realestate-lindsay.com

Everyone wants a sweet deal. And if I could head up all my ads with the words Power of Sale or Fixer-Upper my phone would ring off the hook. But contrary to what most people think, a listing being sold under power of sale does not necessarily guarantee you a bargain. The web is full of sites flaunting power of sales, it’s like people are being potty-trained to believe in give away prices. Many of these advertisements come out of the U. S. and are not pertinent to here in Canada. Canada’s laws are much stricter when it comes to the power of sale procedure.

I have found most Buyers to have unrealistic expectations about the eventual sale price of a power of sale. Another overlooked issue for Buyers is the exposure to risk such a purchase represents. I’m not saying some of these properties can’t represent a sweet deal, just not always. I have even seen power of sales that have sold for more than what I thought was market value just because the Buyers perceived them to be a deal.

With a normal real estate sale it’s the owner of the property who sells to a Buyer. In a sale by power of sale it is not the owner who is selling the property but rather the lender. This is how the lender remedies a default on payments of the mortgage by the homeowner. This legal right to sell by the lender to try to recover losses using the power of sale clause contained in the mortgage is subject to very strict rules. The lender can only retrieve what is entitled and if there is a surplus, then the owner will benefit.

Definition of Power of Sale: A clause commonly inserted into a mortgage and deed of trust that grants the creditor or trustee the right and authority, upon default in the payment of debt, to advertise and sell the property through any means at it’s disposal, usually through MLS in Ontario or at public auction, without resorting to a court for authorization to do so.

The lender has an obligation to sell the property for the fair market value. So if the owner can prove the lender sold the property for less than the value of the property the owner may sue the lender. This is why lenders are cautious when selling power of sales.

What are some of the downsides to buying power of sales you need to be aware of? The Seller will for instance give no warranties with respect to the state of the property or even the ownership of any chattels on the property; No assurances that the appliances work or that the property contains any hazardous conditions. The reality is that your buying a property “as is”, and the Seller will have certain schedules to be attached to the offer to handle the many complexities. So potential Buyers need to be aware of specific exclusions of fixtures, possible rights of redemption of the registered owner, GST, lack of warranties and other legal matters. There can also be deterioration of the subject property from the time it takes to bring it to the market such as water damage, vandalism, etc.

I showed a lovely large and stately home a few weeks ago and noticed most of the light fixtures were missing. Now to replace these fixtures and do the home justice it will cost thousands of dollars.

If you are a savvy Buyer and do your homework you can sometimes find a sweet deal but from my experience, a lot of the time the price is not that different from what it would be if the owner was selling the property.

When buying a power of sale, I would recommend that you make offers conditional upon a Lawyers approval and find an experience Realtor.

I had an offer on a Power of Sale here in Lindsay a few weeks ago. The property had been on the market less than a month. A few hours after I registered my offer, and wouldn’t you know it, a second offer is registered by another Broker. Both offers are presented to the Seller (a bank in this case) and it ends up my offer gets signed back to the Buyers for more money. My Buyers were not prepared to pay the price on the counter offer from the bank and they decided to counter again with a bit more money and quicker closing date. The other Broker’s Buyers had the opportunity to re submit another offer as well, and so the did. Turns out neither offer was accepted. The Seller decided the property had not been on the market long enough to warrant a lower price. You see the lender can’t just dump this property for reasons I mentioned above. The lender has had appraisals and these are used as guidelines for price. That doesn’t mean the appraisals are always correct though. Obviously these two Buyers thought otherwise, or perhaps they had unrealistic expectations going in. Sometimes a lot has to do with timing. It is also possible that a power of sale can be priced too high.

If the property has not sold in the next month the Seller will reduce it. Will these Buyers still be around if the property is still on the market? Will it be reduced enough to meet their desired price? Could the market fall further and these Buyers offer less than they had originally offered? Only the market knows. One thing for sure…. it’s an interesting business!

I will be keeping a list of Power of Sales in the Kawarthas area if anyone is interested. I noticed two on the hot sheet this week. You can contact me at www.realestate-lindsay.com and I will send you the list.

Well I’m off to get a listing,

Cheers,

Tom

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