Helping your clients manage risk in Calgary’s new housing market
Jun 24th, 2021 | By FCT
After six years of a buyer’s market, Calgary has seen a stampede of real estate action in 2021. Helping your clients adjust to what, for many of them, are totally new market conditions takes patience, tact and know-how. What are your options when it comes to protecting clients from the risks of a heated market and having to close faster in Alberta? The choice is surprisingly clear.
What happened to real estate in Calgary?
For years, excess supply has defined Calgary’s housing market, with the Canadian Mortgage and Housing Corporation putting the Stampede City below its overbuilding threshold since 2002—well before the 2008 recession. 2014 brought on a global crash in oil prices which triggered another recession in Alberta, further pushing down the housing market province wide.
But a few factors have come together to turn the city’s market around faster than anyone had expected. While housing prices haven’t come back to where they were, Calgary’s rise in the last year has been remarkable. And while sales leveled out after Q1 of this year, rising oil prices bringing in buyers and a lumber shortage restricting new supply could mean Calgary’s seller’s market is here to stay.
The risks of a seller’s market
The froth might be out of Calgary’s market at the moment, but closings remain startlingly fast in the area. Fast closings mean a better turnaround for your practice, and high volume is always a great problem to have. But even if housing prices haven’t risen back above pre-crash levels, they’re still up considerably relative to your clients’ earnings growth.
Homebuyers looking to avoid getting priced out and eyeing Calgary’s dwindling supply are now willing to take on greater risk, both in terms of spending more and closing faster—more commonly with subject-free offers on houses to close as soon as same day. This means often going into ownership uninformed and hoping the house doesn’t have expensive issues hiding under the surface.
The need to close deals quickly can offer challenges at Alberta’s land title registry. With just two Land Titles Offices in such a large province, (compared to 53 in Ontario) Alberta lawyers and notaries have always sought ways to work around the system, now more than ever with the current market’s quick turnaround.
Is Western Protocol enough?
Using the Western Law Societies’ Conveyancing Protocol (often shortened to Western Protocol or the Protocol) offers a convenient way to work around the delays at the Land Titles Offices, letting real estate transactions “close” on closing day even though registration with the Land Titles Offices hasn’t taken place. This ensures the buyer can take possession of the property and the seller can receive sale proceeds on the closing date, all without registration being completed or an up-to-date Real Property Report being obtained.
Issues can and do come up after the fact, and the Protocol contains some protections against them. The catch is that the protection Western Protocol offers too often falls short. While it can cover lenders on survey defects (as long as the issue was unknown before closing), buyers are left unprotected—sometimes to the tune of tens of thousands of dollars, if the property issues are significant.
How can I close deals on time and still keep my clients protected?
While the Protocol provides a quick and convenient system for lawyers and notaries to close real estate deals, it doesn’t offer the extensive protection title insurance provides. Only an owner’s title insurance policy can protect buyers from unknown title defects, like a previous owner’s unpaid property taxes.
The Protocol offers gap registration coverage to the buyer, like a title insurance policy. But the Protocol won’t help your client if they sustain losses from the Land Titles Offices rejecting their title transfer due to clerical errors or typos. Title insurance will also protect your client against title fraud, a cripplingly expensive crime for the homeowners who fall victim.
Unlike lender title insurance policies that only last as long as the mortgage, an owner’s title insurance policy will protect your client for as long as they hold the title. That way, your client’s coverage lasts even when they refinance their mortgage—they stay protected.
Since an owner’s title insurance policy is optional for the buyer (unlike the lender policy), they might need your help to see the value in the small one-time premium of an owner’s title insurance policy. With housing prices continuing to rise in Calgary and tight timelines to close, your clients need protection now more than ever.
Insurance by FCT Insurance Company Ltd. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.
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