What is Title insurance?  What is an RPR? Why do I need a real property report? 

Today we dive into the topic and discuss these terms and reasons why title insurance may be offered instead of an RPR, how this can benefit a seller and what it means to a buyer.

What is a Real Property Report and why is it necessary?

If I am a buyer looking to buy a property, Ideally, I will want to see an up-to-date Real Property Report with compliance (I will answer what compliance means below) as it will help me to know what I am buying.

It is a diagram of the lot/real estate and all fixed structures on that lot, as well as showing the measurements of the house, shed, deck, and all developments on the property.  

The Real Property Report shows what is built on a lot, which can help to let me know if there are any problems with a neighbour's development like a fence, shed or driveway going onto my property.

The buyer is going to want to walk the property (or they can have someone else do this) and make sure that everything you see is on the real property report correctly.

What does a “RPR with compliance" mean?

As the RPR shows what is added to the property, with compliance means that the city has stamped it to say that it complies/is valid. It also shows what has been added to the property.  If the city finds that there is a deck, for example, that was built without permits then it will let you know and the buyer would generally expect the seller to handle this situation before the buyer buys, or the buyer may decide to buy with that knowledge but want a lower price, etc.

Marc mentions that currently it costs $140 for the city to review and stamp the RPR to then make it an RPR with compliance.

Building development code and bylaws are also looked at by the city. For example, if the shed was built too close to the neighbour's property, or the deck is too big, then the city will notify you of that as well.

What happens if there are issues with the Real Property Report?

In some cases, the whole deck or shed should be taken down. In other cases, the city might give a variance, meaning that they will accept that it is slightly off what it should be.

Problems can happen for the seller because let's say that the buyer loved the deck and now, they don't want to buy the property, or let's say there is a tight timeline, and the buyer will now not have a place to live because of the issue and the time it will take to resolve.

There are many scenarios related to this that could pause the purchasing process.

If the city is going to give a variance approved, how long does this take?

It may take a few months (or possibly shorter if you are lucky) to get it permitted with the variance allowance.

Why is an RPR important to the Seller?

It is important that the property is saleable.  When a Seller says that the property is being sold "As-Is" for example, that usually makes the buyers nervous. In return the listing price should be a good one, and often the buyers will want to submit lower offers as they see this as higher risk.

What does it cost to get a Real Property Report done?

Between $550 and $800

Can a old Real Property Report be used?

Yes. The date of the Real Property Report is not important. If nothing on it is outdated and it shows the existing developments on the property, it is still valid and can be stamped/verified with the city.

If the Real Property Report shows a utility right of way on it, is that a problem?

No, that just means that the utility (water, gas, electricity) has that right of way access and it cannot be blocked.  I assume almost all people would want that service to their home and having that right of way on the RPR is completely normal.

What is Title insurance? Why would a Seller pay for Title Insurance instead of offering the buyer a Real Property Report with compliance?

Title Insurance is insurance that the seller may offer to pay which insures the buyer in the case that the buyer has a problem with something related to what the Real Property Report would cover, surprises, and also covers for the rare case that there is Title fraud.

Reasons I have found seller's wanting to offer title insurance instead could be:

• They don't want to pay the higher cost. Title insurance usually costs a few hundred which is less than what an RPR costs.

• They don't have the time to wait for the RPR. Often it can take two to three weeks to get one completed. Sometimes it can be quicker if necessary or also could be longer. 

• The property is too far out of the city, and they cannot find a surveying company to come out.

• Another reason is because the seller knows that there is something wrong with the property and they hope that the title insurance would wash their hands of it. If they mention a related issue to their Real estate agent, it would be the Real estate agents duty to let them know that they should disclose the issue.

If the seller knows something is wrong and they offer title insurance are they then safe?

The answer is usually no, but it depends on what the issue is. The title insurance does not cover changes, for example missing permits for a shed or deck, that are known.  Like almost all insurance coverage, it only covers unknown issues.

If however the Seller explains the situation to the insurance company and they include it and cover it, then it would then be covered.  That would really be case-by-case on what the insurance would agree to cover.

Real estate agents should make sure their seller understands that it is important to disclose known related issues.  When in doubt, it is better to disclose and explain issues to the buyer before any offer is accepted or it could become a legal battle! 

What does Title Insurance cover?

Title insurance policies do not cover things like damage or fire, etc. They would cover losses that would come up for defects in the title, that would show on a Real Property Report. It would cover the cost to the owner (buyer) to make that property comply with the existing bylaws.  For example, in the case of a deck that is oversized, one option would be to request a variance from the city. They may not accept decks like that one as a rule but in the circumstance, they may allow it. Or the owner would need to correct the deck (in this case) and make it comply. If there were costs, then the title insurance would cover those costs.

Title insurance also covers the rare case of title fraud.  Like if a fraudster makes fake id and sells your home fraudulently, then the title insurance would cover the correction of the title as well. 

Please visit the following page to get Mark's details (Be sure to tell him that you found him through Derek's video)  https://dkeet.ca/guest-speakers.html

If you are looking to buy a property in Edmonton, Sherwood Park, or need advice on the current market contact Derek!

Derek is licensed for residential, commercial, and rural real estate, plus has many years of personal and business experience to be able to understand your needs.

If you are interested in buying or investing in Edmonton or the surrounding areas, click here to set up your own detailed search: https://dkeet.ca/map-search.html

Click here for more information on Derek Keet: https://dkeet.ca/about.html

Not using a bank for financing - Alternative Lending

At first, I thought alternative lending was only for desperate people, like people who the bank won’t give money to. It is also for that, but now I understand more why it can be a great tool used by other people as well.

Financing

Financing can be scary. When it comes to financing, I have been super critical of people who take out loans for things that generally do not go up in value. For example, it bugs me to see signs for low or no interest on jewelry, maybe even more than seeing car ads that don’t even tell you the actual price and just the financing.

Other than feeling that those companies know the average person has no self-control, or worst think we are stupid, I think that if someone cannot afford something, they shouldn’t buy it.

Real estate is different. Maybe it is because in my life, over time, the prices have continued to go up. Condo prices in Edmonton are an exception at the time of writing this, but real estate is known as an investment and financing is a tool.

For example, if you buy a million-dollar property with 5% down (humour me), and it doubles in value, that is 20x the 5% you put in. If you bought the property in cash, you would just double it.

20X your investment sounds better than just doubling it.

The other point is that most people would buy very little if it meant trying to save a million dollars before you could do anything. This just an example and I used numbers that would make sense. Please do not tell your mortgage broker that Derek said you can get a mortgage on a million-dollar property with $50,000 as that probably won’t work for higher priced homes.

Obviously, I am talking more about leverage here, and starting to get off the topic. The point is generally smart/rich people finance real estate. It isn’t because they are poor or cannot possibly buy it without a loan. So, understanding the options, especially if you are a business owner, is important.

Alternative Lending - How does it work?

I’ll get into why it is an option for business owners a little later.

The other day I had a buyer that couldn’t get conventional lending (the bank said no). So, what else could he do to make this investment and buy the property he wants? Questions start to pop up; What are the fees? Interest rate? Minimum down payment? How is this going to kill me, right?

Feesfor Alternative Lending

Generally, a 1% fee needs to be paid when you use an alternative lender.

Rates for Alternative Lending

Since the video above was made, the rates have already lowered so check with your mortgage broker as rates will change, but Phil mentions 0.4 or 0.5 difference on the rate side. This seems low to me, but also welcomed news. I assume this is best case scenario and will depend on the case.

I do know lenders that lend personally and currently make 10% interest so alternative lending can also get more expensive on the rate side but in the best cases it may just be a little higher.

How much down for Alternative Lending?

Phil mentions 35 to 40% down. The point is that if you have enough cash but simply don’t show enough income, and the property clearly shows its value then alternative lenders will probably be comfortable lending. I think this is connected to the rates as well. If you are putting a lower amount down then, you would be higher risk, so rate they would be willing to give may be higher.

Why Alternative Lending works for Business Owners

In many cases alternative lending for business owners makes sense.

As a business owner you try to pay yourself as low of a salary as you can to avoid paying taxes. I heard someone say, that business owners usually don’t have a problem with paying their share of taxes, but they just don’t want to give a tip.

They will often structure their businesses, so they pay themselves in other ways. Generally, the NOA for business owners (notice of assessment from the government) is not going to be high. The bank seems to give money to massive companies but when it comes to the average business owner, getting a bank loan with a NOA, that shows a small income, is difficult.

The banks want to see a high income on your NOA and often cannot see past that requirement. Alternative lenders are usually able to look at the situation more and understand that the business owner could be paying themselves much more but, understandably, want to avoid paying higher taxes.

So, what do you do? Do you raise your salary or income so that your NOA looks better and you look much better in the eyes of the traditional banks? Or, with alternative lending you may pay a higher interest rate, and higher fees, but how much more money will you be paying than if you paid taxes on extra salary, you paid yourself to look good for the banks?

Do the calculation and your situation. For example, if you are paying yourself $60,000 instead of $120,000 per year, you may be saving you $30,000 in taxes, while the fees and extra interest you may be a much lower amount. In the end it is about making money. If there is a hot lady (or guy) at the bank that you want to impress, then spend the money on making your income look better on paper, but I think you will find when you do the calculations that alternative lending can put more money in your pocket as a business owner. If you need to increase your income and pay the extra taxes to get a mortgage with an A lender, it may not be worth it.

Please visit the following page to get Phil's details (Be sure to tell him that you found him through Derek's video)  https://dkeet.ca/guest-speakers.html

If you are looking to buy a property in Edmonton, Sherwood Park, or need advice on the current market contact Derek!

Derek is licensed for residential, commercial, and rural real estate, plus has many years of personal and business experience to be able to understand your needs.

If you are interested in buying or investing in Edmonton or the surrounding areas, click here to set up your own detailed search: https://dkeet.ca/map-search.html

Click here for more information on Derek Keet: https://dkeet.ca/about.html