The next article in our series on buying and selling real estate is Alberta deals with depositis. The following information is generic in nature, and will not apply in all cases. As we’ve said before this is a simple guide to buying and selling real estate, not an exhaustive one. If you have any questions regarding deposits, or purchase contracts ask a professional who is qualified to answer your questions.
As we’ve already learned in this series, the Statute of Frauds requires that when it comes to buying or selling real property, everything must be in writing. What’s put in writing? A contract.
One of the basic elements that must exist in a contract is “consideration.” This means that each party to the contract must receive something of value. Consideration is what each party in a contract receives in exchange for its promise to act in a specified way. Typically when selling real property the seller receives money, and the buyer receives the title to the property.
My intention was not to get to "law-ish" here, but to talk about deposits. When a buyer makes an offer to a seller, the offer must be in writing, and should be accompanied by a deposit. The buyer may withhold the deposit until the offer is accepted, but it will typically be required within two business days of acceptance.
What is the deposit for?
The deposit can be as small or as large as the buyer and seller agree to, and there are different reasons either party may want to offer or accept different amounts of money. The deposit is typically viewed as security for the seller; once the offer is accepted and all conditions are removed (ie. the property is sold) the deposit and the contract are what ensures the property will change hands on possession day. If for some reason the buyer is unable to fulfill their part of the bargain, and purchase the property for any reason, they forfeit their deposit to the seller. The seller may then have grounds to pursue further legal action against the buyer (ie. sue them).
When is a deposit refunded, and when is it forfeited?
A deposit is refunded (or returned) to the buyer if the buyer and seller do not come to an agreement. If conditions are included in the purchase contract, and the conditions are not removed the deposit is refunded to the buyer. If the contract is agreed to, and all conditions are removed (the property is sold) and the buyer backs out, the deposit is forfeited, if the seller backs out the deposit is refunded. If a party backs out of the deal, the other party may have other legal recourse (ie speak to your lawyer about this!). Of course, all of this is spelled out in the contract and may vary depending on what the parties agree to.
What is the difference between an initial and an additional deposit?
In many purchase contracts, the buyer and seller will agree to an initial deposit, as well as an additional deposit. Typically the initial deposit accompanies the offer, or is delivered once the offer is accepted. If there is an additional deposit it is most often delivered if and when all the conditions are removed. Again, this is outlined in the contract so if you are uncertain about the timing of deposits, or have specific requirements for them be sure to ask.
How much are deposits?
The deposit can be as small or as large as the buyer and seller agree to. As a buyer, you may choose to offer a large deposit to make your offer more attractive, and potentially encourage the seller to make other concessions such as the purchase price or possession date. The size of the deposit may also be affected by the value of the property – more expensive properties may require a larger deposit.
What is the difference between a deposit and a down payment?
The deposit counts towards your down payment. If you were purchasing a $200,000 home, with 20% down, your total down payment would be $40,000. If you gave a $1000 initial deposit, and a $4000 additional deposit, you would owe the remaining $35,000 of your down payment at closing.
Who holds the deposits?
In most cases the seller’s brokerage holds the deposit in a trust account. There are strictly enforced rules regarding trust accounts in Alberta. On some occasions the deposit is held in a lawyer’s trust account. If you’re purchasing a home from a builder the deposit may be put into their general account and not "held" at all. If you’re purchasing a home privately the seller may want to hold the deposit (speak to your lawyer before you let that happen!!!). Some of these situations are safer than others, so if you’re making a deposit be sure to ask where the money will end up.
good to read this article
http://money.cnn.com/2008/01/16/real_estate/rents_flat/index.htm?cnn=yes
Good Luck
http://www.bobtruman.com/Edmonton_SFH_stats/page_1918017.html
Mid January stats are up for SFH.
Sales are tanking.
Median prices are down.
Average prices are down.
Sales on a half month basis are actually up. Median and average prices are down on homes and up on condos. Sounds like lower priced product is moving ( cheaper homes and condos which are cheaper than homes). This is great news for us who want to buy something. Sellers are coming back to earth and ready to negotiate! BTW, does anyone have any thoughts on looking for a good deal on say, a condo to rent out as an investment? Seems alot of folks want to rent these days so doesn’t it make sense to buy something that you can make some $ off of? Please post your opinions.
Smile everyone, prices are down a bit on R.E.!!!!
I have to agree the lower price stuff is probably moving. Unfortunately, the general consumer is not privy to that information. Looks like condo prices have rebounded. I sure was wrong that prices would rebound so quickly. As Mr. Intheflesh has pointed out SFH prices are down. I think looking at the stats from such a short period can be misleading. I wonder if the bears will post when the price is up. I betta they will climb back into their cave.
Yogi,
Please don’t disillusion yourself. You are not in some epic mythical battle between bulls and bears etc. We are all consumers at the end of the day. Hopefully we all have a shred of common sense and do what makes sense and feels right. And right now with the impending economic implosion, I believe the public is holding their collective breath and waiting….
Waiting to see what will happen and to what extent the economical downturn will have on their financial lives.
People watch the news, they read the headlines. Markets are plunginc. Oil companies like Suncor and Encana (for example)were taking losses on their stocks today.
We have oil, that was our defense to the economic downturn. But O/G companies are losing money. If they continue to lose money, job cuts will follow.
Anyone buying now to speculate is simply suicidal. Those buyers buying now are in the mindset that they require a house for a human necessity, shelter.
http://www.bobtruman.com/Edmonton_Condo_stats/page_1918040.html
If we look at the condo market in Edmonton. Things are not looking well. Granted, median and average prices are up a little bit from December but if you analyze other numbers and the overall atmosphere in the market, things are negative.
Furthermore, anyone who has taken any statistics class or even math for that matter will understand that without a large sample, size the average and median are affected. Though they are slightly up, the general health of the market seems down.
Inventory levels are already back to Dec 2007 levels, so the sales that have taken place have not even touched inventory levels. Sales list ratio is in the tank. The current lowest ratio since Dec 2006. Average Days on Market (DOM) longest in 2 years. The list goes on.
Once again, it’s not a bears vs bulls part 13.
It’s about what makes sense.
And buying R/E right now with a pending economical meltdown doesn’t make sense.
And people are just waiting on the sidelines and will continue to do so for now because everything is just too uncertain.
Remember those days when Alberta Advantage would post how positive and rosy Alberta’s future would be? And how we would never be affected by an economical downturn? I wonder how he/she thinks about the true reality that we live in today.
http://tinyurl.com/2tpbfy
Sector Glance: Canadian Oil Shares Fall
AP Digital – 01/16/2008 4:12 PM ET
Major Canadian oil companies faced a sell-off on Wednesday, after a Credit Suisse analyst suggested investors take a defensive stance due to the Canadian dollar’s strength and limited potential for earnings surprises. Credit Suisse’s Brian Dutton also downgraded Petro-Canada stock to “Neutral” from “Outperform,” due to his expectations of lower production and higher investment costs.
Dutton said several factors weighed on his outlook, including: the strength of the Canadian dollar and its negative impact on Canadian oil and gas prices; a proposal for higher government royalties in Alberta; expected higher operating costs; and ongoing uncertainty about labor availability and environmental regulation.
Dutton also said that consensus estimates for the group are too high. “Despite strong year-over-year momentum, we are forecasting financial results will, on average, be in line or modestly below current consensus,” he wrote.
Among stocks that fell:
Petro-Canada dropped $2.59, or 5 percent, to $49.19.
EnCana Corp. shed $2.35, or 3.6 percent, to $63.37.
Canadian Natural Resources Ltd. fell $2.60, or 3.8 percent, to $66.75.
Nexen Inc. fell $1.77, or 5.7 percent, to $29.04.
Talisman Energy Inc. fell 58 cents, or 3.2 percent, to $17.42.
Imperial Oil Ltd. fell $2.17, or 4.2 percent, to $49.57.
Suncor Energy Inc. fell $5.19, or 5.2 percent, to $94.22.
http://tinyurl.com/34tdu4
HL:Resource stock selloff sends TSX down;NY up amid mixed earnings@
AP Digital – 01/16/2008 2:39 PM ET
TORONTO
Steep slides in energy and mining stocks sent the Toronto stock market reeling for a second straight session Wednesday as investors worried about whether the U.S. is sliding into recession and what such a downturn would do to demand for Canadian exports. At mid-afternoon, Toronto’s S&P/TSX composite index tumbled 149.75 points to 13,167.03 after losing as much as 323 points.
“We know the stuff is bad, there is likely more to come and it ain’t going to be pretty _ it’s going to be ugly in fact,” said Adrian Mastracci, portfolio manager at KCM Wealth Management in Vancouver.
“So as investors, we can tell ourselves that and know that days like yesterday and today are going to be going on and that’s just going to be the normal life in this part of the cycle _ we’ve seen it before.”
The energy sector led the losses, falling almost three per cent as oil prices continued to register steep declines.
The February crude contract on the New York mercantile Exchange fell $1.32 to US$90.58 a barrel after the U.S. government said crude oil supplies jumped unexpectedly last week.
EnCana Corp. (TSX:ECA) fell $1.66 to $64.93.
The base metals sector moved down 2.5 per cent, sending sector heavyweight Teck Cominco Ltd. (TSX:TCK.B) down $1.39 to $32.29.
The gold sector was down 2.75 per cent as the February bullion contract in New York fell $20.60 to US$882. Goldcorp Inc. (TSX:G) dropped $1.32 to C$35.58.
The TSX Venture Exchange was down 59.73 points to 2,710.09.
The Canadian dollar was also a casualty of the volatility on equity markets, moving down 0.55 of a cent to 97.82 cents US as investors move to what they consider safer currencies, such as the Swiss franc.
New York indexes were more settled following steep losses Tuesday even as investors dealt with earnings disappointments from investment bank JPMorgan Chase and chip giant Intel.
The Dow Jones industrials rose 25.61 points to 12,526.72. The Nasdaq composite dipped 4.01 points to 2,413.58 while the S&P 500 index edged up 2.89 points to 1,383.84.
JPMorgan Chase & Co. shares moved up 7.1 per cent to US$41.95 even as it said Wednesday its fourth-quarter profit fell 34 per cent after its exposure to subprime mortgages _ though much smaller than at banking peers like Citigroup Inc. _ devalued its portfolio by US$1.3 billion.
It also boosted its provisions for loan losses by US$2.54 billion. That boost was higher than the $1.79 billion added during the third quarter and the $1.13 billion added in the fourth quarter a year ago.
The TSX financial sector was ahead 0.2 per cent flat after a report in the Globe and Mail that some of Canada’s big banks are contemplating holding their prime rates steady in the face of a rate cut by the Bank of Canada, since the global credit crunch has driven up the cost of borrowing.
The central bank is widely expected to cut its key interest rate by a quarter of a percentage point on Jan. 22.
Bank of Montreal (TSX:BMO) declined 62 cents to $55.17.
The tech sector mended early losses to move up 1.27 per cent. Intel Corp. posted a profit of $2.27 billion, or 38 cents per share, two cents lower than expected. Revenues also came in lower than expected and, worse, Intel said it expects first-quarter revenue to come in at the lower range of what analysts were expecting.
Intel shares dropped 12 per cent to US$19.99.
On the Toronto market, CGI Group (TSX:GIB.A) fell 23 cents to $10.21 while Nortel Networks (TSX:NT) ran ahead $1.02 to $13.63.
Investors are counting on the U.S. Federal Reserve for serious interest rate relief to cushion the drop in economic performance. But inflation data out Wednesday indicate the central bank could be prevented from aggressively cutting rates because of higher inflation.
Higher costs for energy and food last year pushed U.S. inflation up in 2007 by the largest amount in 17 years, even though prices generally remained tame outside those two areas.
Consumer prices rose by 4.1 per cent for all of 2007.
For December, the consumer price index rose by 0.3 per cent, compared with 0.8 per cent in November. And outside of food and energy, inflation rose a more moderate 0.2 per cent in December. This measure of core inflation rose by 2.4 per cent for all of 2007
In other corporate news, Tahera Diamond Corp. (TSX:TAH) shares fell 50 per cent to seven cents after it said it will file for bankruptcy-court protection under the Companies’ Creditors Arrangement Act, citing insufficient cash flow and the failure of an equity financing plan.
Tahera’s Jericho project achieved commercial production in 2006, representing Canada’s third diamond mine, and Nunavut’s first.
Shares in Quebecor World Inc. (TSX:IQW) plunged 48 per cent to 24.5 cents after it said it has missed the Tuesday deadline to come up with US$125 million in new financing, a clause set out in waivers from its banking syndicate.
Intheflesh said,
If we look at the condo market in Edmonton. Things are not looking well. Granted, median and average prices are up a little bit from December but if you analyze other numbers and the overall atmosphere in the market, things are negative.
Now I am not going to say that all is rosy in regards to Condos, bit the price on Condos are up over the last month and half. I agree this only is a trend, and it is naive to think everything is great. Besides sales being down, explain to me why things are so negative. I fail to understand your perspective. (and you don’t have to point out the weakening economy)
Also inventory has not reached December levels although they probably will at some time. Days on the market are high, and will this continue?
Yogi,
I completely fail to understand your point of view. Please elaborate.
“Now I am not going to say that all is rosy in regards to Condos, bit the price on Condos are up over the last month and half. I agree this only is a trend, and it is naive to think everything is great. Besides sales being down, explain to me why things are so negative. I fail to understand your perspective. (and you don’t have to point out the weakening economy)
Also inventory has not reached December levels although they probably will at some time. Days on the market are high, and will this continue?”
Lest I remind you that in your first post you mentioned that median and average prices were up. Then you said that it’s too early in the month to tell a trend. So you seem a little bit confused in your point of contention.
And you just asked besides sales being down why are things so negative?
Do I honestly need to answer this question?
The answers are so obivous as to why the market has turned negative.
Firstly, sales being down is a significant “red flag.” If there are no sales, overextended specualtors will have to slash prices to cut their losses and to unload properties. This will foster a downward pressure on prices.
With increased inventory levels, almost already replenished up inventory levels with Dec 2007 (http://www.bobtruman.com/Edmonton_Condo_stats/page_1918040.html), prices will have to be slashed EVEN MORE to trigger a sale.
It’s all simple supply-demand economics.
DOM have also increased over the year since the correction last summer as you can see in the stats. DOM will get higher as inventory levels get higher. Inventory levels will get higher due to decrease in demand/sales.
Low sales/demand + high inventory = Continued downward pressure on prices.
Remember the R/E market is not that elastic so price reductions won’t happen over night but will take months.
And you also mentioned not to point out the weakening economy. Why is that? Why shouldn’t someone be able to bring up what is really happening in our world today?
There is too much instability.
Consumer confidence is shattered.
“Sales on a half month basis are actually up.”
Car27,
I’m looking at numbers and tea leaves and I am not seeing the same thing? How are sales up?
Intheflesh, My contention is that many look at the stats and see them from one perspective. I guess we are all prone to personal bias. Many people point out that prices are down, but still an average house is still up over last year.
From my perspective if inventory continues to increase, and there are not the seasonal rush for house buying in the spring, then I see a point in being negative. It is January 17th, and people are reading a bit too much into the stats.
While the US real estate market slumps and corrects itself, look at some of these international investment opportunities. http://www.unifersal.com
Where is Alberta Advantages?!!
We need him/her help to get out of this situation.
car27, I am in the rental business (over 25 years). Unless you are very careful and prepared to spend some time and effort learning the business, I would not recommend buying and renting a property. There are a multitude of horror stories out there.
In today’s Calgary Herald you read:
According to Calgary Real Estate Board,
SFD prices will inch up to $495,800 and Condo $335,300 in 2008.
And usually the trend is the same in Edmonton.
I’d be very surprised, if our prices would go down in the same time.
I think a good barometer of the sales report is the price per sq. ft – it is down but only slightly from last month. But is it not usually expected that prices decrese slighly in the winter months and rise in the spring and summer?
My $.02 only, but I think it is a little too early to be a bunch of chicken littles running around saying that the sky is falling.
Things that we should watch for are how the major banks react to any lowering of BOC rates – if the banks rates remain the same – there is cause for some concern as now there is a significant tightening of the lending dollars (or banks are looking to recoup their losses from the previous summer/fall)
I just heard that the only major Canadian bank, that is not effected by the US subprime at all is the Toronto Dominion.
U.S. housing condition:
“For the year, housing starts fell 25 percent to 1.35 million. That decline represents the biggest drop since the recession year of 1980 and the third largest drop since the Census Bureau started tracking this activity in 1959.”
http://money.cnn.com/2008/01/17/news/economy/housingstarts/?postversion=2008011709
This seems to indicate a bit more than just mild recession in the works.
More lessons from U.S:
“Real estate agents warn that some high-income borrowers have already been forced to sell or leave their homes and more will follow. Especially those who used their homes as ATMs, withdrawing cash via home equity loans.”
http://www.reuters.com/article/domesticNews/idUSN1530426720080117
Hey Bearclaw, sales are up in the first half of the month from the month before because half of Dec sales or double Jan sales are more than Dec total. Month isn’t over yet so we will have to see for sure. Now Intheflesh, thanks for the boring novels. Also you said the oil companies are losing money???? What kind of junk economics are you using to come up with that? Does this mean if you make record profits in 06, then only make 90% as much the next year you are losing 10%? Get real, The oil companies make billions when oil was at $30/barrel so don’t even try that B.S. about oil companies losing money. Stock prices are down cause all the energy speculators are cutting and running. I wish I could lose like that. I’d be a trillionaire!!!!!
For all you Naysayers:
Edmonton Journal Jan. 17 – Saskatchewan’s success story has yet to overshadow Alberta’s
“With about $237 billion worth of major capital projects planned or underway in Alberta — more than 60 per cent of which is slated for the oilsands or the Edmonton region — Alberta is riding a massive wave of capital investment.
Saskatchewan hasn’t attracted anywhere near that amount of capital, and B.C., despite the building boom associated with the 2010 Winter Olympics and the Pacific Gateway Project, has barely half that amount in the pipeline.
Alberta is also benefiting from high oil prices. Although prices have backed off since hitting the $100 US a barrel mark in early January, most forecasters still expect average prices this year and beyond to remain high in historic terms.
That, in turn, should underpin continued growth in investment and jobs in Alberta’s oilsands. Saskatchewan’s untapped oilsands deposits may one day attract similar investment, but that day isn’t here yet.
Growth rates aside, there’s another key point to remember, and it’s this: Alberta’s economy remains the 800-pound guerilla of Western Canada. At some $290 billion, Alberta’s GDP — gross domestic product — is almost 15 per cent larger than that of B.C. and Saskatchewan combined.
So when housing starts in Saskatchewan’s two major cities soar by 60 per cent — as they did in 2007 — it’s from a tiny base. Even with a slowdown, Alberta’s housing starts will top those in Saskatchewan by six or seven to one in 2008.
Indeed, although home builders in Edmonton plan to curtail new construction in the first half of 2008, some are already worrying that they won’t be able to meet new demand by this fall, when inventories are likely to be depleted.
In short, rumours of Alberta’s economic demise are greatly exaggerated.”
RB,
You should be buying up all of the canadian oil sands funds.
Good discount right now.
Wow, if some optimistic writer from the Edmonton Journal says inventory will be down by fall, then I better run out and buy a house before prices go up! I`m sure the Journal`s crystal ball is much better than the one I have.
Nate,
I think energy stocks are a great buy for the long term, similar to real estate investment in Alberta. Canada accounts for 13 per cent of the world’s total oil reserves and are second only to Saudi Arabia as having the biggest oil reserves by nation. Although natural gas is currently in a slump, prices will begin climbing by 2009 as North American consumption outpaces supply.
I have been reading this blog for some time without making comment. I have to admit that I posted the article from the Journal to get the reaction from the Naysayers. As I predicted, the reaction I received from Johnny was what I had expected. Every time there is negative news reported, people like Johnny are quick to post the link and state that “the sky is falling”, however when there is positive information or statistics in regards to real estate and/or the economy in general, the Naysayers like Johnny are silent and/or try to discredit the information. It is hilarious!
Constructive debate is a good thing but many of these pessimists are posting their doomsday predictions without any means of substantiating their claims. You have to wonder why anyone would be so eager to see the real estate market fall. They obviously do not own real estate. Which brings me to my next point, why are those people that do not currently own real estate, so interested in wasting everyone’s time placing their ridiculous predictions on a realtor’s web site. I believe the Bubble Blog would be more appropriate for you.
In closing, I do not put much value on information in the media, good or bad. When it comes to real estate investing, I base my decisions on the fundamentals of the economy. Alberta has one of the strongest economies in the world and therefore, is an excellent location for real estate investment.
car27 is correct.
Much of what the mass media puts out is hogwash, and that includes all the analyst ratings. It’s fodder to feed the mis-informed masses.
Canadian Oil corporations ( not Gas, but Oil ) are making a killing in profits. The new Royalty scheme doesn’t effect them one bit.
The reason oil corp. stocks corrected today is because speculators are taking profits in crude futures. Crude is going back below $75 per barrel. Which means that smart money ( those who actually know what’s really going on) is also taking profits in the underlying stocks. Stock prices will further correct to reflect the impending correction in crude prices. It has absolutely nothing to do with any royalty scheme, or environmental issues, or anything else whatsoever. It’s purely profit taking in a over-heated, over-extended, speculative market ( A similar statement can be made for Alberta real estate )
Ever read of a bank analyst putting out a sell recommendation? Look for it when the big banks are ready to begin buying from you.
“Heminger said he does not believe the oil industry has a firm grasp of how much demand could fall for gasoline and other petroleum products if a severe economic slowdown came amid high oil prices.”
http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=c8465d10-1ca5-4bc1-ad6c-71a0d422dbe3
“”There’s never been a real estate deflation that has failed to end badly for consumer credit, the economy and the equity market,” he said. “Real estate deflations are typically destabilizing because it is the backbone of the household balance sheet and the cornerstone collateral for the financial system. You’re not talking about something that is 5% or 6% of GDP which is the home building component. You’re talking about US$23-trillion on the consumer balance sheet backed up by tens of trillion of dollars in mortgage debt. There’s simply nothing on the planet that is as big as that.””
http://www.financialpost.com/story.html?id=244756
Nate,
I actually do own real estate, I have sold off 2 of my rentals in the last few months but still own my primary residence (which I am considering selling too). I am not an eternal pessimist, I am just realistic about this market. I read this blog because I enjoy the articles, and the weekly stats have helped me with pricing the properties I have sold.
I find it odd that people keep citing the economy, employment, and oil and gas when all they have to do is look at the inventory numbers. All prices are controlled completely by supply and demand and the current numbers tell me that we still have quite a bit of correcting to do before prices level off. When inventory hits about 4000-4500 I’ll jump back into this market.
“NAR’s analysis of housing and economic indicators provides real estate professionals with tools to interpret the market and apply that knowledge to their business.”
http://www.realtor.org/research.nsf/pages/EcoIndicator
BAD,
You’re starting to look like some sort of search spider. You’re just plugging every website or news clip with a shred of bearish real estate news without contributing anything relevant yourself.
Johnny,
It was RB, not myself that made the statement about you owning real estate.