[Newsbot]

Title: Canada's real estate overvalued, survey says
Category: Business
Posted By: Robair
Date: 2010-10-26 07:20:10
Canadian

[Benn]

Having just bought a house here in Winnipeg I mentioned this issue to my agent. The closed and untransparent bidding war process many agents use on houses here inflates prices on housing. When house A on Smith street sells from a bidding war where selling agents can come back and ask bidders for higher bids without disclosing what the first round of bids was it leads to people bidding way higher than market value to win the house. Then next month house B on Smith street goes on the market and uses the inflated selling price of house A as a guide for what they are worth and so the cycle goes on and on.

My agent said it was pure market forces of supply and demand dictating prices like it should be. However due to the untransparent narture of hte biding process she was wrong here, the system only has the potential for abuse and serves to make agents richer.

[martin14]

Benn Benn:

Having just bought a house here in Winnipeg I mentioned this issue to my agent. The closed and untransparent bidding war process many agents use on houses here inflates prices on housing. When house A on Smith street sells from a bidding war where selling agents can come back and ask bidders for higher bids without disclosing what the first round of bids was it leads to people bidding way higher than market value to win the house. Then next month house B on Smith street goes on the market and uses the inflated selling price of house A as a guide for what they are worth and so the cycle goes on and on.

My agent said it was pure market forces of supply and demand dictating prices like it should be. However due to the untransparent narture of hte biding process she was wrong here, the system only has the potential for abuse and serves to make agents richer.

umm, that aint the way to buy a house.

[raydan]

Like buying stocks, I guess... buy low and sell high.

[Robair]

Maybe I can use this study to get 23.9% taken off my mortgage.

[Brenda]

martin14 martin14:

Benn Benn:

Having just bought a house here in Winnipeg I mentioned this issue to my agent. The closed and untransparent bidding war process many agents use on houses here inflates prices on housing. When house A on Smith street sells from a bidding war where selling agents can come back and ask bidders for higher bids without disclosing what the first round of bids was it leads to people bidding way higher than market value to win the house. Then next month house B on Smith street goes on the market and uses the inflated selling price of house A as a guide for what they are worth and so the cycle goes on and on.

My agent said it was pure market forces of supply and demand dictating prices like it should be. However due to the untransparent narture of hte biding process she was wrong here, the system only has the potential for abuse and serves to make agents richer.

umm, that aint the way to buy a house.

That has been a way for ages. I even bid on a few houses in The Netherlands that way in 2001. My bids were market value tho, so I never "won".

It won't last long tho. Soon, people will not accept it anymore, and nothing will be sold.

[Brenda]

From what I see here, btw, rent = mortgage + property tax + profit, which means that rent is more than mortgage.
A $200,000 doesn't rent for $1000. At least not here.

[bootlegga]

I would never bid on a house. I've placed offers, and if they get refused (after I've reached my limit and what I think the house may be worth), I move onto the next one.

That kind of shady bidding smacks of the old Otis sales manager tactic car salesmen used to use.

Salesman: OK, the purchase price is $10,000

Buyer: Yeah, I really want the car, so I'll offer $9000.

Salesman: Let me seem how about...$9800?

Buyer: I'll offer $9200.

Salesman: Let me seem how about...$9600

Buyer: I'll offer $9400.

Salesman (does some quick calculations): OK, just let me call my sales manager to approve the price.

Salesman: Mr. Otis to Mr. Jones office for a sale, Mr Otis to Mr. Jones office for a write-up please.

Mr. Otis (walks in): Let's look at the deal!

Mr. Otis: Sorry, the lowest we can go is $9800, but we can throw in shiny new hubcaps, OK?

Buyer (thinking to himself): Well, it's only a few hundred bucks.

Buyer: OK, deal!

Bidding is just another form of that tactic, which is really effective because buyers become emotionally involved in the sale and just want the deal done.

[martin14]

Brenda Brenda:

martin14 martin14:

umm, that aint the way to buy a house.

That has been a way for ages. I even bid on a few houses in The Netherlands that way in 2001. My bids were market value tho, so I never "won".

It won't last long tho. Soon, people will not accept it anymore, and nothing will be sold.

The market here is so bad, I might try working it the other way.


'I have 250,000 euros, I am accepting offers on houses for sale; best house wins'

[Dragom]

This is pretty dodgy. It's as likely to mean that people don't gouge their tenants enough.

[andyt]

Many homeowners are just lucky the economy is doing so poorly. If it ever takes off, and interest rates rise, there will be some wailing and gnashing of teeth.

[bootlegga]

Brenda Brenda:

From what I see here, btw, rent = mortgage + property tax + profit, which means that rent is more than mortgage.
A $200,000 doesn't rent for $1000. At least not here.

If you have a mortgage, you never want to make a profit from your rental, because the tax laws allow you to write off your interest AND because any rental income loss can be deducted from your own personal income taxes.

If you make a profit on your property in the first 5-10 years, you're only hurting yourself, because those profits are taxed at the same rate as your personal income. We pay about $100 a month out of our pocket (mortgage payment + property tax) - (rental income = $100), but wind up with a tax deduction worth thousands every year.

And I'd say that $1000 rate is fairly accurate, although your area being more rural than urban probably means that rental properties are in lower supply than in a larger city (like Edmonton for example).

[andyt]

I don't follow your math boots. Rental income is taxed at the same rate as personal income - so you're saying you wouldn't take a raise at work because you have to pay taxes on it? I don't see how you can get a tax deduction worth thousands when as you say, the loss just saves you the tax you would have had to pay on your income. I think you are mixing up your rental income with your tax deduction here.

[bootlegga]

andyt andyt:

I don't follow your math boots. Rental income is taxed at the same rate as personal income - so you're saying you wouldn't take a raise at work because you have to pay taxes on it? I don't see how you can get a tax deduction worth thousands when as you say, the loss just saves you the tax you would have had to pay on your income. I think you are mixing up your rental income with your tax deduction here.

I know it sounds crazy, but if you have a mortgage, 100% of the interest is a tax deduction, so you can wind up getting about a $10,000 tax deduction while only spending $1500-$2000 out of pocket. And in the first fives years of a mortgage, almost your entire monthly payment goes to interest, not principal (the first year in my condo I paid over $15000, but only accrued $1000 in equity). If you're in a high enough tax bracket (like many owners of rental properties are), then the $10000 tax write-off saves you more than the $1500-$2000 you paid out of pocket.

The reason is you property 'loses money', then it lowers your taxable income (so maybe the owners taxable income was $80,000, but afterwards, it is $70,000). If you can drop a tax bracket, you can literally save hundreds, if not thousands of dollars. Of course, the more properties you own the harder it is.

I know some rental owners who actually do renovations on their properties to create a rental loss.

The problem comes when you sell them off. Then capital gains bites you in the ass big time...

[raydan]

andyt andyt:

Many homeowners are just lucky the economy is doing so poorly. If it ever takes off, and interest rates rise, there will be some wailing and gnashing of teeth.

I was working in a bank in late 70s... been there, seen that.