Residential: time to be prudent

Ron Usher can already see the impacts of the U.S. financial crisis on clients of his Vancouver real estate practice. “The credit tightening starts to flow through everywhere,” he says, describing the plight of clients who are having difficulty refinancing their expensive Vancouver home because their assets are tied up in a U.S. business they own.

Usher, a partner with the law firm Bell Alliance, also cites the example of other clients from the U.S. who are afraid their bank will go under and they will lose their money. Instead, the clients want to use the money to buy Vancouver real estate. “As quickly as possible, they want to take their U.S. bank money and put it into dirt in B.C. because they feel that is secure,” says Usher. “When people start to get panicky about this stuff all sorts of things start to happen.”

Generally, however, Usher observes that the Vancouver property market has descended from its peak of a year or so ago. In August, for example, sales were down 40 per cent from the previous year. But, he adds, “We have to remember that last August was insane. By any historical standard, Vancouver is a very busy place still and we certainly haven’t seen our file numbers drop off anywhere near that amount.”

Nevertheless, he predicts, “There’s going to be less work to go round. And in B.C. we have competition for this work. The notaries are lawful competition for this kind of practice.”

Yet there are advantages to a quieter market, according to Usher, who spent many years as staff lawyer for the Law Society of British Columbia, providing advice to lawyers on how to improve their practices. “There were times when people engaged in panicky buying and the normal things that a lawyer would recommend in terms of due diligence they let go,” he says, explaining that clients wanted to “just leap in and sign everything.”

Now with property values no longer rising at meteoric rates, there will likely be some distress sales and situations where purchasers are trying to get out of agreements. “And we know from lawyer negligence statistics that in a market like this everybody’s got to take it much more carefully because everybody’s looking at deals with much more scrutiny. In a hot market you get it done and glitches get ignored. So it’s really a time for lawyers to be very prudent, very careful,” says Usher.

Residential real estate lawyers are worried, but don’t believe the roof is about to cave in on their profession. Certainly, house prices are falling. In Toronto, the average resale value fell by a stunning 15 per cent in October, compared to the year before. But even in a recession, people still need to buy and sell homes. The question is whether they will find the financing to close their deals.

And, even though credit is tight, banks are reluctant to stop lending money to homebuyers, since home loans are an important revenue generator for financial institutions. “I don’t think credit is going to dry up, but it’s definitely going to be tighter,” says Toronto lawyer Bob Aaron. “We’re looking at a softening of the real estate market across the board and it’s going to affect everybody in the industry, including lawyers. There could be a lot of belt tightening,” he says.

Nevertheless, Kathleen Waters, president and chief executive officer of the Toronto-based Lawyers Professional Indemnity Co., notes that real estate lawyers’ offices have become quite automated so they can do more with a smaller staff. This means there is little cost and lead time in ramping up or ramping down their activities when the market changes.

“Technology has helped the real estate bar be more resilient and better able to adapt to the fluctuations that are inevitable in real estate,” she says.

Freelance journalist and business writer Kevin Marron can be reached at kevin@kevinmarron.com