Buying a home, particularly for first time house buyers, is really not that complicated, provided you have good honest guidance along the way. In order to save you a lot of time, frustration and worries, it’s a good idea to have dependable representation.
You can go the uninformed traditional route of surfing countless out-of-date websites, scouring the local newspaper, trudging through endless open houses, listening to as many pitches from all the attending agents, and spending your evenings and weekends driving neighbourhoods in search of lawn signs, looking for that elusive and affordable home that meets your needs. Or you can..
Table of contents
- LET AN AGENT SAVE YOU HUGE AMOUNTS OF TIME AND EFFORT
- HOW MUCH CAN YOU AFFORD?
- LOYALTY, COMMITMENT AND BUYER AGENCY
- THE MORTGAGE PRE-APPROVAL
- WHILE YOU’RE GETTING YOUR FINANCING ORGANIZED
- AUNT ETHYL AND UNCLE HARRY
- LET YOUR FEELINGS BE YOUR GUIDE
- DECISION TIME
- JUST GO FOR IT!
- MAKE THE DECISION – MAKE AN OFFER
- A HOME INSPECTION CONDITION IS A WISE IDEA
- WHATEVER HAPPENS IN VEGAS STAYS IN VEGAS
- AFTER THE EXCITEMENT
- THE SOLD SIGN
- ARE YOU HAPPY?
- ONE MORE THING
- OH, AND ONE MORE THING
- Home-Buyers Plan
- Home Renovation Tax Credit
LET AN AGENT SAVE YOU HUGE AMOUNTS OF TIME AND EFFORT
Time is our most precious commodity. So, let him invest his to save yours. Firstly, and with good reason, he’ll advise you to get ‘all your ducks in a row’ before even beginning the search process.
During the initial consultation, your agent will ask numerous questions regarding your wants and needs, including your preferred location, style and size of home. How many bedrooms? Bathrooms? Do you need a garage, or is that a luxury you can live without? What features would you like to see? Of course, with every suggestion, you’ll have a tendency to say yes. So, it’s a good idea to categorize and differentiate the list by ‘needs’ or ‘wants’. If you make all your wants into needs, your first home might end up being unaffordable. So, be realistic.
HOW MUCH CAN YOU AFFORD?
He’ll ask some basic financial questions to determine a target price range, including the amount of your down payment. Is it all yours or from borrowed funds? Are Mom and Dad assisting? What’s your gross combined income and outstanding debts with minimum monthly payments? Ever been bankrupt? Any credit difficulties? He’ll advise you on what to expect for closing costs, including the big one, land transfer tax. From this basic information, he’ll be able to calculate your gross and total debt service ratios to ensure your dream home won’t turn into a nightmare.
Buying a home to your maximum affordability is the my best suggestion for everyone. You may think he’s just trying to maximize his commission. This may be true, but it’s more likely, he just doesn’t want you to compromise too much in order to save a little money, because the more you compromise, the sooner you’ll need to upgrade to a larger home. This, of course, will result in a move sooner than later, with all the usual expenses like real estate commission, legal fees, land transfer taxes again, and disbursements, as well as the cost of movers. So, it might be wiser to invest in a larger home now and stay put longer, provided of course that you don’t buy too big for your budget. Let’s not go crazy here.
LOYALTY, COMMITMENT AND BUYER AGENCY
At some point, your agent is going to ask for a commitment from you to work exclusively with him. In exchange for this promise, as per the terms of the contract, he’ll also make a commitment to you. In exchange for your forsaking all other agents, he’ll agree to accept full fiduciary responsibility to protect your interests to the best of his ability. Unlike earlier days when most agents legally worked for the sellers, either directly or as sub-agents, most buyers now have personal representation. As a matter of fact, in many areas, it’s become the default standard. For all intents and purposes, though, this is the way it’s always been, but now the law actually reflects reality.
It’s also in your best interests to make this commitment (provided you’ve chosen your agent well) because the agent will be more inclined to work harder for you, knowing there’ll be a payday for him down the road. It feels great for the agent to know he has a serious and loyal client, and he won’t feel tempted to pressure you into a purchase before you stray to another agent.
THE MORTGAGE PRE-APPROVAL
The next step is to get a mortgage. For this, you can consult with an advisor at Mortgage1st.co.uk. This consultant will give you better terms than your bank that involves obtaining a confirmation of employment income (financial statements or tax returns if you’re self-employed),written confirmation of your down payment, and a credit check.
Don’t accept a letter from your lender or mortgage broker that simply confirms that they’ll lend you funds for a mortgage subject to confirmation of all of the above. That’ll not help your agent much when it comes to him successfully negotiating a fair deal with a seller. If your agent can assure the seller and their agent that the condition on financing included in the offer is a mere formality, that you’ve been pre-approved already, and can show them your actual certificate at the negotiating table to prove it, you’ll be in a stronger bargaining position. And your agent can remind the seller that only their property must be approved by the lender by way of a realistic appraisal. If the house fails to appraise to the lender’s satisfaction, that is at a value that doesn’t excessively exceed the negotiated sale price, the mortgage could conceivably be declined, unless the buyer can raise their down payment, which is not always possible.
WHILE YOU’RE GETTING YOUR FINANCING ORGANIZED
Your agent is already doing the leg work by searching and sifting using industry proprietary computer software, through numerous listings, creating a short list of possible homes that fit as closely as possible the parameters determined at your initial consultation. In some cases, he may even personally preview these properties if you’re looking for particular features in your first home that he’s unable to determine from the listing data. For example, you may not want a home where pets or smokers reside due to allergies. Or you may want to be very close to a bus stop, which would entail your agent checking out the bus route. He may also want to check to see if there are any high-tension hydro towers behind the house, or giant cube vans living next door, or obvious structural problems with the house.
LET THE SHOW BEGIN
Now, your mortgage financing is organized, and your agent has a selection of homes for you to view, and you’ve told him you’re available next Saturday to begin. Prior to hitting the road, he may email his final selection to you for your personal pre-screening on your computer.
Your agent will then get the final listings in order, usually geographically, to minimize driving time between homes, once again to save you time. He’ll request appointments through the listing brokerages, and obtain confirmations and lockbox codes if necessary. You’ll meet at his office or another convenient location, and away you’ll go. The fun begins! By the way, it’s probably a good idea to leave the kinds with Grandma, at least until you narrow the list. Then, on the second viewing, you can bring the kids for their ‘approval’. I have found that after the first couple of home viewings, especially if your kids are very young, they lose interest, and let you know their feelings in an unsubtle manner.
Typically, you’ll view not more than half a dozen or so homes on each tour so as not to be too confusing. Too many and they all begin to blur together. I advise choosing a favourite as you proceed through the list, and comparing each new prospect to that favourite. Note taking, in writing or with a digital recorder, also helps. Some industrious buyers actually bring along a digital camera. However, some sellers might object to this as being too invasive of their privacy.
AUNT ETHYL AND UNCLE HARRY
Your agent will be a valuable resource for you during viewings since they probably have tons of experience. They’ve likely viewed countless properties over the years, and obviously bring along an extra set of senses, and may see, smell or hear something you may miss. It’s their job to not only point out the positive features and benefits of the home, but also potential deficiencies and patent (clearly visible) defects. And they’ll offer added objectivity to the process. This can be far more valuable to you than say, the opinion of a friend or relative who has tagged along. Where your agent is objective, the relative often brings their own personal bias to the situation, and in my experience, it’s usually negative. It’s often easier to discourage with negativity than encourage with positive, constructive comments.
There’s a natural tendency to see the furnishings and decor, and not the actual details of the structure, like the condition of the flooring, windows, cabinetry, furnace, plumbing and various other features. Your agent will guide you to actually see more, hence assist you to make a better educated decision. Hopefully, the seller will not be present during the viewing, so that you and your agent can converse freely without the risk of offending the home owner.
If your agent has done his pre-screening job well, and your needs are not extremely specific, you may actually find your new home on your first outing, maybe not. If the latter, another appointment will be necessary, and the search will continue. Sometimes, search parameters (like price range) may change (increase) as you’re exposed to listing inventory, but the process will continue until you find your new home. In a few cases, I’ve actually invested years with buyer clients who had very specific needs. Fortunately, I was finally successful in helping them achieve their dream of home ownership.
LET YOUR FEELINGS BE YOUR GUIDE
Since all of the homes you view will have many of the features on your wants/needs list, your decision will be based almost entirely on how you feel about the home. Are you comfortable? Good question, but keep in mind that if you remain in your old comfort zone, you’ll not likely buy a home – period. Remember that the biggest risk in life is not taking a risk!!
Can you imagine living there and raising your family? Will your existing furniture fit? How much work will be required to personalize it, to make it your home? Does it excite you? Given the opportunity, it’s a great idea to actually sit down in the home to get a feeling for it. Spend some time in the garden, and open your eyes and ears and nose to casually investigate the surroundings. Any noisy trains or trucks close by? Are you under a flight path for the local airport? Maybe, you like all the local action, maybe not. Before making the final decision to submit an offer, take a walk around the immediate area, check out the parks, schools or recreation. Sit in your car to watch traffic patterns. If your looking for a country home, check out what’s growing on the farm next door. Are there any gravel pits in the neighbourhood, or any proposed? Think about dump truck traffic.
I’ve always believed that the longer one takes to make a decision, the more difficult it is to make.
We tend to sometimes over complicate things. I suggest you just follow your instincts. Don’t think about it too much. If the home feels right, and it has most of the basic ingredients you’re looking for,
JUST GO FOR IT!
During my career, I’ve had buyers change their minds over-night, deciding to postpone the purchase of a first home, only to contact me some time later to begin the search all over again. And sometimes, prices or mortgage rates have risen, and they’ve not been able to save enough down payment to compensate. So, they either buy a smaller home, or have a higher monthly payment.
I once had a middle-aged couple walk into my office, and ask to view homes. Before heading out, I learned they were renting, and had been for many, many years, and that they had $100,000 safely ensconced in the bank. They’d never bought a home!! At the time, one could have purchase a detached home in the suburbs for under $75,000, so there was no question of affordability.
When asked why they hadn’t bought years ago when prices were considerably lower, they replied that they’d never found just the right home. Well, needless to say, and as I anticipated, they didn’t buy any of the homes I showed them either. Even though they expressed the sincere wish to own their own home, and escape the rental game, they obviously permitted their fears to control their lives. Maybe, they feared losing their jobs. Anyway, if they had, how would they have paid their rent? Same scenario, different circumstances.
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MAKE THE DECISION – MAKE AN OFFER
It’s time to determine the terms of your offer. Since you’re a client with your own agent protecting your interests, you’ll have the advantage of professional guidance here. He’ll be able to show you print-outs of comparable sold listings, provide you with a qualified opinion of value on which to establish your initial offer price, and discuss strategy.
Of course, market value and the ultimate sale price may not be the same. Depending upon the other terms of your offer, like the number of conditions, possession date and other provisions, all will effect the price to which the seller will agree. Often, and not always, the fewer conditions, the more attractive the offer is to the seller. Sometimes, the price may be acceptable, but the requested completion date doesn’t work for them.
If you trust your agent (which you should by this time), and he seems competent, there’s no need to read the entire standard contract since it’s typically drafted by the local real estate association. Even though it’s generic in nature, that is, it favours no particular party, you are, of course, welcome to read the entire contract. What really matters, though, is what’s typed into the blanks and body of the agreement. The various clauses are usually written in plain language, but your agent can offer a summary so you’ll know what you’re signing. Or it’s certainly your right to have your lawyer review it prior to execution.
A HOME INSPECTION CONDITION IS A WISE IDEA
Your agent will have his favourite inspector, someone he trusts, to whom he’ll refer you. The fee for this service is a small price to pay for peace of mind. A qualified inspector can usually discover latent (not clearly visible) mechanical, electrical or structural defects which could result in costly repairs. However, the inclusion of a condition in this regard is not intended to allow you an escape for minor concerns, or if you’ve just changed your mind. After all, as a structure ages, the more maintenance and repair it’ll require. So, don’t expect a 30 year old house to be in the same condition as one built last year. An inspection’s purpose is to protect you from major surprises, and to generally inform you of the physical condition of the property. In other words, to let you know what you’ve purchased.
If the inspection report exposes something significant, depending upon the terminology of the condition contained in your agreement, you’ll have the option of being released from the contract, or asking the seller to either remedy the deficiency or adjust the purchase price downward. If they agree, then an amendment would be used to simultaneously remove the condition, and specifically detail the work the seller has agreed to perform, or the adjusted purchase price.
WHATEVER HAPPENS IN VEGAS STAYS IN VEGAS
Under the Buyer Agency Agreement, your agent owes you a duty of confidentiality and full disclosure. That means whatever you discuss with him remains with him. And he must disclose to you any pertinent information he may acquire regarding the property, particularly anything on which you are relying to make an informed decision.
The final agreed price may be affected if either the seller or you are under duress. Maybe, the seller has bought unconditionally, or you’ve submitted your notice to terminate your tenancy, and moving dates are rapidly approaching. However, there must be no discussion regarding motivation of the parties during negotiations, unless one of the parties volunteers this information to the other.
In many cases, the initial offer is countered back to the buyer. At that point, you have the option of simply accepting the counter-offer if you find the terms satisfactory, or you can counter it again. It’s advisable to heed the advice of your agent here since he, as your trusted knowledgeable advisor, should have a fair idea as to whether or not another counter offer would succeed. If the seller is being fair, then it’s a good idea for you to show the same respect. If you feel the terms are just not realistic, or are just not affordable for you, and your agent feels another counter would be futile, then maybe you should consider continuing the search. Who knows – the listing agent may call the next day to request you re-submit your offer since the sellers changed their minds (maybe they were bluffing).
Sometimes, you may have to compete with another buyer for the same property. In these competitive situations, it’s really easy to get carried away in the excitement of the moment. Sometimes, listings ultimately sell for prices well over the asking price, sometimes at unrealistically high levels. Some buyers simply avoid these situations completely, which isn’t necessarily the best idea since you may be missing out on acquiring your dream home. I suggest that under such circumstances, you decide on your maximum price, and simply stick to it. Don’t budge. Resist the temptation to join the bidding frenzy, and move on. There’ll be another home that you’ll like.
You can make your competing offer more attractive simply by increasing the deposit, giving the seller his preferred closing date, or by not asking for any chattels not included on the listing. If you’re confident about your financing, and you have a larger down payment, you may consider leaving a financing condition out of the offer. Or do a professional home inspection before submitting your offer so you can leave that condition out too.
AFTER THE EXCITEMENT
Now that you’ve conditionally purchase your first home, with the helpful assistance of your Realtor, you must make your best efforts, during the time permitted, to comply with the conditions, that is by completing the mortgage application, arranging the home inspection, and fulfilling any other conditions in your agreement. Once these are completed, you’ll sign a Notice of Fulfillment or a Waiver to remove the conditions from the agreement.
THE SOLD SIGN
But wait, your work isn’t over yet. Now, besides packing, you must arrange for a mover, call the utility companies, finalize your home insurance policy, register the kids at the local school, contact the post office for change of address, contact your service providers like banks and credit card companies, government agencies or departments, and various other responsibilities.
About a week or so prior to closing, you’ll meet with your lawyer to sign the documents and deliver your money, usually in the form of a bank draft or certified cheque payable to your lawyer. This amount will include the balance of your down payment (your deposit submitted with the offer forms part of your total down payment), disbursements (government registration and various search fees, land transfer tax, title insurance premium, etc) and adjustments (property taxes, mortgage interest and heating oil if applicable) to be made by your lawyer on your behalf, and of course, his fee for handling your purchase.
His office will contact you after closing to confirm that you now own your own home, and that you may retrieve your keys from his office. A reporting letter will follow containing your Statement of Adjustments, deed, mortgage and various other documents. And it’s a good idea to change the locks on your new home since you don’t really know if anyone out there still has a key to your home.
ARE YOU HAPPY?
Now, you can advise all your friends and family that you’ve bought your first home!! Congratulations!
So, aren’t you glad you hired an agent to help you find and purchase your first home? Trying to go it alone, you may have missed the opportunity to see the brand new hot listings, and settled for a property that others had passed up. We provide a highly valuable service and usually charge no fee to the buyer. So, choose your agent with care.
ONE MORE THING
Don’t forget to thank your agent for their hard work. Nothing says thanks more than referring all your friends, relatives and associates to him. Our business is based primarily on satisfied returning clients and their referrals.
OH, AND ONE MORE THING
Before beginning the process, check for available government grants and rebate programs in your area. In Canada and Ontario, see the following for more information. Land Transfer Tax Rebate.
This grant proposed that a 15% credit be applied to an amount of $5,000, and would provide up to $750 in tax relief to reduce the costs associated with first home purchases, to assist first-time buyers with the costs related to legal fees, land transfer tax, etc.
The federal budget proposed to increase the withdrawal limit for first-time home buyers using the Home Buyers Plan, from $20,000 to $25,000 (per individual). Under this program, first-time buyers would be permitted to withdraw funds from their RRSP, tax-free, to be applied toward the down payment on a home. Amounts withdrawn under the HBP must be repaid over a 15-year period, starting the second year following the year of the withdrawal.
Home Renovation Tax Credit
The budget proposed a 15% credit to be claimed on the portion of eligible home renovation expenditures exceeding $1,000, but not more than $10,000. This translates into a maximum tax credit of $1,350. This will apply to eligible home renovation expenditures for work performed, or goods acquired, after Jan 27, 2009 and before Feb 1, 2010, pursuant to agreements entered into after Jan 27, 2009. Credit can be claimed on eligible expenditures incurred on one or more of a person’s eligible dwellings, including houses, cottages and condominium units owned for personal use.
Did you know that the average net worth for households in 2005 was:
$11,000 for those renting; $375,000 for homeowners with mortgages; $764,000 for mortgage-free homeowners. Source: People Patterns Consulting, 2005
Ross Wilson is a retired veteran real estate broker who successfully practiced for over 44 years in city, suburban, rural and recreational property. He’s owned, operated and managed his own brokerage, recruited and trained hundreds of sales reps, and has personally and professionally coached veteran agents for many years. Contact him at www.Realty-Voice.com