We have all heard that the three rules of real estate are location, location, location. It’s been this way for years. That is, until today. It’s all changed now. Now it’s finance, finance, finance.
It’s all about the money now. It used to be, “Call me for a waterfront location” or, “Call me, I am your downtown location expert.” According to real estate experts I have spoken to, the situation today is more about helping a client facilitate the transaction, not just the location but all of it, including some guidance on finance. Some would even include an analysis of market projections and potential profits. There is some very serious money being loaned out and our financial institutions want in on every angle there is to get more for themselves in today’s low interest rate environment.
For example, these days banks and lenders are putting terms in mortgage documents that penalize those who are thinking of selling their newly purchased property within a couple of years. To the tune of tens of thousands of dollars. If you want to flip a property in less than a year after it has been purchased, watch out! It could cost you $30,000 in mortgage penalties. In some cases even more.
Financiers have been wise to the quick flip for years but they are jealous that they are left out of the big money grab available to home buyers who sell properties quickly as the markets rise. No capital gains taxes on principal residences allow owners to walk away with tremendous financial gains.
First-time buyers are the hardest to finance for any lending institution. They can also be the most naive, so they are the easiest to prey on for riders and clauses that can punish them as buyers and be profitable to the lender.
It seems the only thing we read in the paper about property transactions is the alleged exorbitant cost of real estate commissions. Meanwhile the cost of lending fees, finder’s fees and referral fees are also higher than ever. Fees from banks and lenders are out of control!
Some of the restrictions that we all thought were in place are not in place at all and most are ambiguous. Referral fees are charged sometimes when there is no referral. Finders’ fees are charged to a lender who did not find a mortgage at all but had the client come directly to them. When it comes to disclosure of all these fees, they are indeed disclosed. They’re all in the documents signed by the borrower or purchaser, but who reads those documents? They may be pointed out by the lawyer of the buyer but it always seems to come down to, “I want to buy that house so I will have to pay the fee. Gimmie the pen, I want that house.”
The point is these fees are buried in the documents and don’t seem to come out until just before the deal is done, when the buyer is so anxious to finish the deal he will simply take it.
It is time financial costs, all of them, are set out right up-front before a deal is done. The same as the real estate commission rate. That alone would make things a lot fairer to the buyer and seller. These fees need to be uniform and clear. I mean, come on, how does a bank get to call a fee on a loan that walked in the door a finders’ fee?
The entire process of property selling and purchasing needs reform, starting with banks and lenders and including real estate fees and commissions. Not just mortgage reform, not just commission reform but all of it together.
While it is a long and heated debate with good points on both sides, it seems irrefutable to me that a standard commission rate for real estate brokers and agents is critical for the future of the real estate business. It does not seem fair or right to me that agents have to scrap with each other over commission rates. Negotiating commissions does that. It demeans the process. It shouldn’t be about commissions but rather good service and professionalism.
Just like the integrity of financial and money lending institutions.
Heino Molls has been the Publisher of REM, Real Estate Magazine (formerly Real Estate Marketing), since 1989. Previous to REM, he worked as an executive at the Toronto Real Estate Board (TREB), and at the Toronto Star. Contact Heino by email or call 416-425-3504 x2.
