6 real estate trends

The trends shaping this year's cottage market and the next

By Jay TeitelJay Teitel

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3. Banks acting as partners, buyers paying in cash

Possibly to emphasize their difference from the American banking system when it comes to mortgage practices, over the past few years most Canadian banks have adopted the Beacon Score, a stringent measure of credit-worthiness designed by Equifax, a credit-rating agency. The score had been used primarily by private businesses for consumer credit checks. Given the economic climate today, using the score to assess mortgage eligibility was undoubtedly a good move, but lately in cottage country there’s evidence that the banks’ zealousness at protecting their investment—they’re acting more like a parent or a partner than a lending institution—has made buying a cottage more challenging. “The banks are really nitpicking about buying cottages now,” says Chris Winney, from her Land O’ Lakes location. “We had two deals go south last year because the access road to the cottages involved was only seasonal. Of course, the residents could get together and pay to plow the road but, no, the 
bank wanted to know that it was maintained year-round by the township, which no township can afford to do. The banks seem to want to ensure that purchases are more like homes, that they have hydro, septic, a year-round water source, or 
a heated line. And this is with people who are putting down $75,000 or $80,000— a huge down payment—on a $270,000 cottage.” Tanya Lemcke noticed a similar trend in the Rideau Lakes region in the last six months of 2010. The banks sent an appraiser to every one of the 10 properties she closed in August and September. A year earlier, she says, “not a single appraiser would have been sent.”

The result of this scrutiny is another trend that’s been noticed across the province: Buyers have started paying the full purchase amount, in cash. Don Evans, a sales representative with Royal LePage–Lakes of Muskoka Realty in Port Carling, says he doesn’t see much mortgage financing being done on recreational properties these days. “People are paying cash, with cash balances they have in reserve, or by cashing in investments, or possibly by refinancing their principal residences.”

“I sold a $300,000 cottage to a couple from the Beaches in Toronto, whose home had been appraised at nearly a million dollars,” says Chris Winney. “They simply wrote a cheque on their line of credit.”

The cash craze has also hit La Belle Province, but with a twist. Stephen Lynott, at Century 21 Macintyre in Chelsea, Que., in the Gatineau cottage region just north of Ottawa, says half the buyers he sells cottages to pay cash in the end—although not everyone will admit they’re planning to do it. Quebec law, taking Canadian financial prudence even a step further, requires any cash offer to be accompanied by proof of the cash’s existence, whether it’s in a bank account or an escrow account. Buyers leery of letting prying eyes see into their private resources resort to cute little ploys to avoid divulging. “Recently I sold a beautiful old cottage to a buyer who showed me mortgage papers first,” says Lynott, “and then, at closing, suddenly pulled out 
a pen and wrote a cheque for the whole amount.”

Oh, and that 1,200-sq.-ft. cottage in the Gatineau? $240,000.

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