer Status when a conflict of interest will affect its ability to fulfill agency duties to you. If a brokerage recommends Customer Status but you would prefer to have an agency relationship, you should opt to work with another Brokerage. Every Broker or Agent must have each Client sign an “Agency Disclosure Acknowledgement”. This Acknowledgement does NOT tie you to the REALTOR®. It simply acknowledges that you understand the Agency relationship. If the transaction is a “Transaction Brokerage” situation, both Buyer and Seller will be asked to sign an “Transaction Brokerage Agreement” form.

  26. Financing Qualifying for, and financing your home

  27. Qualifying Qualifying Criteria Used by the Lenders There are several things the lenders take into account when deciding whether to finance a property. They are as follows: • Employment • : Stability (is the job permanent?) • : Longevity (length of time on the job). • Credit History (does the Buyer pay the bills on time?) • Value of Property • Gross Debt Service ratio (GDS) • Total Debt Service ratio (TDS)

  28. GDS • GDS is the calculation of how much of the Buyer’s total income may be used for mortgage payments • Most lenders allow 32% of the Buyer’s gross income. • Costs for heat & taxes are deducted • Example: Buyer’s gross annual income = $75,000 • $75,000 x 32% /12 = $2,000 • $2,000 - $150 (taxes) - $100 (heat) = $1,750 • Buyer is qualified, subject to a TDS calculation, to make mortgage payments of $1,750 per month • For example, an interest rate of 5.5% per year has a payment of (approximately) $5.33 per thousand dollars of mortgage (assuming a 35 year amortization).  This means this person could qualify for a mortgage of $1,750 / $5.33 = 328.33 x $1000 = $328,330 based on the "GDS" calculation.  The maximum purchase price would be $328,330 plus the down payment based on the GDS calculation.

  29. TDS • TDS is the calculation of how much of the Buyer’s total income may be used for mortgage payments plus all other monthly debt payments. • Most lenders allow 40% of the Buyer’s gross income. • Heat, taxes and all other debt payments are deducted. • Example: Buyer’s gross monthly income = $75,000 • $75,000 x 40% / 12 = $2,500 • $2,500 - $150 (taxes) - $100 (heat) = $2,250 • $2,250 - $100 (credit card) - $450 (loan) = $1,700 • Buyer is qualified using TDS calculation to make mortgage payments of $1,700 per month. • This means this person could qualify for a mortgage of $1,700 / $5.33 = 318.95 x $1000 = $318,950 based on the “TDS" calculation.  The maximum purchase price will be $318,950 plus the down payment. Since the lenders use the smaller of the two calculations, the TDS calculation is used and the total mortgage allowed is $318,950. Price = Down Payment + Mortgage. Add the mortgage amount to the available down payment and that is the maximum purchase price.

  30. Mortgage Insurance • Mortgage loans over 80% of the value of the property must have Mortgage Insurance • Mortgage Insurance is not life insurance. It is used to pay out the financial institution in the event of foreclosure • Two companies offer this insurance, CMHC and GE Capital • Premium rates vary from 1.0% to 4.5% depending on the down payment and other criteria • Premiums are usually added to the mortgage amount.

  31. Bank or Mortgage Broker? This question depends on whether you have a relationship with your Bank. If you do, that may be the best route for you to take. The Banks do a good job of lending (it is their core business) and since they already know you it may make things easier. The advantage of a Mortgage Broker is they have a wider range of lenders to work with. Where a Bank (Credit Union, other financial institution) has only their own products, a Mortgage Broker has access to many lenders (some as many as 30 or more) and sends your application to several lenders who then offer their best deal. The Mortgage Broker finds the one that is best suited to your circumstances. The choice is yours but whichever route you go, it is a good idea to get a mortgage approved early. There are a couple advantages to doing this. First, when you find your dream home, you are ready to act. Second, you lock in an interest rate, usually for 90 days. If interest rates go up, you are protected; if they go down you get the lower rate. Even if you aren’t quite ready to buy just yet, locking in the rate can help, and it can be re-locked in again at any time.

  32. Historical Mortgage Rate Chart

  33. New or Used? Advantages & Disadvantages of New & Used Homes

  34. New Homes • Advantages • Most new homes carry a warranty. • If building new, a choice of colours and other options. • Choice of lot in new subdivisions. • Choice of floor plans. • G.S.T. is usually payable. However there is usually a rebate which is on a sliding scale, depending on the purchase price. • Disadvantages • New home subdivisions are generally located some distance from schools, shopping, transportation etc. • Fencing, landscaping can be extra costs after possession. • Noise and dirt while subdivision is completed. • Difficulty selling while still competing with new home builders.

  35. Realtors & New Homes In most cases REALTORS® can work with Buyers for the purchase of a new home. • The Calgary Region Home Builders Association and the Calgary Real Estate Board have signed a cooperation agreement. Most builders have signed on to the agreement. • Part of the agreement states that “The Builder agrees, by adhering to this Code of Conduct, that there can only be ONE price for the home, whether sold in-house or by a participating REALTOR®”. • This means that you can have a REALTOR® work on your behalf in the purchase of a new home without it costing you any extra. • In all honesty, there is not a lot a REALTOR® can do. The Builders prices are usually fairly firm. Your REALTOR® can help with location, option choices & some small negotiating points. • You can go and view show homes without your but if you want to have your REALTOR® represent you, don’t ask the show home representative many questions and don’t give them your name. If you see something you like, take your REALTOR® with you on a second trip. • There are some rules and conditions that must be met. Ask your REALTOR® for details.

  36. Used Homes • Advantages • Location may be closer to schools, shopping, transportation, downtown, hospitals etc. • Established neighbourhoods may have mature trees, parks. • Fencing and basement development may already be done. • Generally quieter with less construction in area. • Not competing with Builders when re-selling. • No G.S.T. • Disadvantages • Generally there is no warranty on the home or appliances. • No colour choices. • May need repairs.

  37. House or Condo? Which is for you, a house or a condo?

  38. Condominiums • A condominium is a type of ownership, not a style of building. • A condo can be an apartment, a townhouse, a duplex, or even a house. For example, not all town homes are condos, & not all condos are town homes. • When you own a condo, you own all of the insides of your unit & a percentage of the common areas of the complex. • You pay a monthly “Condo Fee”. This fee pays for the operation of the corporation, upkeep of the common areas and the exterior of the building (s). It might also pay for other things such as parking, utilities or security.

  39. Condominium ownership: Means you own the unit you live in and share ownership rights for the common space of the building. Common space includes areas such as corridors, grounds around the building, and facilities such as a pool and recreation rooms. Condominium owners together control the common areas through an owners’ association. The association makes decisions about using and maintaining the common space. • The Association: Includes all owners in the complex, elects a Board of Directors at Annual General Meetings (AGM’s). I can’t stress enough the importance of paying attention to what is going on with the Board. Get the minutes of the Board meetings and AGMs. Attend the AGMs. If possible get elected to the Board. You have a big stake, both financially and lifestyle wise, in what is happening. You simply can’t afford to not pay attention. • Budget: The Board often hires a management company to manage the building. The management company will prepare a budget for the Board to approve. The budget includes the costs of running the complex. Things such as landscaping & snow removal, garbage pick up, building maintenance, insurance costs, management costs, utilities and reserve fund costs.

  40. Condo Fees: These costs are allocated to the owners by way of the “condo fee”. Usually, the total cost split between the owners based on the size of their unit. For example if you own 6% of the total area of the liveable space, then your condo fee will be 6% of the budget broken down monthly. • Reserve Fund & Reserve Fund Study: Condos must have a “Reserve Fund” in place so that when repairs to the common areas, heating, air conditioning etc., the money is there to do the repairs. A “Reserve Fund Study” is a 25 year plan outlining the expenses the condo is likely to occur and how much money needs to be in the fund. The Reserve Fund Study is re-done every 5 years so it doesn’t become out of date. The idea is to prevent large “Special Assessments” or cash calls to repair or replace something which could be disastrous if the owners couldn’t come up with the cash. • Condo Documents: When you purchase a condo you will receive the “condo docs” which will include most of the ones listed below as well as some others. I have just listed the main ones. • By-Laws – These are the rules & responsibilities by which everyone must live. Pets, parking, noise, are just a few of the items here. • Financial Statements: These will tell you of the financial health of the corporation

  41. Budget: This outlines the current expenses and breakdown of the condo fees • Reserve Fund Study • Management Agreement • Insurance Certificate • AGM Minutes: This is the minutes of the most recent Annual General Meeting • Board of Directors Meeting Minutes: These are the best place to see what is happening with the condo. • Other relevant documents When you buy a condo you are able to review these documents and within a set period of time (usually 10 days) either accept or reject them. If you reject them, the deal is dead and you get your deposit back. In summary, a condominium is a lifestyle choice. Condos have advantages like freedom from yard work but also some disadvantages like more rules and condo fees.

  42. Condos – Advantages & Disadvantages • Advantages • Lifestyle choice • No lawn mowing or snow shovelling • Less maintenance • Community involvement • Disadvantages • Less private • Less control on surroundings • Monthly condo fees • More rules & regulations

  43. Single Family Homes • For the purposes of this presentation, single family homes are any home that is not a condo. • A single family home usually is a stand alone residence but it could also be a duplex, triplex or townhouse where no condominium corporation exists. • The attached homes (duplex, townhomes etc.) usually have an agreement registered on title, sometimes called a “Party Wall Agreement”, that spells out the responsibilities of each owner. It usually allows for the owner of one unit access to another unit for the purposes of repair. • This is a much simpler form of ownership. There are no condo boards, meeting, rules etc. • The home owner is responsible for all maintenance and repairs

  44. Single Family Homes - Advantages & Disadvantages • Advantages • More private • More control over surroundings • No condo fees • Fewer rules & regulations • Disadvantages • Mow your own lawn and shovel your sidewalks • Maintenance must be done by owner • Maintenance must be paid for by owner

  45. Home Styles What Style of Home Suits You?

  46. Home Styles There are many building styles but most are based on one of the four basic styles and combinations of them. • Bungalow A bungalow is basically a home with one level above grade with a basement below grade. You enter slightly above grade level to the main floor. • Bi-Level A bi-level is similar to a bungalow but is raised slightly above grade. You enter at grade level and then go up a half set of stairs to the main floor or down a half set to the basement. This gives the home larger windows in the basement making the basement much more liveable.

  47. Two Storey A two story has two floors above grade, one on top of the other and a basement below grade. A two (or more) storey home takes less area on the lot to get the same floor area as a bungalow or bi-level, but the basement is smaller. It has one full set of stairs going from the main floor to the upstairs and another full going to the basement. • Split Level Split level homes come in many configurations. They often have multiple levels that may or may not be above each other. Generally there is a half set of stairs going from each level to the next level. The floor area is calculated on the floor area that is above grade (the ground) only. Any area that is below ground level is not included in the floor area listed. Let’s look at the four styles separately.

  48. Since we only calculate the square footage of a home by what is above grade (ground), in all of the diagrams below the white area is considered the floor area. I am going to assume that all of the homes shown are 1,000 sq. ft. homes (above grade only) The Bungalow • The bungalow is the simplest of styles. It is also one of the most popular. Here the main floor would be 1,000 sq. ft. but the basement area would give another 1,000 so the total living area would be 2,000.

  49. Bungalows

  50. The Bi-Level • Notice the home is raised about half way out of the ground compared to the bungalow. You enter the front door and go up a half flight of stair to the main floor or down to the basement. This allows for the larger basement windows.

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