Real Estate Myths and Realities

Lower Mainlanders are said to be savvy about property. Read on to see how your knowledge stacks up.

Derrick Penner, Vancouver Sun
Published: Saturday, April 26, 2008

Lower Mainlanders are said to be savvy about property. Is it time to buy or time to sell? What room should you renovate? What needs to be landscaped? Lower Mainland residents spend more on real estate than anywhere else in the country, and generally, are as knowledgeable about the subject as anyone. But how much do they really know about their homes?

Generally though, British Columbians, and Lower Mainlanders in particular, are pretty savvy about their property, the experts believe, with so much information out there about real estate, between Real Estate Weekly, the real-estate sections in newspapers, the realtors' Multiple Listing Service posted online and Home and Garden TV.

And when Lower Mainland residents are paying so much for real estate, they have to be knowledgeable to make good decisions.

My home's assessment tells me what the property is worth.

MYTH: The property assessment that BC Assessment mailed to you in January might have been close to the value of your property last July 1, when the calculation estimating its worth was made, but likely isn't now. And if you were to sell, chances are that the price you negotiate will be different, probably higher, than your assessment.

That was especially true in the hot markets of recent years, when values shot up faster than can be captured in an assessment done once a year.
In 2005, the median variance (the point at which half are above and half below) between assessment and sales price on Vancouver detached homes was 10% in January. By December of 2005, the median variance between a home's assessed value and its sale price was over 50%.

Your assessment is likely to be closer to accurate if your home is newer, because your home has probably been seen by an assessor.
The older your home is, the less likely it is that it has been seen by an assessor for many years. Most properties are assessed on a formula.

Real estate prices in Greater Vancouver can't keep going up; they're too high already.

MYTH: With the average detached-home price in Metro topping $918,000 in March, it is hard for many to envision real estate values climbing even higher, but it has been said that for two years.
The Vancouver market has had its ups and downs over the decades, and while no one is promising that prices will keep going up in a straight line forever, the economic cards that British Columbia is holding indicate more price growth this year and next.

Prices have already risen in the order of 100 per cent over the past five years or so in many Metro municipalities, winning the region status as having the least affordable real estate in the country. (The RBC Affordability Index measure estimated that at the end of 2007, it would take almost 80 per cent of the average Metro Vancouver household's income to cover the cost of owning the average standard two-storey home.)

High prices have proven an enemy to a growing number of first-time buyers. Provincial economic growth has slowed compared with the past two years.
The growing housing recession in the United States also worries many, as do Central Canada's troubles in its manufacturing sector.

Western economies still have strength in their commodity bases, save for the struggles in B.C.'s forestry-dependent communities.

Metro Vancouver's economy is still adding jobs, many of them providing rising wages, and people are still moving to the region in high enough numbers to push prices up even if sales are falling off from all-time highs and the inventory of unsold properties on the MLS is rising.

Mortgage rates, which wavered up a bit last year, are expected to remain low. Forecasters estimate prices will rise in the order of eight per cent this year, slowing to five per cent next year.

Spring is a good time to buy or sell a residential property.

REALITY: There is truth to the notion that spring brings out the daffodils, the cherry blossoms and the house hunters with renewed visions of new homes in their minds. Records show that spring is the best time to sell. An analysis of land title records since 1993 shows that the busiest months for sales to close (closing usually takes place 60 days from the accepted offer), are March through June.
There are slight differences between which months are hottest for condo sales and which are hottest for detached home sales. Condo sales are more likely to be higher in March, April and June. But hunters looking for houses are most likely to jump on their dream home from April through June.

More sales are an indication that more buyers are out in the springtime, which means a bigger market and potentially more competing bids for your listing. If you are buying, however, you might want to browse in the spring but focus your attention on buying in the fall and winter. Since 1993, the nadir month for sales to close has been October, which means fewer competing bidders out there with you.

A bathroom or kitchen renovation is the best way to add lasting resale value to your home.

REALITY: Renovation is the way to turn a tired old home into the fresh, modern palace of your heart's content, which might make it more valuable on the open market. Not all renovations are created equal, however.

Start with the kitchen, the social centre of any home. Renovating won't return all of the money you put in, but any improvements you make to a kitchen will repay you 75 to 100 per cent of what you put in if you ever choose to sell.

You spend less time there, but renovating bathrooms with new counters, tiles and fittings will repay the investment by a similar amount. Potential buyers will love the fact they don't have to touch a bathroom renovation themselves because with all the fittings, it can be a difficult project to take on.

However, how much you should spend depends on the surrounding neighbourhood. Installing the highest-end finishes in a mid-market neighbourhood might become what appraisers refer to as "super-improvements" that won't repay as well as renos that are more in keeping with the neighbours.


You can save money by buying a 'fixer-upper' and renovating.

REALITY: If you have the skill, time and patience to put the sweat equity into a home. In the right location, you can pick up an older home that hasn't been updated and add value to it.

The big home-reno chains, Rona and Home Depot, sell a lot of know-how along with the lumber, cabinets and slate-tile finishes that encourage homeowners along into home improvement projects. And simple things, such as cleaning and painting can give homeowners a high return for what they spend.

However, straying into projects that require higher levels of skill in carpentry or plumbing than the homeowner possesses or has time to deal with, can prove prohibitive.

What improvements a homeowner adds may actually detract from value. Turning that third bedroom into a dining room, for instance, might suit you and your family well, but in a market where buyers want three bedrooms or more, your hard work and expense might not be rewarded.

Sources: Landcor Data Corp., Dan Jones, Campbell & Pound Ltd., past president B.C. Association of the Appraisal Institute of Canada.

Buying a home outside the city and commuting to work is a good way to save money.

REALITY: Graph out the median assessed values of homes across the Metro and the Fraser Valley and it looks like an undulating slope that descends from West Vancouver's summit to the District of Mission's base.

While the median price - the point where half of properties are valued above and half are valued below - is $730,000 in Vancouver and $662,000 in Burnaby, it is $426,000 in Maple Ridge and $386,000 in Abbotsford.

So buyers can buy more for less if they look for homes in the suburbs. But they have to take a serious look at whether the additional cost of commuting outweighs what they're saving by buying a suburban house. Commuting costs include additional time, the second car and insurance and the gas. It's enough to give anyone pause.

Urban studies experts note that people tend to underestimate the additional costs associated with commuting, especially the additional time spent away from family. This is one of the arguments raised to get people thinking about perhaps accepting less home in exchange for less travel time, more time at home and a few more pennies squirreled away in bank accounts instead of poured into the gas tanks of their cars.

Sources: Landcor Data Corp., professor Lawrence Frank, Bombardier chair in sustainable transportation at the University of B.C.'s School of Community and Regional Planning.


Buying an additional property to rent out is a solid investment.

REALITY: The dream is to buy a rental property or two, or three and hold on to them while renters pay down the mortgage you took out to buy them. Once you've burned those mortgages, sit back and relax while your real estate pays you income. The bonus, after holding property for years, is that they've likely appreciated in value, giving you additional return once you sell.

That's still possible, but probably not in Metro Vancouver. The challenge is to find a property that will command enough rent to pay a mortgage, property taxes, condo fees and whatever fixed costs a property might have, and still give a bit of return.
The rule of thumb used to be that you would aim to charge a rent that was one per cent of the purchase price ($1,000 a month for a $100,000 condo, for example). Lower mortgage rates or the size of the down payment will vary that formula. Regardless, it has become tough to do in the Lower Mainland.

It remains a possibility in outlying communities, however, provided you find the right community, where rentable properties might still be bought in the $80,000 to $100,000 range. These would be communities where the vacancy rate is in the three-to-four-per-cent range, and which has an economic upside such as plans for new infrastructure that will make transportation easier.

Investors who buy properties counting on the value of the asset to increase, and need that to happen to justify the purchase are really speculators.

SOURCES: Ozzie Jurock, Jurock.com; Robert Chipman, realtor with Legend Coronet Realty Ltd.


The bank owns my house.

MYTH: Your name is at the top of the title, which means you control the property, although your bank will be registered as having an interest - such as holding your mortgage - that is also registered on the title.

Your bank is likely to hold more of an interest in your property, and will likely have it a lot longer than it used to with new mortgages that carry amortization periods (the time it takes to pay off the loan) ranging up to 40 years.

Long amortization periods can leave buyers vulnerable, because it takes a long time to pay back the principal amount of the loans and earn equity in the property, thus reducing the bank's interest. Some financial planners counsel against the 40-year mortgage and do not consider it a wise investment choice.

Sources: Landcor Data Corp., Gina Macdonald, registered financial planner, Macdonald Shymko & Co.


You've just sold your house and have made a ton of money off it.

REALITY: Many people who have sold homes in the last few years have made a significant amount of money if they held the property for any length of time.
Looking at the City of Vancouver, the median house price was $338,000 in 2000. By 2008, it was $730,000 - a 116-per-cent increase.

However, the gain that sellers realize will depend on whether they've poured any money into renovations, how much mortgage interest they've paid, property taxes and sale commissions. Those all have to be deducted from the lift in value to determine how big the gain is.

If a person has sold his principal residence, however, that gain will be tax-free. The money spent on renovations, mortgage interest and taxes was not tax-deductible.
Also, how much that gain is depends on whether you "release it" to invest or use in other ways.

Sources: Landcor Data Corp. Gina Macdonald, registered financial planner, Macdonald Shymko & Co.

Rudy Nielsen: Expert has 40 years of experience

Research in this piece was provided by Rudy Nielsen, who has been active in British Columbia's real estate industry since 1964, first as a realtor, then as a residential and commercial renovation specialist and recreational property developer.

Nielsen founded NIHO Land and Cattle Co. in 1972, a company that became one of B.C.'s largest developers of recreational property. In the same year, he earned a diploma in urban land economics and appraising from UBC, and his experience includes the appraisal of ranches, timberland, commercial and industrial property.

Nielsen hung up his realtor's licence in 1981 upon becoming principal of NIHO, and started Landcor Data Corp. in 1987 to begin filling the need for fast and accurate property valuations.
Landcor's automated valuation model (AVM) is used by banks and real estate firms, and the company uses the system to analyse every property transaction in the province to identify buying trends and preferences.

Landcor's researchers turned to their database, which incorporates records from 1.8 million properties in the B.C. Land Title registry, the data of real estate boards around the province and other private sources of information to analyse the questions that The Vancouver Sun posed to them.