I'm getting to that age now where a lot of my close friends are starting to get their careers in order, they're settling down with a spouse and many who have starting thinking about their first-home.
Many of them, knowing that I have several years of experience in real estate, have approached me over the past couple years with questions, concerns or just to have a quick chat about their thoughts.
I'm always more than happy to help but surprisingly, in my experience, I can tell someone something and they'll go right ahead and ignore it.
It is understandable. Many first-time home buyers get so excited about the house that they forget important steps in the process or make poor decisions because their clouded by a dream that they have been chasing for the last decade.
So with that in mind, how can we make the home buying process as simple as possible and avoid making any serious mistake. Mistakes that I've seen cost some of my friends tens of thousands of dollars.
Well the answer isn't simple but I hope that this guide might just make one reader stop and think about what their doing, maybe reevaluate and hopefully, save loads of money in the process.
I think it's important that before we get into the tips and tricks, we first cover the general home buying process because it is a lengthy one.
STEP #1: Figure out what you can afford
We recently put together a guide that explains all the factors which play into your credit worthiness. It also details how you can get approved for the mortgage amount that you want.
I would highly recommend that you give it a read before going through the next steps in the process.
STEP #2: Start the search
We always recommend getting a realtor. It's the smart thing to do because their responsibility is to have your back.
Most people might avoid getting a realtor because they think that it will cost them money but in reality, both realtors (the buyers and the sellers) will be covered through the sale.
In most cases, the seller will sign a listing agreement with their agent and that will include the commission that will be paid to both the listing agent and the buyers agent.
In the case where a buyer does not bring a realtor to the table, the listing agent will get both commissions. So there's really no reason not to get one if it means no additional money out of your pocket and it can protect you.
Just because they're a licensed realtor, it doesn't mean that they're good. In our experience, there are a lot of realtors who might not have a lot of experience and in fact, many only do it part-time. Can you believe that??
I've heard horror stories where the agent is just trying to close the deal or "be fair" with the other party. In reality, they should only have your interests in mind but unfortunately that isn't the case a lot of the time.
We've all seen those realtors who are posted all around the city. Whether it be on bus stops, on billboards, in taxis or even online in your feed. Those are generally the ones that you need to contact because they will be heavily integrated in the local market so they will have the most experience, will have the most contacts and finally, they are the ones with access to private deals!
Just because you might not have a realtor yet or even if you're not ready to take that step, it doesn't mean that you should just wait until you're ready. Start looking at properties right now to get familiar with the market in your favourite neighbourhoods. Going into the market with an idea of prices and inventory can save you tens of thousands of dollars.
Although realtors will be able to give you access to the local real estate board online portal, those properties will also be available on websites like realtor.ca which essentially scrap the real estate board website.
Setting up an account on such websites can be a great way to start researching properties. You'll be able to set up conditions for a search and the website can automatically notify you when there is a change to a property that matches your criteria, whether it be a new listing, a price change or a sale.
It's a simple way to get started and one that you should definitely follow!
STEP #3: Make an offer/offer acceptance
Once you've done some research and looked at a number of properties, the next step is going to be making an offer on that first property. Keep in mind that it might take more than one offer until you land your dream property but let's get started with that first offer.
In Ontario, most real estate transactions use the Ontario Real Estate Association (OREA) Agreement of Purchase and Sale (APS).
A custom APS be used, however, in my years in the business I have yet to see one drafted. In fact, using a custom APS may actually be a bad idea because there is a chance that you could overlook an important of the APS. Better to rely on the APS used for tens of thousands of transactions a year.
There are some important things to look out for in the standard APS (or any custom APS as well).
Irrevocability: The irrevocability period is the period after which a submitted offer becomes null and void. Typically the irrevocability will be 48 hours, however, 24 hours is also quite common. The seller has until the end of the irrevocability period to either accept the offer or counter.
Purchase Price & Deposit: The purchase price is the price that you, the buyer, is offering to purchase the property. In many provinces such as in Ontario, there will also be a deposit that binds the agreement and typically represents around 1% of the total purchase price. Now, in these provinces, the deposit will be kept by the seller if you back out once the deal firms up (we'll cover that shortly).
Closing Date: This is the final date of the agreement when the transaction will be completed. Prior to the closing date, everything required for the purchase needs to be in order and both parties need to sign closing docs. The buyer will receive keys on this date.
Requisition Date: This is the last date that the buyer has to fulfill all the conditions of the agreement. If they are unable to fulfill these conditions in that period, they will need to notify the sellers in writing. If they do not notify the sellers by the requisition date, the deal firms up.
Chattels & Fixtures included: In Ontario, kitchen appliances that are fixed to the property as well as laundry machines are typically included in the sale. This is, however, not the case everywhere. Additional fixtures such as light fixtures, appliances, window coverings and etc can be included in the sale.
Adjustments: Lawyers will be responsible for all adjustments to the closing price. For instance, utilities, property taxes and rental income will be prorated since the sale can occur during a billing period.
In addition, the standard OREA APS, there are a number of conditions that can be added.
STEP #4: Fulfill the conditions
Standard clauses include financing and inspections, although nearly anything can be added as a condition.
We will always include a financing condition which could last
When we purchase multi-families we will usually also include a condition to see all utility bills from the last 12 months along with all leases. Here are some examples of the conditions that we have included in past offers.
"Copies of actual invoices of the last 12 months for operating expenses: (water/sewer, property taxes, insurance, gas, hydro, internet, telephone, elevator, maintenance, property management, along with any and all other contracts)"
"Tenant leases matching the latest rent roll and any other revenue generating contracts or leases such as parking, laundry, and storage"
Building documentation: Building plans, survey, Geo tech, ESA phase 1 and/or 2 environmental, Fire extinguisher and fire panel certificate, fire retrofit certificate, Designated substance report (asbestos, lead, mercury)"
STEP #5: Finalize the purchase
Once all the conditions are waived and the deal is firmed up, you'll still have a couple things to get in order.
First things first, you'll need to get an insurance policy on your property and make sure that it is in effect on the closing date.
Just like a mortgage broker, an insurance broker can connect you to multiple insurers. Nowadays, it's pretty easy to get a simple quote online in a matter of minutes so I would recommend starting there and then reaching out to a mortgage broker if the prices are all over the place.
On the other hand, utilities will also have to be transfer as of the closing date. Typically, lawyers will take care of city services such as property taxes and water but you will have to transfer all your electric services and gas.
A quick phone call to your local providers will get the job done!
STEP #6: Close
A few days prior to closing, your lawyer will be in touch for a closing meeting to review all documents and sign the paperwork.
While reviewing the paperwork, make sure that your lawyer covers everything and ask any questions that you might have. They are closing multiple deals a day in some cases so it is possible that there are mistakes.
And if you don't understand something, make sure to ask. This is really the last chance that you have.
Finally, with everything in order, you'll be able to pickup the keys to your new house on closing day. Trust me, you'll be so thankful that the process is finally over!
Now that we understand the general home buying process, let's cover some of the keys to success in home buying.
REMINDER #1: Determine Exactly What You Want
Many people will say that it’s your first home and that it won’t be the perfect house, so don’t worry about the small details. I still have trouble understanding why people say this.
You should worry about the small details. You’re making one of the most important purchases of your life and if you’re going to regret your decision in 3 months, then don’t buy it. Make sure that the home you’re going to buy is within your budget range but that it’s also a purchase you won’t regret.
Trust me, the worst feeling in the world is extreme buyer’s remorse.
Reminder #2: Research! Research! Research!
I know that I just said you shouldn’t settle. In reality, you’re going to have to do extensive research to determine what you can actually afford.
The first thing is to determine the purpose of the house. Are you planning on raising a family for the next 10 years, is it your chance to downsize or are you simply looking for an investment property. This should help you out with the majority of your decisions. All your research should be done with purpose in mind.
Neighbourhood should be the second decision. Do you want a quiet neighbourhood with parks and good schools or are you looking to be around the action.
Once you have determined neighbourhood, then you’ll be able to figure out what kind of property you can afford by comparing your needs to listed properties.
Reminder #3: Check your finances and then check them again
More and more people are manipulated their budgets to get a more expensive property ever since prices have skyrocketed. There is a simple solution but one that most people won’t follow: Don't ever squeeze or play with your budget just to buy a house.
New home buyers tend to look at the cost of the down payment and the payment without considering everything else. The fact is that there are many additional costs including closing costs, monthly maintenance costs, property sales taxes and etc.
You should also consider the fact that current interest rates may change tomorrow or next week. As a result, homeowners with large mortgage balances and stretched budgets could lose everything. Here are some general formulas to keep in mind
These are general reference ranges for all the extra costs:
Closing Costs: Generally 2-5% of the purchase price of the home.
Maintenance Costs: 1-2% of the purchase price per year.
Property Taxes: 1-1.5% of the purchase price of the home.
Mortgage insurance if down payment < 20% of purchase price.
Rate hikes: Do research and always prepare for the worst.
GST/HST: Is applicable to newly built homes or condos.
Reminder #4: Never omit the inspection just to get a house
We’ve all heard the horror stories about buyers not hiring a certified home inspector and seen Mike Holmes come to the rescue.
The fact remains and I cannot stress this enough...GET AN INSPECTOR!! You’ve heard this expression before but it couldn't be closer to the truth if we tried: Don’t judge a book by it’s cover.
Many homeowners, especially first time home buyers are looking for a modern kitchen with granite countertops and hardwood floors throughout but they tend to get attached to the house based on what they see as a house fulfilling all their needs.
If there’s one thing to remember from this reading, it’s that you always need an inspector.
All that said, what is most important to remember?
The two most important lessons that I can tell anyone looking to buy their first property is to make sure that they have budgeted all the costs and feel comfortable managing the additional expenses and to always have an inspection.
The buying process may be daunting but it's quite simple and these days, good realtors will help you throughout the process.
They'll give you access to a tool like MoveSnap that will walk you through the process and can usually put you in touch with everyone from mortgage and insurance brokers, to inspectors and lawyers.
So just remember those tips, do as much research as possible and you'll feel much better when it comes time to actually buy.
If you still happen to have questions about the home buying process or anything else, please don't hesitate to contact us directly and one of our investment specialists will be more than happy to answer any of your questions. Alternatively, they'll also be happy to explain how ReDeal can help you reach your financial goals by investing on autopilot.