Every so often I get asked the questions, "How do I buy a home?" and, "What's the process?"
Having dealt with hundreds of home buyers - both first timers and repeat buyers - this process is really pretty straight forward for any real estate broker. For a buyer, who only buys a house once every perhaps 5 or 10 years, this is sometimes a pretty foreign process. Some people haven't bought a home in so long don't realize things have evolved. Way back in about 1994, the courts and federal competition watchdogs in the US and Canada came to the conclusion that buyers deserve their own representation in the home buying process in order to have their interests protected and to get the best deal on a home. Unfortunately, in 2013 we still see some homebuyers start the process and call up listing agents to ask questions and to view the home. Or they visit open houses without their own representation hoping to get the inside scoop and a great deal on the home. Well my friends, that just isn't going to happen. The seller's agent is always legally obligated to look after the seller's best interest. The best you can hope for is that the seller will allow them to advocate for neither side and just help with the transaction.
So here is the process that I recommend:
First, find a real estate broker to represents your interests, to help you filter out the dozens, hundreds or thousands of candidate properties, provide you with truly comparable properties and provides a buying recommendation with integrity, to help create an offer to purchase, help you through the negotiations and ultimately help you through meeting your purchase conditions. A really good one will be able to provide you some insight on homes without even having to visit them to flag any deals and reject the greedy unrealistic sellers, as well as provide some really solid advice on the trending of a neighbourhood or street and, of course, future resale value. Your real estate broker is almost always paid for by the seller, through the proceeds of the sale, so why not? Even in the unlikely situation where the seller refused to fund your broker's fees directly, then you'll have further bargaining power to further lower the selling price. Your choice of real estate broker should be based on whom you really feel comfortable with and whom you feel will fully represent your interests in any situation. You should look for recommendations based on knowledge, skill and personable skills. Check to verify they are currently licensed and that they have appropriate certifications and/or more than just a basic license to trade in real estate. Don't base your selection on who sends out the most amount of post cards, who has the most amount of signs or who does the most amount of advertising. And never fall victim to "bait and switch" advertising like a "free list of foreclosures." Sure everyone wants a great deal on a home, but foreclosures are very seldom even good deals in Canada.
After several home shopping expeditions, you should feel comfortable with signing the required Buyer Representation agreement. This clearly identifies what you're looking for and both parties responsibilities in the process. You needed sign one right away with them nor should you sign one that is effective for more than say 30 or 45 days. It just needs to be long enough to complete a purchase of a home. If the time in the agreement isn't long enough it can always be extended. The issue with having one that's initially signed and effective for months, is that if you decide that you need to change brokers, then it is difficult if they don't agree to release you (in writing). Rarely do I have my clients sign an agreement that allows me to take "whatever the seller is willing to pay." I do have a minimum, as well as I have seen so many bonuses offered by sellers to bring a buyer to purchase their overpriced home, that I personally don't think my clients would be appreciative of a bonus that could effectively double the amount that I expect to get paid on a deal.
Second, don't even click on a home search website without getting a mortgage pre-approval. This is all about money and what you can afford -- not about what is sexy in today's homes. You need to determine a realistic price range. Once you have provided your bank statements, verification of your down payment, confirmation of employment letter, pay stubs and the most recent tax return (Notice of Assessment), you'll get from the mortgage broker (or lender's staff) an approval for a maximum mortgage amount, terms and rate. Don't just look at the rate -- The rate is not the most important thing, but it does play into how much you'll end up paying each month and clearly what you can afford. Look at the terms like prepayment privileges and portability. If don't know what those terms are, then you're not ready yet to go shopping for homes. Okay, once you have those numbers take the maximum approval amount, add your down payment and that's the absolute maximum value you're allowed to buy. Based on your current lifestyle, you may need to use only half or three-quarters of the approval amount as your top end target for home shopping. Share that number with your real estate broker (as well as the amount of down payment and the interest rate that you're approved for). Remember, this is about buying shelter and it is a very long-term financial commitment. Don't overextend yourself -- the repercussion are quite serious.
If you're looking for a good deal, then don't go shopping during a seller's market (even if you have a home to sell first). Clearly, no bidding wars -- ever! Learn to walk away if there are multiple bids! No one wins a bidding war -- the "victor" is skewered by the seller - for price, terms and conditions (if any)! There are always other properties coming onto the market tomorrow, next week and next month. Usually, homes that will attract bidding wars are easy to spot - just keep your distance.
Search for the stale listings. The stuff that has been on the market several weeks. Your real estate broker should be able to help you spot the ones that are relisted for sale so they appear new, when in fact they're not. Those are the houses that were overpriced for their condition and the market by greedy sellers and have gone stale, despite reductions. When they return to the market, often the seller has realized their error and have now decided to sell instead of just listing their home for sale.
Wait for the blistering heat of the summer or when there is snow! Sales volumes peak two times per year -- in the spring and in the fall. When there is snow or in the heat of the summer, the sales activity is usually in a funk! There's less competition among buyers and sellers who have to get out of a property are happy to see and offer and are often very eager to negotiate to get their place sold. Besides, when there are fewer sales, the selling prices are often a little lower -- meaning that even the asking prices are lower.
Make your offer clean! If you are placing a mortgage on the home, then insert a financing condition. This is the lender's approval of the home's value - since you are already approved to make a purchase. If you are buying a condominium, insert a condominium document review condition. The financial statements and reserve fund particulars are private information that is not readily accessible prior to submitting your offer, but once you have a contract in place you'll be provided with them to review. Go through them with a fine tooth comb -- the devil is in those details! And finally, get a home inspection condition. That's where you can get to know the deficiencies of a home that may influence your decision to purchase or not. Don't insert superfluous conditions like mom's approval, or a pre-possession walk through for no other reason that a feel good exercise. A walk through is completed when you're given possession, and unless you were asking the seller to do extensive repairs, it's likely the walk-through is a complete waste of everyone's time. Opening offers that are ridiculously low will trigger a sign-back at full price (or higher) and will likely poison the negotiations. Don't go there.
Help the seller say "YES." Be flexible on the possession date to accommodate them. Allow for the exclusions they want -- like their brand new high tech washer and dryer. Never accept a sign-back that excludes the compliant Real Property Report or otherwise indicates that the home may not meet zoning or building codes. If you accept them, title insurance likely won't cover the issue since then it be a known defect.
When your offer is presented, make the sign-back period as short as possible. That day if your offer is presented in the morning, or by noon of the next day if your offer is presented in the late afternoon or evening. Four hours is usually enough to get to the agreement and have the brokers personally attend the presentations to their clients and get their signatures. You don't want the seller to have the time to shop your offer, having their agent calling up al the people who have seen the place and pushing them to write of a competing bid. That would create a competition that could drive up the price unnecessarily!
Once you've gotten the agreement and everything is signed and delivered your offer to purchase is referred to as a purchase contract, Deliver the good faith deposit, work diligently and in good faith to meet every condition. Then, if every little thing looks fine, release the conditions well before the deadline or the home will go back on the market. You won't have any further say in it and can only hope that no one has placed a back-up offer on the place and that the seller will accept the same deal in writing up a new contract. Once the conditions are formally released, you have a firm contract. Have your real estate broker deliver it immediately to a good real estate lawyer (not a corporate, family-law or tax lawyer -- a real estate lawyer.) Meet with them when the time is appropriate and deliver to them the balance of the funds required for the purchase.
On possession day, your real estate broker will get the keys for you once the seller's lawyer gives the okay. Meet with your real estate broker as soon as practical after that so that you can do your walk through and notice anything from the contract that may still need to be addressed. It's rare, but sometimes movers take appliances that were meant to remain. A few telephone calls usually resolves the situation so that you don't have to take anyone to small claims court.