Home Buying 101
Everything you ever wanted to know about the biggest purchase you will ever make!
First Time Home Buyers - Yikes!
Most people immediately start looking at www.realtor.ca and scoping out what is on the market or they head for an online mortgage calculator and start punching in numbers. STOP! Taking time now to do this first step right will save you a lot of heartache later on.
Now is the time to head to your bank. Not a mortgage broker you ask? Relax, I will get to them. Your bank has quick access to all of your financials, and can sit down with you and discuss your options with them for a mortgage. They are going to throw around terms like: gross debt service ratio, total debt service ratio, stress test and amortization period. They should pull a credit check to make sure you haven't accidentally bought a 20 ft boat that you have forgotten about. This is called qualifying and lately the Government has taken it one step further with its new Stress Test.
Our interest rates have been at an all time low for several years now but they are starting to creep upwards. Rather than qualifying using today's low rate, buyers are now having to qualify at the posted Bank of Canada rate which is about 2 points HIGHER than the bank rate. The Government wants to make sure that you as a buyer can still afford your home if the interest rates start to climb. Depending on what price point you think you might be in - 2% makes a huge difference. It can knock your price range down by $100,000 depending on your down payment and debt ratio and there is nothing worse than falling in love with a $450,000 home when the bank tells you that you can only afford a $350,000 home.
Mortgage Broker or Bank? Tough call on this one. It really depends on your comfort level. Some people prefer to use their bank where their accounts and car loans and RRSPs are sitting, while others prefer to have a Mortgage Broker shop around on their behalf for the lowest rate. Now I am not saying that banks have higher rates than Mortgage Brokers. What I am saying is that usually the bank is looking to sell you ITS mortgage product, while a Mortgage Broker is just trying to find the cheapest rate. You may not want the cheapest rate. You may want a cash back mortgage that puts a few thousand dollars back in your account a few weeks after you take possession to help you change the flooring or counter tops or you may want one that gives you travel points so that you can have your house and vacation too. In the end the choice is yours so explore your options, and get a proper qualification with a full credit check so that you can carry on to STEP TWO!
Oh The Trees We Will Kill...
Congrats! You have been to the bank or your Mortgage Broker and you have qualified! Now it's time to pick up the phone and contact a REALTOR (R)...but which one?!? There are dozens of them! How do you choose! The same way you do most things in life, ask around, talk to your friends. Who did they use? Were they happy with the work their Agent did on their behalf? Were their phone calls returned promptly, did the Agent explain everything clearly and find the answers to their questions? But most of all: did they feel comfortable with their Agent?
This is likely the most expensive purchase you will make in your lifetime. You need to know that your Agent is there for YOU and is ready, willing and capable of answering all of your questions and sometimes answering the questions that you didn't even know to ask. Sit down in the Agent's office and have a discussion with them about the process, what you are looking for in a home, what your timeline is, get a feel for them. Do they share your twisted sense of humor? Is this someone you could spend a few hours with in a car going from house to house? But most importantly: did they listen to you?
Once you have chosen your Agent they should then go over and have you sign two forms. One is the Consumer Relationship Guide which spells out the basics of working with a REALTOR (R). The second is a Buyer's Contract and will be either an Exclusive Buyer's Representation Agreement or a Non-Exclusive Buyer's Representation Agreement.
What are those you ask? I am so glad you did! Both agreements spell out what you are looking to buy, where you want to buy and can also outline what kind of information that you expect your Agent to find out for you on any house you decide has made your shortlist. You know, the basic stuff like: Has anyone run a meth lab recently? Did Al Capone host a Valentine's Day Party in the basement? That sort of thing. They also outline what happens in any conflicts of interest between you as a buyer and any sellers that your Agent or their Brokerage represents. The 2 agreements set a timeline on the relationship but most importantly, and this is where the two agreements diverge, they set out compensation.
Compensation? you say, isn't the satisfaction of finding you a home enough? Uhm...while you are awesome, I still like to eat. Generally speaking an agent representing a buyer does not get paid by the buyer. They are paid by sharing the commission that is paid by the seller to the seller's agent. That is one of the core principles behind the Multiple Listing Service(TM) that is now Realtor.ca. However, sometimes buyers may want to view homes that are listed as For Sale By Owner and in that case you may have discussions with your Agent about compensating them for handling the contracts. Fine and dandy you say, but what is the difference?
Okay, so let's say you meet with an agent, you begin working with them but it's kind of like speed dating, you thought it was a good fit but after a time or two you just don't feel that magic and you want to use a different agent. Depending on which of the two agreements you signed you may not have that option. If you signed an EXCLUSIVE Buyer's Representation Agreement your hands may be tied and losing your freedom of choice is a horrible feeling. Most agents prefer to use the NON-exclusive because frankly, we want our clients to want to use us not be forced to use us. So make sure that you ask the tough questions right from the beginning, yes, I know we are Canadian and we are all very polite but trust me, this is the time when you want to start asking as many questions as you want. A good REALTOR (R) will happily answer them all.
PS: REALTOR (R) and Agent and Associate and Representative are not interchangeable. The term: REALTOR (R) signifies that your Agent/Associate/Representative is a member of the Canadian Real Estate Association - it's not a job title but a designation that we/they are a member of a professional association.
Tell Me What You Want, (what you really, really want)
Step 3. We have a saying in real estate and at first it may sound offensive: "Buyers are liars." Sounds horrible doesn't it? What it really means is be truthful with yourself about what you really want. Oh and if there is a significant other involved in the looking, make sure you are on the same page.
Do you want a spanked out kitchen while he is looking for the ultimate garage? Is having 3 bedrooms on one floor important to you because you are planning an addition to the family but he wants a wet bar in the basement for the Stanley Cup Playoff parties he is planning? What about resale? Chances are that this is not your "forever" home and the most important thing to you is resale-ability. There is a lot to consider when figuring out what you are truly looking for in a home and sometimes it helps to take a pad of paper, make a pot of coffee and have a frank discussion of wants, needs and absolute must haves.
Now that you have determined what is truly important to you and you think you have a handle on what you want, we will need to sit down and make sure that it all fits in your budget. I know that you have gone to be pre-approved and the bank has given you a number, but please remember, that number is the maximum and just because you are approved to that doesn't necessarily mean you will be comfortable with that payment. So let's take a look and see if we can make your list fit within a price point that keeps you comfortable. Be prepared! You may not find everything you are looking for at a price you like. This is when you will have to decide if granite counters are a nice to have or a must have item.
Even after all of that you may still not know exactly what you are looking for. That's okay, we have a plan for that. No one is expecting you to buy the first house you walk into (yet you would be amazed at how often that happens). On the first outing with buyers who aren't sure what they want, I will often book what I call "the best of the best" at different price points within your budget and different styles of homes that way you can get a better feel for what you like and what price point is a better fit. Once we have narrowed the field we can then get serious about viewing homes so grab some slip on shoes and stay tuned for: STEP 4: Showing Etiquette or Miss Manners meets Super Realtor!
STEP 4: Showing Etiquette or Miss Manners meets Super Realtor!
Remember when your mother used to say things like: "Take your shoes off in the house!" or "If you can't say anything nice, don't say anything at all!"? Well this post is kind of like that.
#1 Make sure that you are actually available to view homes when you tell your REALTOR to make appointments. Viewing homes when trying to find your next home is central to the process and as a REALTOR, I understand that I will likely be working around your work schedule in order for you to view homes. Your REALTOR (me hopefully) has taken the time to set up appointments for you to view homes that fit your criteria and your price point. We have called other REALTORs who have called their clients and let them know to have the home ready for viewing at a specific time. People have lives, they have kids, they have pets, they work shift work. Very few people have the luxury of staging their home for viewings and then walking away for 2 months while their REALTOR sells it. They need the time to prepare the home and it is frustrating to work like crazy and then have the showing cancelled. There is nothing worse than booking 10 homes for Saturday starting at 10 am and then calling to cancel everything at 9 am.
#2 Come prepared and if you can, leave the kids at home. We are going to see a lot of homes in a short period of time. We usually make appointments 15 to 20 minutes apart because most people know within 5 minutes whether or not a home is on the "maybe" list. That makes for a lot of buckling and unbuckling child seats, dealing with shoes and jackets and let's not talk about the temptation of toys. Okay, let's talk about it. Some houses have some very cool toys (some for kids but increasingly more for adults) and collectibles. It is not fair to ask your children to resist temptation for so long. It makes for a long, frustrating day for both them and you, and frankly, you need to be concentrating on the homes you are seeing. We can always bring them to the second showings if you wish to include them in the decision making process. Oh and before I forget: easy on shoes, because yes, we are taking them off in every home.
#3 If you can't say anything nice... Don't get me wrong! I want your honest feedback, but we need to be respectful. With today's upswing in Smart Home Technology you would be amazed how many homes have cameras and security systems that are recording what is being said. You may not like dusty blue walls with cabbage rose wallpaper borders and that is fine, not everyone has the same style or taste. Just say "It needs some updating." rather than "Good Lord there isn't enough primer in NATO to cover those walls!". Once we are back in the car you can tell me how you truly feel!
#4 Only ask to see homes you are actually interested in and capable of purchasing. Sellers list their homes in order to sell their homes, they are not an interactive Pintrest. They are expecting that when a REALTOR asks to show the home they have bonafide buyers who are interested in purchasing it. Please do not ask to see a home just because you have always wanted to see inside or you have always wondered what the current owners have done to your friend's old house.
When we view a home consider it a special invitation. They have gone out of their way to tidy, bake cookies and may have suspended a planned family activity so that we can be there. Someone is sharing a glimpse into their private haven, let's do them the honor of being respectful of their home.
Step 4 continued or: Now That I Have Your Undivided Attention...
With today's internet, mapping, walk scores and photos you should be able to buy a home without ever opening the door, right? WRONG! The reasons why we view homes are many and varied:
- REALTORs are paid to take great photos and sometimes the photos are better than the house.
- Do you live in a wet area? Viewing a home during the spring melt or rainy season can help you pinpoint a dry basement.
- Do you want a quiet street? Have your REALTOR book the showings in the evenings to see how many children are playing in the street or if there is enough parking for your guests.
- Do graveyards give you the heebie-jeebies? Where is the home in relation to one?
- Is the neighbour running a chop shop out of his garage?
So let's call a sitter and book some houses and get this party started...
Unlike HGTV, actual REALTORs do not unlock the front door and then stand outside while you wander around the house. That is so wrong on so many levels that it would take all day to go through them. You hired me to help you find a home and part of my job is to show you homes and point out any highs or lows about those homes and their location. When we are looking at homes it helps to take notes, either with a notepad, on the MLS info sheet or dictated into your phone for later reference. If you read my blog "I just want to sell my house!" you will know that we sometimes name homes so that we can remember them. But please, if you wish to take your own photos ask first, we need to make sure the owner doesn't mind.
So here is a short but comprehensive list of features to consider when you are looking around and remember - this is just our first look to see if the house is even on the maybe list:
- As you walk up the sidewalk, look at the shingles, are they curled? How does the siding look?
- Is the entrance large enough for you to bring your children (if you have them) in quickly in foul weather?
- Is there an entrance from the garage and is that important to you?
- Does the kitchen workspace meet your needs? Is there enough storage for your gadgets?
- Take note of the appliances, are they better than yours? Are they clean? Are they included?
- Are the bedrooms where you want them and are there enough?
- Are the floors in good shape?
- Take a peek at the windows, is there condensation between the panes? Can you wave to your neighbour through the bedroom windows? (maybe you like that, who am I to judge?)
- Does the backyard meet your expectation of privacy or play space?
- Check out the downstairs, is it bright or is it a dungeon? Does it smell musty or feel damp?
- Is there enough storage for your Christmas decorations or room for your hobby or exercise equipment?
- In the utility room we want to look at the age of the furnace, hot water tank and check for any signs of water leakage.
Got all that? It looks like a lot to remember but most of it is intuitive and don't worry, if you think this home is on the maybe list then we will come back for a longer, more thorough look. However there are a few important unwritten rules I wish to impart: #1 If you don't like the house from the moment you step in, that is fine, we can move on. Your time is valuable, just let me go around and turn off the lights and drop my business card and we can carry on to the next home. And #2 look at the house - not the stuff in it. We have a saying in Real Estate: people don't buy the house, they buy the lifestyle it portrays. So you need to be careful when you are looking. We tell our clients to declutter and to stage, so you need to look past their furniture and decorations and try to picture your own because, and trust me on this, that gorgeous house is not going to be that gorgeous on possession day when it's naked! It's kind of like when you were young and foolish and brought someone home from the bar...
Thinning the herd...
Well done! You have survived the first round and when I say first round I don't mean we have been out to look once, I mean we have seen all of the homes that interest you once. Some buyers are quick decision makers, maybe it's not their first rodeo and they know exactly what they want and are ready to start the paperwork. But if this is your first time or you and your partner are still tussling over who gets their way, then now is the time for you to compare your notes and thin the herd. This is the part that I can't help you with other than answering your questions.
Try to focus on what is most important to you and see which homes fit the bill. If it is a buyers market and there are a lot of homes to choose from, you may find that there are too many on your maybe list. If you looked at the homes during business hours maybe take this time to do a drive by of each home at about 7 in the evening. Everyone is home from work and school and this will give you a good indication of how crowded the street is or isn't. This is the time to get choosy.
In a seller's market when there isn't a lot of choice we have a tendency to rationalize and say "it's just paint". In a buyer's market you can use paint as a determining factor. Of the homes that fit the bill which ones:
- are move in ready? No painting required.
- fit your massive dining room table that seats 12?
- have a heated garage (may not be important to you but it's great resale)?
- fit your idea of easy care landscaping? Not everyone loves to garden.
In other words: get picky. When there is a lot to choose from I try to get my buyer's to narrow the list down to 5 homes for second looks. We will book longer appointments and ask for average utility costs and confirm municipal tax amounts. When buyers first see a home they are often "wowed" by the staging and decoration, now we need to look around that. Is it just mascara on a pig?
During that longer appointment I want you to focus on the details of the home such as:
- How well has it been maintained? Yes it's pretty, but is the caulking moldy in the shower?
- Cleanliness. Usually if a home is spotless for showings it will be spotless on possession. Again check that oven, it tells a story all its own. Do we need to add a clause about professional cleaning?
- Furnace? Are there any stickers on it saying when it was last serviced and cleaned?
- Garage? Usually overlooked during the first showing but now is the time to check if your car or truck will fit or will it just be an oversized shed?
At the end of all of that you need to make a decision and even in a buyer's market I will give you this one caveat: If you really like a home - do not hesitate. Chances are that someone else really likes it too. So ask yourself this one question: If you go to bed tonight to think about it while someone else decides to negotiate an offer, will you be heartbroken?
Decisions, decisions, decisions...
So who won? Did the kick-ass kitchen outweigh the man haven garage? Were you practical and made a spreadsheet of pros and cons or did you go with your heart?
Everyone makes decisions differently and that is okay. The important thing is that you have made a decision and now it's time to craft an offer. You have been through a lot of houses now and should have a good feeling for whether the home has been priced well or priced aggressively. Your agent should be reviewing the latest solds to give you a good indication of market trends and where to begin negotiations because, and I can't stress this enough, your agent actually knows what they are talking about. Everybody has a friend or a family member who tells them how they 'beat down" a seller on price, how they "lowballed" and won, how they "taught" their agent how to really negotiate.
No they didn't.
What they did is lost a house or six because they didn't listen to their REALTOR and then finally clued in. When a house is listed the listing agent reviews the condition of the home, the age of the home, whether or not shingles, hot water tanks, windows and furnaces have been replaced. They want to price the home accurately so that it sells for its true value. The listing agent is also watching the market trends. Are prices falling? Should they reduce the price to keep in place with the competition? These are also things YOUR agent should be checking as well. Listen to your agent, this isn't their first rodeo and can advise you if they think the home is accurately priced and where you should offer to get the best result.
If you come in very low you risk insulting the seller and then they will get stubborn, and they may not come down as far as they would have had you offered a bit higher. I know, it sounds counter-intuitive, but sometimes it is better to come in higher and not negotiate very much then to bring it in low and stall out.
Discuss with your agent what things are deal breakers and what aren't. Is the bottom line price more important to you than the appliances? What strategies should you employ to get the best outcome? What is a Real Property Report and how is it different from a survey? Is it better to get that or accept Title Insurance? What is Title Insurance? (Check out my post on RPRs and Title Insurance). What about possession date? Sometimes a seller is more willing to give up a bit on price if they can have a possession date that suits their needs better. If you have some flexibility then use it to your advantage. But the big question is this: are you in competition for this home or is yours the only offer?
More on competing offers on my next post: Competing Offers or How to Overcome Rejection!