The Real Estate market is hot, especially in the west end of Metropolitan Ottawa. I am told that there is ample demand for housing but little supply. We all know what that means, a Vendor’s market! Along with this type of market, comes some potential time related problems for Consumers. Do not let time constraint upset precautionary habits, it could spell disaster.

Rob has put in a conditional offer on a home in Kanata. He had gone shopping with a Real Estate Agent, to find this property. He and his wife both fell in love with the place at first sight. They have a house to sell, also in Kanata. Their present home has some $60,000 worth of equity (the difference between the value of the house and the mortgage against it). They both have solid jobs, and impeccable credit ratings. The Real Estate Agent submitted Rob’s offer on the new place, making the offer conditional upon selling their present home. The offer was accepted by the Vendor with the caveat that the Vendor could still offer the house for sale, and if the Vendor received a reasonable offer from somebody else, without conditions, then Rob would only have 48 hours to decide to waive his condition on selling his present house, and make his offer firm (without conditions). The day may come when Rob & his wife will have to decide whether they want to buy this home without knowing that their present house is sold. The closing date on the new acquisition is June 30, 2000. Rob went to his bank to get a pre-approval, telling the loans officer about his intentions of waiving the clause that made his offer conditional (ie. having to sell his house). The Lender gave Rob the pre-approval he was looking for, but made it conditional upon the sale of the existing home. Although Rob has an approval, it is not worth much, since it also is conditional! I asked Rob to go back into his bank and attempt to get the condition of sale removed. The lender would not! Their loans officer was quite right in calculating that Rob and his wife did not qualify to keep their present mortgage and buy the new house. It was important for Rob to keep dealing with his present lender because he still has a sizeable mortgage at a very low rate that is portable to the new property. I could not better the deal he already had so I suggested that his present lender was probably the best bet. Now that the situation has changed somewhat, in as much as his Bank can’t do the deal, I suggested to him that waiving the sale condition was dangerous to him. He reiterated that he and his wife really do want this house. The market is indeed hot in his neighbourhood, but buying a newer house without selling the old house can be an expensive proposition. If his house does sell, prior to closing, then everything he wants will be attainable. He can get a great rate by taking his present mortgage and increasing it suit his needs.

If his house does not sell, he will have to carry both houses. I told Rob that even if the debt servicing was too high (the system will only allow 40% of gross income to service all debt), at 75% to 80% financing, I could get him a mortgage anyway. I also told him that I could mortgage the equity in his present house to allow for the remainder of the down payment. He can get away with 100% financing because he has two separate properties. The amount that cannot be financed in the new home, can be drawn from the old house. I also told him that the pricing would be high because of the debt servicing numbers. He agreed with me that this was a foolish chance to take, and assured me that before he waived his "conditional on sale" clause, he would think long and hard.