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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

September 9, 2018 | Realtors Behaving Badly

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

You’d think he would know better.

After all, Bruce Chin has an MBA. That takes some work, and involves the study of business ethics. He worked (briefly) as a stock/portfolio analyst in the financial industry which is massively regulated. One lesson everybody learns by rote: ‘past performance is no guarantee of future returns.’

Any advisor will attest. A Bay Street or Main Street financial guy who tells a client a future capital gains are a sure thing or makes a statement like, “I believe you can double your money”, will have a regulator up his wazoo. All investing has risk. Anyone promoting an asset must spell out both benefits and potential downsides. It’s what concepts like standard deviation are all about. This is the religion of The Street.

But Bruce left the church. In 2008 he became a licensed real estate agent. “Bruce has since developed a passion for the industry,” his self-penned bio reads, “and earnestly believes that with the right information, investing in real estate can be a solid investment strategy long term.”

In yet another indictment of an industry which sells emotion, greed and avarice, plus taking full advantage of uninformed, unsophisticated investors, Mr. Chin this last week sent out an email blast for a condo development about to be built in a dead bread factory on a dodgy street.

“As my clients know,” he writes, “I have been selling and advocating for pre-con in Leslieville hard since 2014 and I’ve personally bought into pre-construction condos at Riverside Square and 875 Queen Street. Both buildings are being built now with individual units up $200,000+ from purchase.

“I expect the same from this project,” he states flatly, “as it exhibits all the attributes of a good project…. I believe you can double your money with the capital appreciation when it is built.”

By the way, this ‘hard loft condo’ conversion is being marketed now, yet occupancy won’t happen until at least 2023, making it a serious futures play. A 600-square foot one bedder starts at $576,000 and an 800-foot unit you can actually rotate a feline in costs $702,000. Add $50,000 for parking and $5,000 for a unit, plus an average of $500 for condo fees (which normally rise substantially years after conversion).

Is this a good deal? Will investors double their money in five years, as bullish Bruce asserts?

Beats me. Beats you. Beats Bruce. But we do know if he were still a stockbroker plucking clients by promising 200% gains – selling them a thousand dollars’ worth of Tesla (not a $700,000 unbuilt box) – he’d be toast. No wonder he prefers real estate.

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When a woman named Marlene sold her Toronto-area home for $900,000 the deal fell apart after the buyer said he lacked the money to close. So she gave him a two-month extension. To no avail. No closing occurred, the buyer lost the deposit, she listed again in a falling market and eventually found a buyer for $699,800. So, yes, this is another example of real estate’s steady melt within Canada’s biggest market.

But the story made the media for another reason. Both sides of the original deal were handled by a HomeLife franchise office, and even though it never closed, the brokerage billed her for commission of $45,765. She balked and the invoiced amount was reduced to $25,000, so the realtor could sue her in Small Claims Court.

How could this be? Commission for a sale that did not occur on funds which never changed hands?

Simple. By agreeing to an extension Marlene altered the terms of the original contract, opening herself up to action because her listing agreement stated she was liable to pay commission, “upon acceptance of a satisfactory offer, even if the deal doesn’t close.” The realtor in question claims that Marlene’s action in altering the contractual agreement (by allowing an extension) prevented what might have been a satisfactory offer from being consummated. So, bingo, she pays.

There are lessons here, beyond not dealing with a scuzzy brokerage: (a) it’s a bad idea of work with a realtor who’s double-ending the transaction, as Marlene was. The conflict of interest is extreme. Always get your own guy to represent you. (b) Read the damn agreement. If you’re not competent to do so, have your lawyer eye it. If you dislike anything in the listing document, change it and initial.

Finally, this brings us to BRAs. Never sign a blank Buyer Representation Agreement, no matter what your agent says. Let’s summarize again the three ways that BRAs can bite you (I need to repeat this here every year or two…)

First, you (the buyer) could be liable for the entire commission on the purchase of a home if the vendor decides not to pay, if there is a dispute over the amount, or full payment is not made at the time of closing for whatever reason.

Here’s what the BRA says: “The buyer agrees to pay directly to the Brokerage any deficiency between this amount and the amount, if any, to be paid to the Brokerage by a listing brokerage or by the seller. The buyer understands that if the Brokerage is not to be paid any commission by a listing brokerage or by the seller, the Buyer will pay the Brokerage the full amount of commission indicated.”

Second, you (the buyer) could be nailed for commission if you end up buying (or even renting) any property whatsoever if you don’t do it through the guy who made you sign the BRA. Even if you do it months after the agreement expires. Even if another agent shows you that property.

Here’s what the BRA says: “The buyer agrees to pay the Brokerage such commission if the buyer enters into an agreement within 90 days after the expiration of this agreement (Holdover Period) to purchase or lease any property shown or introduced to the Buyer from any source whatsoever during the term of this Agreement, provided, however, that if the Buyer enters into a new buyer representation agreement with another registered real estate brokerage after the expiration of this Agreement, the Buyer’s liability to pay commission to the Brokerage shall be reduced by the amount paid to the other brokerage under the new agreement.”

Third, if you (the buyer) enter into an agreement to buy a house, then get cold feet and back out, or decide you can’t actually afford it, or face certain death from your spouse if you complete the deal, you’re screwed. Now your agent can sue you (along with the seller) since the agreement makes you liable to pay the commission as if the closing had taken place.

Here’s what the BRA says: “The Buyer agrees to pay such commission as described above even if a transaction contemplated by an agreement to purchase or lease agreed to or accepted by the Buyer or anyone on the Buyer’s behalf is not completed, if such non-completion is owing or attributable to the Buyers default or neglect.”

Yes, you should have a trusted agent assisting you in any purchase. But if you sign a BRA, you are the greater fool.

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September 9th, 2018

Posted In: The Greater Fool

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