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Real life answers to your Real Estate questions

Dear David: What is a cap rate? — Numbers Guy

Dear Numbers: The capitalization rate, commonly referred to as "cap rate", is the rate of return that an investment property is expected to generate, based on its rental income. The cap rate is a useful tool for estimating an investor’s potential return on their investment, and is one factor in determining the overall value of the property. In simple terms, you can find it by calculating the yearly gross income of the property and subtracting the operating expenses (to get the net income). Divide that net income by the property’s purchase price and you’ll have the cap rate. Dear David: Why do legal fees cost more for a real estate purchase than for a sale? — Just Wondering Dear Wondering: Your legal fees are directly related to how much time and expertise your lawyer has invested in the transaction. Fees for the sale of a property tend to run higher as there is more work involved, in most cases. Whether buying or selling, you will generally be charged a base fee depending the type of property (ie. condo vs. fully detached). On top of that, you'll pay a registration fee and disbursements, which are the miscellaneous business charges such as phone, photocopying, etc. When you're buying, your lawyer conducts a title search, obtains title insurance, registers the home in your name, registers mortgages as required, calculates adjustments, oversees the financial transaction on closing day and hands over your keys. The legal workload for sellers is lighter in most cases, as title insurance and mortgage registration are not part of the process. Dear David: The last time we purchased a home, we paid a $2,500 deposit. This time, the seller is asking for $10,000. What gives? — Surprised Dear Surprised: As our local real estate market grows more competitive, we've seen a trend of sellers requesting larger deposits than they did even a few years ago. This comes from the fear that a half-hearted buyer might sign a purchase agreement to secure a property, then walk away from the deal if they change their mind. With some skin in the game, this is less likely to happen. From a seller's perspective, a larger deposit points to a qualified and seriously interested buyer who is likely to see the transaction through to closing (as opposed to one who might get cold feet). Along with easing a seller's fears, a more substantial deposit may also help a buyer get a leg up on the competition in a multiple offer situation.