December 1993
the CEN-TA PEDE
david ingram's US/Canadian Newsletter
THANKS! for good 1993 Memories
Thanks to Catherine Ackroyd and the staff of Rogers Cablevision in Surrey for their help and support in producing our phone in BORDER FACTS television program (live every month with a fifth Thursday). (Live at 9 PM next on Thursday, March 31, 94.)
And to David Berner, Gary Bannerman, Rafe Mair and Bill Good (in no particular order), for their wonderful interviews on CKNW on the same topic.
Also to Bill Williams at 1040 AM for his excellent interview. Bill's brand new "MONEY" program is at 10 AM on Saturday Mornings at 1040 on your AM dial. You can listen in right after Michael Campbell on CKNW, Saturday Mornings at 9 AM (CKNW is 980 AM).
Articles in the Vancouver Sun and Province, Globe & Mail and BC Report to name only a few also contributed to a good Year for the CEN-TA GROUP. The BORDER BOOK, INVESTMENT GUIDE, and ULTIMATE TAX BOOK are all officially "SOLD OUT" with new editions to come.
BC MEDICAL PLAN PROBLEMS
This CEN-TAPEDE edition was to deal with the question of the BC MEDICAL SERVICES PLAN and residing in Point Roberts or Bellingham or Ferndale while continuing to work and play in Canada. Unfortunately, I do not have good news for persons in this situation.
In the first two weeks of December, 1993, we had three families turned down for Medical coverage and the BC Government is now asking for repayment of all medical payments made on their behalf for as far back as 1983. In addition, they will be asked to repay any hospitalization paid on their behalf from 90 days after their move to the US even though they continue to work in Canada and pay full Income Tax, CPP and UIC to Canada.
I have seen BC Medical and Hospitalization ask for repayments of over $80,000.
Therefore, if you know of anyone in this position, get them to clean up the problem by getting US medical coverage. In the meantime, we have taken the matter to the OMBUDSMAN's office and hope to see a special consideration given to people in this situation.
REAL ESTATE MARKET NEWS
Just about a year ago, I predicted on BCTV News HOUR and in the Vancouver Sun and by Newsletter, that the British Columbia Real Estate Market would take a nose dive of 20 to 30% and I made the prediction that I thought it would happen around the end of April.
Three things happened to slow that prediction down.
1. The Federal Government extended the using of up to $20,000 of RRSP money for a tax deferred down payment allowing the 1995 and 1996 buyers to buy a year or two earlier.
2. The Boris Yeltsin / Bill Clinton Summit took place in Vancouver and Vancouver and BC received some $100,000,000 of free publicity about the beauty of the city and province.
3. Ontario and Alberta cracked down on welfare recipients, sending many to the open arms of British Columbia. 20,000 of these low end renters have arrived here this year and eaten up all the empty rooms and small suites, forcing others up a level in the ladder.
By the end of April, 93, the numbers of sales were down 30% but the prices were still holding although there were cracks in the armour.
For instance, one house in Courtenay was listed on March 29th for $350,000 and the listing agent assures me that was a good listing price, he had not "bought" the listing. The sellers were motivated. They had moved to California and needed the money to repurchase.
On April 16th, they received an offer for $302,000. On the Agent's advice (he was charged with getting them the best price remember), they countered to $308,000 and the purchaser walked.
The house sat from April to August 17th without an offer. On August 17, the sellers lowered the listing price to $299,000. On Sept 16th, they received an offer of $277,000 and, again on the advice of their agent, countered to $282,000. The buyers walked.
They have now sold the house for $280,000 but there is a catch. The other offers were all cash. The new offer is $35,000 down and the seller has to carry the balance for some time. If the buyer sees the value go down another $50,000 (as I think will happen), the seller may end up with their house back. The real sale price of this house because of the financing is likely about $260,000.
I have other similar stories in North Vancouver, Port Moody, and Maple Ridge.
Why has the market stopped?
There are no more "FIRST TIME BUYERS". We used them up.
When I first wrote my prediction last December, the 5% down for Government guarantees was already in place and when the "up to $20,000" out of an RRSP was added to the equation, all the first time buyers from 93, 94, 95 and likely 96 were sucked into the market early and caught up in a $1.49 day frenzy which was further fueled by the low interest rates.
Some say 4, some say 5, some say 8 x's as many people bought using the combination of 5% down and money out of their RRSP as was expected. They were all the first time buyers who suddenly did not have to save an extra 5% and who did not have to pay tax when they took their $11,345.00 ($0.00 to $20,000 EACH) out of their RRSP. They bought 1, 2, 3 or 4 years earlier than if they had to save for another two or three years for a 10% down payment.
What did they buy?
Many bought apartments, many bought townhouses and some bought houses. What is interesting is that most seem to have bought from investors and there was no ripple effect. So instead of John and Mary buying an apartment from Ralph, who now had to move and he bought a townhouse from Helen and David, who now had to move and bought a new house from a builder or from Gary and Diane who bought a bigger house from a builder, etc., the buck stopped with the purchase from the investor, who looked at the market, decided he or she couldn't make any money at these prices and took his or her money to Arizona or put it into Mutual Funds.
The slow real estate market has been blamed on: Back to School; The Federal Election; The Municipal Elections; and The Xmas Season. But none of these are to blame. The cold hard fact is that we have used up four years of buyers in one and a half years.
At the same time, we have a monstrous over supply coming on stream. There are some 11,000 apartments built or being built in the next few months. Buildings like 1000 Beach are still sitting with 50 unsold $350,000 units and unsold $5,000,000 Penthouse after a couple of years. The Province's Ashley Ford mentioned another Cambie Street Building with no offers on 50 units for sale for 120 days even though some of the units are for sale for less than they were bought for in 1990. Talisman Towers in North Vancouver had a 1 bedroom price fall $18,000 in the last three months.
So protect yourself. Watch out for second mortgages on "low down" deals. Do not get caught with two properties when you can only afford one. Don't make an offer without good solid escape clauses until you are sure of your financing or you will be paying $20,000 bonuses to XXXXXXX Acceptance to tide you over.
NEW REALTOR RULES IN HANEY / MAPLE RIDGE / PITT MEADOWS
As mentioned in the Courtenay story above, the Realtor in BC and most of Canada is generally working for the VENDOR / Seller of the property. The Realtor has been charged with getting the highest price for the property for the seller.
On the other hand, in different surveys, up to 85% of the purchasers dealing with "their Realtor" when the Realtor was not the listing agent, thought the Realtor was working for them (the buyer).
The United States has been quite different. For instance, in California, whole brokerages are either "Buyer-Brokers" or "Seller-Brokers". They cannot deal with both sides of the deal and collect both halves of the commission.
Many states now have a "disclosure statement" which deals with the relationship of the Realtor to the buyer or the seller. CEN-TA REALTY has had such a document for some time now (copied and rewritten from Nevada, California, and Hawaii disclosure statements), and I am pleased to say that the Vancouver Real Estate Board is presently conducting a test market in the Haney / Maple Ridge Area.
In Maple Ridge (and no where else officially in BC), the real estate agent is now presumed to be working for the buyer unless there is a written contract which states otherwise. Personally, I like my own contract better than that issued by the Vancouver Real Estate Board and am enclosing a copy with this Newsletter. However, in Maple Ridge, prospective buyers should expect to be handed a disclosure statement and should read that statement.
Sellers are being asked to sign a "dual agency agreement" allowing a Realtor to collect both sides of a commission. If the seller does not sign that agreement, then the salesperson only gets the listing or selling portion he or she is earning at the time.
THRESHOLD rights do not exist in Haney / Maple Ridge for this test period. THRESHOLD rights worked this way in BC (but do not exist in most of North America). If a salesperson was holding an open house and a prospective buyer came through the house by themselves and the agent holding the open showed (introduced) the house to the prospective purchaser, that Realtor was considered to "own" the rights to the selling commission. Therefore, if the prospective purchaser went back to another agent and said they wanted to make an offer on the house that they had seen, the agent who wrote up the offer would not get paid because of the "THRESHOLD" rights of the first Realtor.
Those THRESHOLD rights are now cancelled in Maple Ridge and "WILL BE CANCELLED" throughout BC by January 1, 1995 (by order of CREA). In the meantime, they are creating a certain amount of animosity in Haney / Maple Ridge as agents from outside the area are perceived to be taking advantage of the situation in Haney / Maple Ridge by sending their clients over to look and see and then writing up the offer.
The problem actually occurs when the purchaser does not tell the open house agent that they have a Realtor. If they say that they are dealing with "so and so", the Realtor can accept it easily. When they do not indicate it, and the open house Realtor spends a lot of time with the prospective purchaser, it hurts when the deal is now taken away.
However, even though the THRESHOLD rights are abolished automatically, if the open house Realtor has spent considerable time with the purchaser, they can still get their commission through arbitration.
I think that "BUYER BROKER" is a better system.
For instance, I may be perfectly happy to list my house with George. But when George comes back two days later with an offer from his own brother, or friend or from another broker in George's office, I might want to see someone else involved. Just like I may not want the same lawyer representing both me and my spouse in a divorce. It is called Conflict of Interest - either real - or perceived.
LAST NOTE about the $70,000 Earned Income Exemption
US Tax preparers have still not picked up on the retroactivity of the $70,000 1.911-7(a)(2)(i)(D)(1) or 1.911-7(a)(2)(i)(D)(2) extensions to 1987, 88, 89 and 90 returns.
Remember that the US government extended this section back one extra year last April. This meant that one could exclude up to US $70,000 of earned income per year for 1991 and 1992. On June 30th, they increased this back to 1987.
I have just finished a return for a White Rock couple where their CPA/CA practitioner did not claim the exemptions and left them with about a $5,000 US tax bill. After I was finished, there was a small refund.
For more detailed information, reread the November, 1993 CEN-TAPEDE. If you do not have one, let us know and we will get a copy out to you (preferably by fax).
Yours truly
the CEN-TA GROUP
david ingram
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