Can you really buy a $1.7M Vancouver home for $72,000? Inside the municipal tax sale ‘trap’

This year, two homes on Point Grey Road, worth around $5 million and $6 million, were listed with starting bids near $289,000 and $355,000.

But these bargains rarely end up with a buyer holding a set of keys. For bidders, the likelier outcome is cash tied up for a year and no asset at the end of the wait. For property owners — those who fell behind on their property taxes and had their property up for auction — the real danger is quieter, and it starts years before auction day.

How does a municipal tax sale actually work?

In Vancouver, a property is scheduled for auction once the property taxes go unpaid for three years. Other British Columbia municipalities hold their sales each September for properties where the property tax has been unpaid for at least two years.

In each auction, the minimum bid, called the upset price, is set at the amount owed on the back taxes. Bidders must submit the amount they are willing to pay. In Vancouver, winning bidders must pay the full ‘upset price’ by noon the day following the auction.

But just because a bidder wins and pays doesn’t mean they own the property. This is the catch: The bidder must wait to claim the property during a one-year redemption period.

During this time, the current property owner keeps the property — and they can completely cancel the auction’s sale by paying off the taxes owed. And this happens. A lot. In these cases, the winning bidder gets their money back plus interest of 6%, up to the redemption date.

If, on the off chance, a property owner doesn’t repay the owed property tax by the redemption date, then the winning bidder has 30 days to pay the remainder of the winning bid, plus any additional owed provincial property transfer tax and GST, where applicable.

Why do tax sale buyers almost never get the house?

More often than not, bidders end up out of luck because, ultimately, most owners pay. The City of Vancouver told The Canadian Press that just three properties changed hands through its tax sale in 10 years, and that taxes on almost all listed properties are paid during the redemption year. Where sales do close, as in Burnaby, B.C., they’re often for small parcels of land, such as an empty lot that sold for $845.

Sean Holden, a longtime Vancouver Realtor, called bidding “an exercise in futility.” He also flagged the risk of buying as-is, since buyers can’t inspect the property, and the city says it isn’t responsible for what they find.

Ron Usher, a retired notary public, said the law is designed to give owners every possible opportunity to fix the problem and keep their home; he suspects that many of the listings that end up in municipal tax auctions are there due to oversights, such as families unaware of obligations on inherited homes.

Is a 6% return worth tying up your cash?

On the Windsor Street home, a full year at 6% works out to about $4,323 in interest. But the clock stops the day the owner pays, which could be just weeks after the auction. Meanwhile, the full upset price is gone within a day, with no set return date.

That interest is generally taxable if earned outside a registered account such as a TFSA. And in the rare case the sale does go through, you’ll owe the balance of your bid plus transfer tax on a home you’ve never been inside.

What if you’re the one behind on property taxes?

Vancouver’s tax notices carry a warning once taxes are one year delinquent and another at two years. Ignore both, and the home goes to auction.