Toronto Real Estate and Neighbourhoods Blog | Move Smartly

The Toronto Real Estate Board reported 10,995 sales in June 2009, a 27% increase over the same month in the previous year and the highest June sales on record.

Toronto’s real estate market continues to suffer from an extreme shortage of homes for sale. The following chart shows that the volume of homes available for sale has been on the decline since March (purple line).

There were 30% fewer homes available for sale in June 2009 compared to the same month in the previous year. But while inventory continues to slide, sales have been on the rise.

The combination of the 27% increase in sales and the 30% decline in inventory means we are in the middle of a very unbalanced seller’s market.

We can see this imbalance by looking at the sales-to-inventory ratio for Toronto’s market. The sales-to-inventory ratio measures the balance between supply and demand. During a balanced market we would expect to see roughly 2 sales for every 10 homes available on the market or a sales-to-inventory ratio of 20% (Related: Lessons from Toronto’s Real Estate Crash ). Toronto’s sales-to-inventory ratio jumped to 59% in June 2009 moving us even further into Seller’s market territory.

A 59% sales-to-inventory ratio may not mean that much to the average home buyer, but it really is an alarming number. Consider this, June 2009’s sales-to-inventory figure is the highest we’ve seen in the past twenty years. This means that the imbalance between supply and demand – favouring sellers - was greater in June 2009 than any other month in the past twenty years, including Toronto’s real estate bubble in the late 1980’s.

An overheated real estate market is something we should be concerned about and will need to keep an eye on in the months ahead.

John Pasalis is the Broker owner of Realosophy Realty Inc in Toronto. Email John

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Straw homebuyer scheme is illegal

2009-07-06T08:18:00-04:00

Bob Aaron in Legal

Melanie came to her lawyer's office in tears. Two years earlier she had received $5,000 from a "friend" to allow her name to be used on the purchase of a property by someone who could not qualify for bank financing.

She signed some papers, which were not explained to her, and received $5,000 for an hour or two of her time. It was the easiest money she ever made.

She heard nothing more about the house until she was served with court papers demanding repayment of the mortgage. Her lawyer explained that the mortgage on the house she bought was tens of thousands of dollars in arrears, and she was personally responsible for the debt.

She stood to lose her own house and car, and her wages would most likely be garnisheed. She was facing personal bankruptcy.

Unfortunately, Melanie had fallen victim to the straw purchaser scam. It's become so common these days, that one Ontario title insurer last month announced that it would no longer insure transactions which match the profile of the scam.

Here's how it works. An individual with good credit is offered a sum of money – which can be as much as $10,000 – to go through the motions of buying a property. The individual lends his or her name and credit by acting as a dummy or "straw" buyer of a property for someone else. Typically, the scheme enables the "purchase" of a property by a third party, such as a tenant, who would not otherwise qualify for a mortgage.

An alternate purpose of the scam is to allow a defaulting owner to remain in the property. The previous mortgages, which are in default, are refinanced using the straw buyer, and the process cancels the inevitable eviction.

The new mortgage lender is not aware that the person signing for the mortgage is really fronting for someone else and has no intention of paying it back. Often the "borrower" has no idea what documents he or she is signing.

The straw buyer becomes the registered owner of the house. He or she makes no financial contribution to the purchase and has no intention of living there or managing it. Their only involvement is to apply for a mortgage loan and sign documents at closing as if he or she was the real buyer and never makes mortgage or tax payments.

If the house is rented, he or she never collects rent from the tenant.

The straw buyer may be a stranger to the third party, or there may be a prior relationship with him or her. If the tenant or "true owner" defaults on the mortgage, the straw buyer – the one with the previously good credit, like Melanie – is surprised to find himself or herself at the wrong end of a lawsuit for mortgage arrears and the lender's loss when the property is sold.

Mortgage fraud by straw buyers is being monitored by the Criminal Intelligence Service of Canada (CISC), an inter-agency organization that coordinates and shares information with member police forces.

According to a CISC report in 2007, the use of straw buyers is often linked to mortgage fraud and organized crime in Canada.

Some straw buyers are not innocent. A straw buyer, CISC says, "pretends to be a legitimate buyer for a property but in reality is in collusion with another criminally inclined individual to further a mortgage scam. The straw buyer often uses fake or stolen identification to prevent being traced."

Criminal groups, the report notes, often seek out vulnerable or criminally inclined individuals to use as straw buyers. The targets that are recruited or coerced are often newly arrived in the country.

The bottom line is that participating in a straw buyer scheme is illegal. It can result in personal bankruptcy and jail.

Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a board member of the Tarion Warranty Corp. Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law. His Title Page column appears Saturdays in The Toronto Star and weekly on Move Smartly. E-mail bob@aaron.ca

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Media Roundup July 3rd 2009

2009-07-03T07:31:19-04:00

Media Roundup

Real Estate News

10 of Toronto's best streets to live on (Toronto Star)

Investors more confident, poll suggests (CBC)

Real estate recovery expected to be tepid (Globe and Mail)

It's coming: HST may scuttle condo deals (Globe and Mail)

Residents still waiting for condo repair funds (Globe and Mail)

Bell 'frightened' real estate board, court hears (Toronto Star)

What you need to know about today's mortgages (Canada.com)

Variables and First-Time Homebuyers (Canadian Mortgage Trends)

Boring But Effective (Canadian Mortgage Trends)

Urban Planning and Neighbourhoods

On a once-forlorn stretch of the Danforth, a fledgling Little Ethiopia (National Post)

In the east end, a hot pocket (Globe and Mail)

The little hub that could (Eye Weekly)

Is a Condition on Financing or Inspection a Guaranteed Way to Get Out of Your Purchase Agreement?

2009-07-02T10:18:16-04:00

John Pasalis in Home Buying Tips

When buyers decide to make an offer to purchase a home their real estate agent typically includes two conditions in the agreement of purchase and sale. The condition on financing typically gives the buyer several days to arrange satisfactory financing for their purchase. The condition on an inspection gives the purchaser an opportunity to hire a home inspector to ensure there are no major problems with the house. If the purchaser is unable to arrange financing or is unsatisfied with the home inspector’s report they typically have the option to walk away from the deal.

Let’s take a look at a typical condition on a home inspection:

This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer's own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller not later than FIVE (5) banking days following acceptance of this offer that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction.

Many home buyers I talk to believe that conditions like the one above guarantee that they can get out of a purchase agreement if they change their mind about the home. Unfortunately, breaking an agreement isn’t always that easy.

Any time a buyer offers to purchase a home they need to include a good faith deposit with the offer which is typically between 3%-5% of the home’s purchase price. The Buyer’s deposit is usually held in trust in the listing brokerage’s real estate trust account. The above clause states clearly that if the Buyer walks away from the deal their deposit shall be returned to them in full without deduction.

What it doesn’t say is that in order for the brokerage to return the deposit they must receive written permission from the seller to release the funds being held in trust. It also doesn’t say that sellers have the right to refuse to release the deposit should they suspect that the buyer was not negotiating in good faith.

What do I mean by not negotiation in good faith? Suppose a home inspection report shows no material deficiencies with the property being purchased. If this is the only condition in the agreement, the buyer may have a hard time getting out of the deal on the basis of a poor home inspection. If the buyer tries, the seller could ask for a copy of the home inspection to see what deficiencies were noted in the report. If there were no material deficiencies the seller could not only withhold the deposit but could try to force the purchaser to honour their original agreement.

If the seller refuses to release the deposit the funds remain in the listing brokerage’s trust account until both parties agree to settle the dispute. If a settlement cannot be reached one party would need to sue the other to find out who is entitled to the funds held in trust.

Most sellers want to avoid confrontations and litigation which is why they often release a buyer’s deposit when the purchaser wants to walk away from a conditional deal. Other sellers are not as amicable.

Conditions in an agreement don’t guarantee that you can get out of the agreement easily. Conditions are designed to protect the buyer’s best interests, but this assumes that the buyer is negotiating in good faith.

Home buyers should be certain that they are happy with the home they plan on buying and are negotiating in good faith before making an offer to purchase a home.

John Pasalis is the Broker owner of Realosophy Realty Inc in Toronto. Email John

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Is green roof bylaw valid or a cash grab?

2009-06-29T09:17:22-04:00

Bob Aaron in Legal

Late last month, Toronto became the first city in North America to adopt a bylaw requiring the construction of green roofs on new developments. It comes into force Jan. 31, 2010.

A green roof is a system where a vegetated area becomes part of the building's roof. It includes plant life, a growing medium, a filter layer, a drainage layer, a root resistance layer and a waterproof membrane.

Under the new rules, a green roof will be required on all new buildings with more than 2,000 square metres of gross floor area. The area of the green roof will range from 20 per cent to 60 per cent of the roof, depending on the size of the development.

Green roofs have been used for years in Europe and the United States, but they are relatively new to Canada.

They are said to reduce stormwater runoff, energy consumption, the local ambient temperature and associated cooling costs. As well, they have been touted as beautifying the city, creating more green spaces and providing opportunities for food production.

Unfortunately, however, there are significant problems with the city's efforts to legislate environmental policy. From a legal point of view, it seems to me that Toronto is improperly using the City of Toronto Act to mandate building standards, a legislative area reserved exclusively to the provincial legislature. As such, it could well be exposed to a legal challenge.

The idea that the very shallow growing medium on green roofs can be used for food production may well be wishful thinking.

Fire is also an issue. According to a report last year in Property Week magazine, Swiss insurer Zurich, the third-largest insurer in the U.K., warned that green roofs could dry out and become flammable.

The City of Toronto is aware of the fire issue and is currently reviewing safety issues with Toronto Fire Services. A staff report last month noted that "there is no standard, establishing minimum requirements" with respect to fire safety.

Structural failure is another issue with green roofs. A presentation at the American Institute of Architects (AIA) convention in 2007 reported that in one U.S. case, a green roof failed and the water leakage caused significant structural damage.

The AIA presentation also forecast insurance claims and litigation resulting from failure to deliver promised energy savings, mould or other environmental hazards as a result of poor maintenance of the roof, or a roof collapse resulting from improper construction, maintenance or installation.

Wherever green roofs and green buildings are found, green building litigation is sure to follow. The United States has already seen its first green building-related litigation and its Canadian counterpart cannot be far off. An article in Green Real Estate Law Journal earlier this month predicted that "green building-related litigation will remain on the horizon for the near future."

Green roofs present serious issues for condominium corporations. Owners face significantly higher maintenance costs for green roofs to minimize the risk of fire and to ensure proper drainage.

The typical lifespan of roof membranes, with or without a green roof, is estimated at 25 years. When a membrane has to be replaced, condominium reserve funds will be hit with huge costs.

Locating a roof leak is challenging even where there is no green roof, but when the source of a leak is concealed by tons of vegetation and a growing medium, the costs can easily skyrocket.

I'm not sure that adequate study has been given to the green roof initiative in Toronto.

I also wonder why, if green roof technology is such a laudable goal, the City of Toronto stuck a "cash in lieu" provision in the bylaw, allowing builders to pay the city $200 per square metre instead of simply building the roof. Or is this just another city cash grab?

Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a board member of the Tarion Warranty Corp. Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law. His Title Page column appears Saturdays in The Toronto Star and weekly on Move Smartly. E-mail bob@aaron.ca

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Media Roundup June 26th 2009

2009-06-27T09:35:50-04:00

Media Roundup

Real Estate News

Is Canada's housing market tanking or taking off? (National Post)

Don’t believe the housing hype (Macleans)

Pace of decline slows (National Post)

‘Irresistible' rates drive Canada's recovery (Globe and Mail)

Denial of MLS data key to landmark suit (Toronto Star)

Realtor violated listings agency rules, board says (Toronto Star)

Economic News

OECD says 'worst scenario' averted (Globe and Mail)

They could be weeds (National Post)

Converging Storms (National Post)

Urban Planning and Neighbourhoods

Toronto council finds money to save streetcar deal (National Post)

Streetcar deal led by parade of fools (Toronto Star)

Huge British studio takes on management of Toronto's Filmport (CBC)

Chinese drywall creating crisis

2009-06-22T09:00:40-04:00

Bob Aaron in Legal

The issue of toxic Chinese drywall may well become the biggest environmental crisis to hit North American homeowners and builders in decades.

The defective Chinese drywall emits toxic hydrogen sulphide, sulphur dioxide and other gases. It is believed that humidity in the air causes the sulphur in the drywall to off-gas, or migrate into the indoor air. This creates a noxious odour, and can result in serious health conditions and illnesses, such as breathing problems, eye irritation, fatigue, dizziness, insomnia, sore throat, bloody nose, and headaches.

When the sulphide gas comes into contact with normal home humidity, it gives off a rotten egg smell, and begins to corrode any exposed copper or lead in the home. Affected homeowners have reported blackened and scorched wiring behind wall plugs and switch plates, and corroded evaporator coils on air conditioning units. Light bulbs and fixtures may also stop working.

Appliances and other electrical equipment may fail prematurely, and personal jewelery and silverware as well as the wiring in cable televisions and converters can turn black.

Hundreds of millions of sheets of the defective drywall were imported into the United States between 2001 and 2007. It has been reported in as many as 14 states, and may have been used in an estimated 100,000 renovated and newly-built homes, with up to 40,000 in Florida alone.

In addition, an estimated 929,000 square metres arrived in Canada through Vancouver in the same period.

Much of the product imported into Canada was used in the lower B.C. mainland, but some may have reached the Prairies and as far east as Toronto.

In addition to being used in new construction and renovations, a huge amount of the Chinese drywall was used to repair thousands of homes damaged by Hurricanes Katrina and Wilma in Louisiana, Mississippi, Florida, and Texas. Sadly, many will have to be rebuilt a second time.

One prevalent theory about the toxicity in the drywall is that it was manufactured in gypsum mines in China using fly ash, a by-product of coal-powered electrical generation. Coal fly ash can become airborne and emit toxic sulphur compounds.

(Coincidentally, defective fly ash was the critical ingredient in ready-mix concrete used in the crumbling foundations of hundreds of homes in Eastern Ontario. This resulted in 16 years of litigation, almost $20 million in damages and another $20 million in court costs.)

Several lawsuits and class actions, including one by a group of Florida homeowners, have been launched against German drywall company Knauf Gips KG, a Chinese subsidiary and a number of American home builders.

The Environmental Protection Agency, the federal Consumer Product Safety Commission and the Florida Department of Health in the United States are all investigating the extent of the problem.

In the United States House of Representatives, the Drywall Safety Act was introduced in April. Currently under study in a House committee, it would mandate a recall of drywall imported between 2004 and 2007.

Houses built or renovated with contaminated Chinese drywall cannot be repaired. The only possible fix for affected homes is to have the owners move out for several months, gut the house and rebuild the interior. Anything inside the house that may have been contaminated by the sulphur gases will also have to be destroyed and replaced.

Industry watchers have estimated that as few as three sheets of drywall in a house can be enough to contaminate it to the point of making it uninhabitable.

House insurance policies do not normally cover environmental issues, and there have been reports of some home insurers refusing to pay for replacement of drywall. In cases like these, homeowners could be facing financial ruin.

Thomas Martin, president of America's Watchdog, says the crisis is "the worst case of sick houses in U.S. history."

The full effect of the Chinese drywall crisis in Canada remains to be seen.

If you suspect you have this product in your home, consult an environmental engineer or qualified home inspector.

Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a board member of the Tarion Warranty Corp. Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law. His Title Page column appears Saturdays in The Toronto Star and weekly on Move Smartly. E-mail bob@aaron.ca

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Media Roundup June 19th, 2009

2009-06-19T10:10:30-04:00

Media Roundup

Real Estate News

Canadian home resale prices rise to record in May (Reuters)

Real estate recovering, economists say (Globe and Mail)

Housing prices recovering: CREA (Globe and Mail)

Worst of real estate slump in Canada is over (Property Wire)

Condo resales are on a roll (Globe and Mail)

Pre-Approvals: A Dying Breed? (Canadian Mortgage Trends)

CMHC’s 2009 Mortgage Consumer Survey (Canadian Mortgage Trends)

A huge gamble on Markham Asian mall (Toronto Star)

Economic News

Household debt emerges as greatest risk to Canada's financial system (Globe and Mail)

Royal Bank forecasts 2.4% contraction (CBC)

Urban Planning and Neighbourhoods

Putting the garden back in the Gardiner (Globe and Mail)

How to fight the development NIMBYs (Toronto Star)

New global ranking confirms Toronto's status as comfortable, not sexy (National Post)

Vision of a transformed Entertainment District (National Post)

What Yonge and Bloor could be (Toronto Star)

Toronto Real Estate Sales Up 19 Per Cent in the First Half of June

2009-06-17T10:41:00-04:00

John Pasalis in Toronto Real Estate News

From the Toronto Real Estate Board's Press Release:

Greater Toronto REALTORS® reported 5,185 transactions in the first half of June – an increase of 19 per cent compared to the same period last year.

"Households in the GTA have become more confident in purchasing a home over the past three months," said TREB President Maureen O’Neill. "Affordability, due in part to very low borrowing costs, has played a key role."

The average price for MLS® sales was $407,716, up by two per cent compared to last year. "Heightened interest in ownership housing this spring has solidified resale home prices," according to Jason Mercer, TREB's Senior Manager of Market Analysis. “The number of home buyers has been high relative to the number of listings, pushing the average price above last year's level.”

John Pasalis is the Broker owner of Realosophy Realty Inc in Toronto. Email John

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