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Following my last post about relieving sellers from title stress, I figured I should touch on title insurance for buyers. I do really just mean touch on, because this is actually more of a legal matter. I’ll briefly present both sides, but I recommend consulting a lawyer for your specific situation.

 

Title insurance is controversial in the sense that many believe it is an unnecessary expense, but corporate media likes to focus on negative circumstances, so the idea of real estate fraud is very real in the minds of  buyers (and sellers). Generalizing the situation, on one side there are the media and insurance companies playing the fear factor, while on the other many lawyers and agents downplay the issue at hand.

 

As a REALTOR®, I should stress that title insurance is out of our forte. Your REALTOR® should always refer you to several title companies as well as lawyers. We can, however, inform you about what each side is saying. The fact is, title insurance has not had a traditionally strong market in British Columbia because the province has incorporated what is called the Torrens land title system, which has built in solid title protection via the Land Title Office. Since this protection has worked so well, title insurance in our province is quite limited, especially if compared to some other provinces and the United States. In fact, title insurance is so limited that it has led many to believe it is completely unnecessary and is just an insurance company cash grab.

 

However, there has been, in fact, a rise in title fraud, and this is where the insurance companies hope to fill the gap (some lending institutions actually require title insurance, especially in lieu of a land survey – which is generally more expensive). While coverage differs, most title insurance policies cover unknown title defects such as conflicting ownership in land or mortgage(s), non-compliance with restrictive covenants, easement or right-of-way tensions, survey and public record errors, losses due to lack of building permits on renovated spaces (made by others), existing liens, forgery, and fraudulent or invalid mortgages. Considering the negative, albeit still very rare, possibilities and the quite reasonable rates, title insurance is not so easily written off as unnecessary. The link to the Vancouver Sun I provided above just shows one example that title fraud is real and, if recommended by your lawyer, could be worth purchasing.

 

Keep in mind that title insurance will rarely cover known title defects, native land claims, environmental hazards, or other issues that were known via the Property Disclosure Statement and/or building inspection at the time of purchase.

 

So do your research, and have your REALTOR® refer a few lawyers and/or title insurance companies to you before you buy.

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REALTORS® make a living by getting your house sold. But first we got to get it listed. So somehow we gain enough trust to have you invite us in, take measurements, do a proper market evaluation and present you our marketing process. After some humming and hawing, usually over the price, you decide to list your home. The REALTOR® likely had you sign the “Working With a REALTOR®” document upon starting his or her spiel, now gets you to sign the FINTRAC documentation, and finally, the Multiple Listing Contract.

 

Maybe you might go over the Property Disclosure Statement, or maybe you might wait for tomorrow and do that while the REALTOR® fills out the MLS Data Input form. Everyone has their own way of doing things. The point is, rarely will an agent go over the process of clearing title in these first few days. Usually, this is something that comes up once an offer is received or once an offer is accepted.

 

Once an offer is accepted, you now have to make sure you are able to clear title. Maybe you’ve done your homework, maybe you haven’t. But it is advantageous to get your ducks in a row so you aren’t caught with the surprises that can cause a deal to fall apart.

 

Clearing title involves removing charges, usually the mortgage(s) against the home. There are other issues that can come up, such as unsatisfied liens or easement conflicts (definitely worth checking beforehand!). While most sellers have a good idea of what is left on their mortgage, there are more surprises than just that exact figure – be sure to review the terms of the mortgage and get a WRITTEN confirmation of the outstanding amount as well as any penalties for early pay-out.

 

Another reason to discuss title issues prior to accepting an offer - one that might resonate better for most – is for positioning yourself for the best negotiation possible. Being informed about the most accurate dollar you can accept can be the difference between a collapse and a sale. Don’t you think there is just that much more benefit to knowing how much you can accept and how much money you’ll have for your next home, prior to negotiations? Don’t wait until there is an offer on the table to stress out about it.

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The fancy term is fiduciary duty.

 

Fiduciary: adj in law – involving trust, especially with regard to the relationship between a trustee and a beneficiary.

 

When you become a client of a real estate agent, usually (but not necessarily) through a formalized agreement such as a Multiple Listing Contract or an Exclusive Buyer’s Contract, that agent is bound by law some specific duties that have nothing directly to do with their job of marketing your home. They are purposely broad and all-encompassing for your protection.

 

Before you enter into any sort of contract with a REALTOR®, he or she is obligated to tell you what I am write below. In fact, in BC, they must get you to sign a little document call “Working With a REALTOR®” – don’t worry, this isn’t a contract, it just signals to the Board that the REALTOR® has in fact explained their fiduciary duties issues of privacy, and the different types of agency. Don’t sign it unless they have. A lazy real estate agent isn’t going to help you, nor does it help the industry.

 

So what do we, as REALTORS®, owe you, the client?

 

1) Loyalty. This crucial duty obligates the agent to act solely in the best interests of their client at all times, even above their own and their brokerage. One of the reasons we have so many rules when buying/seller our own properties is because of the advantages we may have above the public. We cannot buy your property after telling you it is worth less than it is, turn around and sell it for a profit. While obviously unethical, your agent look after their own interests before your own – more than an “oopsy”. Additionally, this duty also requires us to disclose all known relevant and material information pertaining to our agency (other party’s bargaining position, etc.)

 

2) Obedience. An agent must promptly, efficiently, and competently obey all LAWFUL instructions of their client (no, I’m not going to take out competing bidders by force). If your agent does not obey a lawful instruction, they are in breach of their fiduciary duty.

 

3) Confidentiality. We must keep it secret. Keep it safe. Your confidential information that is. While you hire us to scream from your rooftop that your home is for sale and is the best deal around, we must keep any information that could weaken your bargaining position. For sellers, this means we won’t tell people what your bottom dollar is or that you must be out by a certain date or anything along those lines. Likewise, a buyer’s agent cannot disclose the buyer’s willingness to pay above asking price or anything along those lines. However, listing agents must disclose material defects, as the duty of confidentially cannot conflict with the law.

 

4) Competency. The courts see real estate professionals as exactly that, professionals. Our clients can expect that we act accordingly. We are licensed by means of coursework, exams, initial training, professional development and we owe a standard care of duty of a “competent real estate professional”. Remember, we are real estate professionals, not lawyers, accountants, plumbers, or any other professional or trade. Our duty owed is that within the confines of the real estate profession.

 

5) Accountability. We deal with money. Not just money, but YOUR money. Any money that comes into our hands must be accounted for and held in the maximum security. The same goes for your documents. Don’t let your agent leave their briefcase around after you just signed a contract. If they need to use el banjo, that document better be in safekeeping first.

 

Class Dismissed.

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Buyer agency is one the first topics I want to write about because it is one of the most important aspects of real estate that probably confuses the public the most – and who can blame them, we’ve changed the rules around and the industry keeps evolving. The last ten years have seen incredible changes that continue to protect the clients and at least attempt to make the process fair to all parties. Yes, there are still issues, but *THEY* are working on it. It’s the PR that is probably lacking the most.


I’m not going to get into the traditional model of sub-agency because, well, it’s obsolete and we no longer work in it. The only thing I will say about sub-agency is that is was changed because it didn't offer a whole lot of protection for the buyer – the agent that brought in the buyer was still technically working for the seller. Because of this model, we still have people driving by, calling up the listing agent to take a look at the house, assuming that this is best way to do things. Now don’t get me wrong, this is a great way to shop for a REALTOR® or to window shop, but you aren’t doing yourself a lot of good if this is the home you want to buy.

 

The “listing agent” works for the seller of the property. He or she owes that seller the fiduciary duties of confidentiality, obedience, loyalty, full disclosure, accountability, and competence. As a buyer, some of these fiduciary duties of the listing agent will work against you. Whatever you say to that agent, he or she is obligated to tell their client (hmm… how much you’re willing to spend, when you need to move, etc.). Think about how that might work against you in negotiations!


Keep in mind that if you use this listing agent as your agent on that property, you are entering into a Limited Dual Agency agreement (should the seller agree), in which that agent receives the entire commission amount (less the brokerage fees). While the agent must explain this to you, you must understand that there are really no advantages for you to do this, except the time you save in finding an agent to represent you. Follow the money. Even if the agent says "I can get you a deal if you let me double end", it is very unlikely that the agent will be able to a) act in an ethical manner and b) actually get you the best deal possible.


But let’s say you have a REALTOR® you would like to work with. In British Columbia, he/she probably works with Macdonald Realty ;) . What does having a buyers agent on your side get you?


For one, remember that list of fiduciary duties? Well those. I’ll explain those in greater detail elsewhere (your REALTOR® is obligated to explain these to you). But additionally, you also have the benefits of having someone doing your homework for you, scheduling showings in an efficient manner, pointing out deficiencies that should be further investigated by a home inspector, recommending trusted trades, negotiating the best possible price and terms of the purchase and making sure that everything agreed upon is actually in the contract in a rock solid fashion (good agents take development courses on this, and BC REALTORS® have access to one of the best contract instructors in the country!).


And how much does this representation cost you? Well, often nothing – other than ongoing solicitation from that agent ;) . It is common for a seller to write in the Multiple Listing Contract with their agent that they promise to compensate the buyer’s agent for their services. This is usually close to half of the sellers’ agent’s commissions and will usually cover your [negotiated] agreement with your REALTOR®.


So if you want to buy, what do you do? Find a buyer’s agent. Sign that Exclusive Buyer’s Agreement and let your REALTOR® go to work for you. And always remember, no matter what you have heard or read, your REALTOR® has a legal obligation to keep your interests above even his or her own.

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