Downsizing: Another Money Maker for Real Estate Agents

All this talk of downsizing (selling a house that seems too large for you to move into a smaller sized house) seems to be yet another great money-making idea for the Real Estate world. Will you be happier downsizing? Richer ?

Real estate agents are attempting to dislodge folks out of paid off houses. Folks do this so they can “capitalize on the value of the house” and have “more liquid assets”. Is this better than reverse mortgages ?

Front Door of My House
Is My Current House an Easy Sell? Nope, it is a “fixer upper’s dream”

The difference between your existing house and your new house seems to be obviously your “net gain”. What about other costs:

  1. The real estate fees for selling your house. Yes, you can try to sell that yourself, and save that money. Will you be able to sell to someone who doesn’t have their own agent? You can ask for a lower rate, remember that answer is always no, unless you ask.
  2. All of the associated costs to prepare your house to sell it, which can be a fair amount of cash as well. Some agents include that in their fees, but repairs could mean another big chunk of money. You can try to sell it as a Fixer Upper’s Dream, but that is going to knock the price down (a great deal).
  3. The cost of moving, given you are older, you are much less likely to find a bunch of friends who want to help you pack and move for Beer and Pizza, and the cost of a U-Haul Rental? Even if you promise not to move your rock collection.
  4. Land transfer taxes, no one likes talking about that one.
  5. Storage? I really hope not. Some folks might not do a “purge” of their stuff and then end up paying to store their valuables?

If your house is paid off, the question to think about at your new house is are the delta costs of your utilities at your current house and your new house going to be significant? Folks in Ottawa who live in Ottawa, that move to a more rural setting, find out that Hydro One charges in the country are actually much higher.

Is This Really For You ?

If you live in a 3000 square foot mansion, and are thinking about traveling a great deal, downsizing sounds like a better idea, but is it really going to save you money? If an agent calls you, maybe you can sit down and have them go through all of the costs?


Home Insurance Hidden Traps

A CBC story of a local woman, who was in Ottawa for Cancer treatment and got a rude surprise from her home insurance policy (when she got home), highlights the importance of reading your entire insurance policy and understanding all of the “ins and outs” of your policy.

The lady was in Ottawa for cancer treatment, and left a neighbor to check her mail. Unfortunately the neighbor never went into the house. Since the poor woman was undergoing cancer treatment, she was away from her home for more than three days, and unfortunately her furnace “scrammed” (i.e. turned off, to protect itself), the house froze, the pipes exploded and her insurance company is now saying, she is not covered. Sounds awful doesn’t it, but the same thing is true of your home policy as well, go read it and you will see that if you are away from your home for a period of 2 days or more (especially in the winter) if no one checks your house, any damage done to your home is your own responsibility.

Home Insurance
Home Insurance is Important, but if it doesn’t pay out, that is a bad thing

The CBC was also kind enough to post a good article 6 Big Home insurance Misconceptions, that is well worth reading, but I will paraphrase some of the areas they cover in their article.

Big Home Insurance Gotchas

  • Rare or exceptional things in your house are covered under your insurance. No, unless you have told your insurance company about art, jewelry, or other cool things, your fancy things may not be covered under your home insurance policy. If you tell them, they will most likely raise your rates, but at least you will be covered.
  • Sewer backups, floods, earthquakes and maybe even forest fires are covered. Maybe, but you had better see that they are explicitly mentioned in your policy (yes read your entire policy). If they are not mentioned, ask your insurance provider the exact question, to ensure you are in fact covered, or you may get a rude surprise. Basement sewer backups were covered, but not necessarily any more. Will the city pay? If they think it is their fault, maybe.
  • If you are not taking care of your house, and that neglect causes damage to your house (and it can be proven), you might end up paying for the damage yourself. Keep your property well maintained.
  • Did you upgrade your house? Did you finish the basement, and did you tell your insurer it is now “finished”? If you added a room, is your insurer aware of it? If the answer is “no”, do you think they will pay out? They might, but it is better to be clear with your insurer, than hope they do something out of the goodness of their hearts™.
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Conclusions ?

Also remember with home insurance, 3 Strikes and You are Out, so careful what you make a claim on (as well). Check with your insurer, and read your policy closely.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net


The Bank of Mom and Dad

Another interesting topic that came up at CPFC15 was the concern that First Home Purchasers. They are relying more and more on Parental help with the transaction (monetary help, as well as advisory help).

Bank of Dad
The Bank of Dad (Always Open)

I have spoken a few times about how both sets of parents helped my wife and I purchase our first home (leading to the Best Financial Advice Given, ever). I don’t think parents helping kids buy their first homes is a new thing. In our case my parents helped us to make sure that we didn’t have to pay CMHC Loan Insurance premiums. My wife’s parents helped with furniture purchases and repairs in our first home.

Is this a good or bad thing? As usual, it all depends on the situation.

This is mostly a good thing , if the parents can afford to help out their kids. However, if the parents have to borrow money to do this, it is a very bad idea. There are scenarios where this might not be the best idea:

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  • If the parents are loaning the entire down payment on the house for the children, this is a bad thing. I always espouse that with all things people are much more diligent and attentive to a debt if they have “skin in the game” (i.e. their own money is part of the purchase). It also might create a sense of entitlement in the children. The Kids assume their parents will continually bail them out in hard economic times.
  • The money loaned can simply allows the “kids” to become very house poor, and ties them down to a home that symbolizes being broke (to them).
  • If the money is loaned because “the kids” don’t have a very good credit rating, and can’t get a mortgage without a large down payment (or worse without a co-signer). Most times a bad credit-rating is earned, and maybe they really are a bad loan candidate ?

Families and money sometimes are a very bad mix, both parents and children should think carefully before there are large monetary transactions “between them”.


Home Insurance: Three Strikes and You Are Out

I had a great time at CPFC15 (in 2015). This is where a bunch of Personal Finance folk got together to discuss financial topics.

Estimated reading time: 3 minutes

Two of the speakers touched on points on Home Insurance that resonated with me:

  • Rob Carrick from the Globe stated that the Insurance Industry needs to be put under higher scrutiny for their practices.
  • Ellen Roseman spoke about folks that have had their home insurance cancelled (for many reasons)

With these two points in mind I will share with you an upsetting story that happened to my mother. The problem arose with her home insurance. She has since been able to get more “main stream” insurance, as this happened a few years back.

Home Insurance
Home Insurance are you really covered ? For How Long ?

My parents have lived at the same address for more than 50 years. Over that time they dutifully paid their home insurance premiums. There were a few small incidents in the house, but never any major claims until about 7 years ago. The water tank in the basement gave up the ghost in a spectacular way, and flooded the basement causing damage to the finished basement (dry wall, carpeting and clean up), so my parents made a claim due to this incident.

A week after the new tank was put in, it ruptured. My Mother called the insurance company about the incident, and it was cleaned up.

The last straw (for the insurance companies) happened on my birthday about 2 years ago, when the oil tank in the basement leaked. It was a significant spill, which caused a large claim. The cleanup was costly.

The next year my mother was told she was “uninsurable” due to these 3 incidents. Uninsurable by any main stream insurance company, as we found out after calling a few. This is someone who had paid their insurance rates, and had been a model customer, but thanks to these 3 incidents (which in my opinion is really only 2 incidents, as the second water tank giving way was a function of the first tank failure, but we were told that is not the case in the insurance industry), she was going to have to use “off market” home insurers.

Can I Get Insurance ?

In this world you can insure anything, and you can find folks who will insure anything, however, they do not do it for cheap. For the next 4 more years (at least) my Mother must use these “alternate insurers” to insure her home.

I tell this as a cautionary tale, be aware that your Home Insurance can be cancelled for many reasons and the “Three Strikes” rule is one of the ways this can happen.

Image courtesy of fantasista at FreeDigitalPhotos.net


The Electricity Quandary

The Electric Power Suppliers of North America (and Europe) are in an interesting quandary these days, in that they are trying to get consumers (and businesses) to limit their power usage, because the power grids may not be able to deal with the growing load being put on them.

In Ontario there is a program to get a new “Smart” Thermostat that claims it will lower your power costs, because it can lower your usage during peak hours, but those kind of “Smart” thermostats have been around a very long time (in fact there are now two new “Even Smarter” thermostats from Nest and from Honeywell, which allegedly “think” for you, and you can use from your “smart” phone).

The big difference with the Hydro One peaksaver PLUS® thermostat is the following interesting feature:

On hot summer days when electricity demand is highest, peaksaver PLUS® signals your thermostat to slightly reduce your central air conditioner's energy demand so that it safely uses less electricity.

So Hydro One now has the option to turn off your A/C, if there is a heavy load on the grid? I think this is actually a very good thing (since most of the time they are going to want to do this, I am going to be at work), and it will save consumers some money too (unless there is a charge to do this?).

There are even tweets outlining how to behave with your Air Conditioning:

This wasn't that long ago either
This wasn’t that long ago either

The whole electric power equation is an interesting miasma of many orthogonal goals, which are counter to each other:

  • Old power plants are thought to be very dirty and bad for the environment, so new energy sources are needed, but we seem to be jettisoning our old power sources faster than we are creating new power sources.
  • A reliable power source is never cheap (the word reliable always means more expensive) because there is a need for backups, and over arching control to deal with fluctuations in power.
  • Green power is new(er) and is less reliable (for now). If you count Hydro Electric power as Green then this argument is mute, but for some reason Hydro electric is not “Green”.
  • New Power sources are still being improved on (photo voltaic cells being an excellent example (i.e. Solar Power)).
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All of this to say here may be some of the reasons that your Electric bills are starting to go up a great deal. Keep this in mind this summer as the temperatures rise and the possibility for BlackOuts due to system overload become a possibility. Is it really 11 years since the black out of 2003 ?

What is the demand in Ontario right now? Click here and see the pretty demand graph we created today.


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