It’s no secret that COVID-19 has added fuel to the housing market fire, driving listing prices to unprecedented amounts both in Waterloo Region and across Canada. Everyone seems to be either loving it or hating it, depending largely on whether you’re buying, selling, or just watching your home value soar with glee.
“More than twice as many homes sold in Kitchener-Waterloo in May 2021 compared to the same month last year.”
The Kitchener-Waterloo Association of Realtors
There is another important group of people that are being impacted by this housing market boom – Canadian Executors. With home values fluctuating by the month and stories of people getting double their listing price being featured in the media, the decision of when to list the estate property and for how much has never been more stressful.
Six Important Housing Market Tips for Executors
Selling real estate is a big ordeal in a regular situation, let alone when there are beneficiaries involved who have a very vested interest in the potential sale price. If you’re a Canadian Executor faced with the task of selling property in this hot market – especially in the fastest growing areas in Canada – then follow these six tips for protecting yourself while you sell the estate for the best price.
1. Beware the Higher Risk of Estate Litigation Disputes
The first and most obvious tip for Executors is beware the increased risk for estate litigation disputes over the sale price of the property. For example, a beneficiary may believe that the property should have been listed and sold for much more than it was. They start an estate battle over the difference and as the Executor, you would be financially and legally responsible to pay it if the court rules in their favour.
We recommend you do three things to solve this problem:
- Secure Executor Liability Insurance as soon as you become an Executor to protect yourself financially and legally from such scenarios.
- Seek professional help with the real estate sale and keep a record of all decisions and why they were made (i.e. this was the recommended listing price based on this real estate report at the time.)
- Communicate as much as possible with the beneficiaries so that they are kept aware of when the property will be listed, how much it will be listed for and expected to sell for, and if there are any potential problems or delays that might impact the outcome.
2. Get Multiple Home Valuations
What is the property worth? This question can be the start of so many problems for an Executor. We recommend not just working with a real estate agent you trust throughout the process, but also get several home valuations to provide as unbiased an estimate as possible to the beneficiaries.
Some beneficiaries may pressure you to sell ASAP because they want the estate to be closed – only then do they receive their inheritance. But remember that ultimately your responsibility is to the estate and it’s your right to hold onto the property if you don’t believe it is a good time to sell.
“It is common for a will to grant an estate trustee the discretion to choose whether to sell or retain assets. As it pertains to real property, this power allows the estate trustee to hold onto a property until such time as they can achieve the best possible sale price on behalf of the beneficiaries.”
Hull & Hull LLP, The Estate Trustee’s Responsibility to Sell or Retain Real Property During COVID-19
Remember to retain the paperwork from all of the valuations for your estate records, such as formal paid appraisals along with the realtor estimates. The valuation is one of the most contested areas of this entire process, so anything you can do to keep everyone involved and in agreement will help your situation.
3. Use the Date of Death to Calculate Increase in Value or Capital Gain
With housing prices continuing to climb, you may need to get multiple valuations of the property at different times. The value of the property at the time of death may be completely different from the time of sale, especially if you are in Ontario and must go through the probate process.
“Many executors make the mistake in thinking that the gain between date of death value and when it is sold is not subject to any tax on the capital gain because the property was a Principal Residence of the deceased. However, the Principal Residence Exemption (PRE) protected the deceased from any taxable capital gain on the increase in the value of the property during his or her lifetime and does not apply to the increase in value after death.”
All About Estates, Implications for Executors in a Hot Housing Market
Use the time between the date of death and the sale to calculate any increase in value of capital gain of the property. You will need the death certificate as proof of this date; collecting all necessary estate assets is step one in the Executor Guide for Canadians.
4. Know If You Need a 116 Clearance Certificate
Are any beneficiaries living outside of the country of the estate? Or perhaps you are selling property as a foreign Executor? You need to check with your real estate and legal professionals about whether or not a 116 Clearance Certificate is required in your situation.
There is a two-step analysis to determine if it is required, which can be distilled into two questions:
1. Does the property qualify as Taxable Canadian Property?
“A capital interest in an estate will qualify as TCP if at any time in the 60 months before a distribution in respect of the interest in the estate (but not including any time before the deceased individual’s death), more than 50% of the estate’s residual value (i.e after deducting all debts and legacies to be paid by the estate), derives from real property.”
All About Estates, Non-Resident Beneficiaries and Canadian Real Estate Property
2. Is the property Treaty-Exempt?
“Treaty-protected property means property any income or gain from the disposition of which by the taxpayer would be exempt from tax under Part I of the Income Tax Act because of a tax treaty with another country.”
Miller Thomson, A Non-Resident Disposing of Taxable Canadian Property
If you do need to obtain a 116 Clearance Certificate, you are going to need a Canadian Taxation Number. If you are a former or current Canadian resident, you can use your SIN number. You will also need to notify the Canadian Revenue Agency of the disposal of said property within 10 days of closing.
For more details on how to apply, see the Government of Canada website.
5. Discuss Repairs with the Beneficiaries
The timing of the property sale is extremely important – but you may need to invest some time and money into repairs before you can get there.
Don’t just go ahead and make decisions about repainting, upgrading appliances, or replacing fences without consulting the beneficiaries first. They may take issue with the extent of the repairs or the cost – we recommend you give them a professional estimate to make sure all numbers are accurate.
They may not want to do any repairs or staging at all, and just sell the property as-is. If that is the case, make sure they are provided with an estimate of the final sale price with and without those improvements.
6. Decide How the Property Will Be Sold
Will you try to save real estate commissions and sell the property yourself? Or will you rely on the savvy experience of an agent to get you the best price?
Is it a luxury home that will require a bit of advertising to reach the right buyers?
Will you host open houses or private showings?
Once you’ve decided on a value, there are many decisions to be made about how to sell the property. We advice you work with a professional real estate agent during the process as a safety net in case of disputes. It is easier to justify to a beneficiary or federal agency why a property was sold and when if you have the opinion of one – or several – professionals to support you.