This is where your finance takes place

I must say that when I sold my first house, the very first feeling I had was anger, then it was relief and finally it was joy. Selling your property should be an interesting experience where you can hope making money out of it. In my case, it was a total nightmare. There are many reasons why I still wake up in the middle of the night thinking I’m still living there (not really!), but one of them was an obvious mistake; hiring a real estate agent.

 

First of all, I must admit that the choice of hiring a real estate agent was definitely my mistake and no one else is accountable for it. However, I though that a realtors could sell my property faster to a better price. I was not quite right. Instead of talking about my personal situation, I decided to post my personal conclusion.

 

Who are they working for?

Canadian studies shows that Real Estate Agents are leaving their own property on the market 10 days more on average than when they are selling yours. Why? Because they are trying to get the best price on the market. On the other hand, the commission they earn by selling your house is not affected by the sale price. As an example, if they sell a property for $265,000 at a commission rate of 5%, they will earn a gross income of $13,250. If they make you accept the first offer that come at $250,000, they will make $12,500 so only $750 less. Chances are that they can sell your property much faster at 250K. Why would they bother sticking to 265K? That is a good question you should ask him.

 

Putting your property on the market

Most individuals find their property they want to buy through the internet. This proportion is around 85% according to the most recent data on the subject. People are now looking at hundreds of houses on their desktop while listening to their favourite music and enjoying a nice coffee. When they find a property they would like to visit, they give a call to the agent and schedule an appointment. Is this difficult to be a secretary that they could earn 10K + on your house?

 

Have you ever try to put something for sale on the web? This is so easy that a five years old kid can do it. Not only that, but you now benefit from online assistance, a call centre and sometimes, the website will send a professional photographer to take pictures of your house. All you need is a bit of cleaning and write a 10 lines description. I’m sure everybody can do that for 10K! Depending on the websites you are using, you may end up paying $50 to $600 for six months add. Forget about newspaper and other Medias. Internet will just do fine.

 

Legal aspects of your transaction

Another “service” Real Estate Agents provides is to make sure that you protected when you are signing legal documents. The purchase or the sale of a property has nothing complex. To my opinion, the complexity of the transaction is due to the addition of a third party (the agents) and nothing else. If you are not sure about the correct wording to be used, you can download purchase and sale agreements on the government’s website. Those are pretty easy to use and they are legal.

 

So I’m asking the question again, with all the new resources available and the upcoming of Internet, are Real Estate Agents still Useful?

First things first, I would like to express my surprise this morning when I saw that my blog was mentioned on Mr. Larry MacDonald’s blog. Mr. MacDonald is a former economist and a well respected investment writer. He reviewed some of my fellow bloggers such as Ellen Roseman, Financial Jungle and Four Pillars. Hopefully he will have to review and comments my blog one day. Just to say, internet is a beautifull way of communication as you can get in touch with people you wouldn’t imagine!

As financialjungle.com is concerned about housing market in Vancouver, I can’t say the same for Montreal. Our economy growth is way much weaker than our Western fellows but the housing market doesn’t seem to slow down. Here’s what’s happening in my part of the country.

 

In July 2005, we just had our first son, William. We were living in a nice 5 ½ in Montreal. However, with William in our lives, we were experiencing a lack of space. As we were already saving for a while, we decided it was time for us to move on and buy our first property. Let me tell you, any house is a paradise when you are moving out of an apartment. We rapidly fell in love, made an offer and move couple of months after. My first house! Finally! On top of that, we were paying a cheap price for a brand new cottage. I was ecstatic!

 

Unfortunately, my moments of joy didn’t last long. I realized after 6 months that it was too small for us if we wanted a second child. It was a cottage with 2 rooms on the second level. I could not have move a young kid in the basement; neither could I move my bedroom nor leave two little babies upstairs. Only six month after we bought, spring season came along with a “For Sale” sign was in front my house.

 

We also realized that a 2 bedrooms cottage is hard to sell and we didn make that great of a deal when we purchased our first home. We had over 25 visits. They were all saying it was beautiful and that they liked everything about the house… beside the fact that it has only 2 bedrooms. In the end, we had to sell with a real estate agent and dropped the price so we lost about 5K in the sale. It was definitely not the cleverest move I made but I was fed-up with my tiny winy house and wanted to move along.

 

In the meantime, house market kept on going up and most properties I wanted to buy were not affordable. We finally decided to buy a much bigger house fully equipped in a very nice area. The price was high, too high for us but I decided to make the move anyway thinking I would make more money over time.

 

Lucky me, my plan worked perfectly. In fact, it worked even better than what was originally planned. Paying the house down is not as big as a burden as I thought. In fact, I’m now doing a Smith Manoeuvre and I’m able to shot $600 a month in it. But my biggest surprise came from the housing market. I recently watched a few properties for sale in the same area and the prices are still going up. After only six months, my house probably worth 25K more. That is a 10% increase in a very short period of time. No wonder why the previous seller didn’t want to decrease their asking price.

 

In the end, I realized that sometimes you will take a step back to jump further after. I might have lost 5K with my first property but I’m building equity much faster with my second house as the demand for cottages is increasing on Montreal’s south shore. The housing market is still good across Canada for now and I would suggest to some people to refinance their mortgage and use this money to create assets or to invest through a Smith Manoeuvre. With interest rate rising up, you won’t have this kind of opportunity for a while.