Why Use A Realtor When Buying A Home or Property
Don’t be misled into thinking that the purchase of a home or property is a simple process and that you really don’t need to work with a real estate professional. Just as you do in your job or profession, most professional realtorswork full-time in the business of real estate and have constant day-in/day-out experience, 365 days a year and so they know what to expect and also to expect the unexpected. To be a licensed REALTOR®they have also been through extensive training on how to navigate through the often complex process you are about to commence.
Did you know that the real estate salesperson that has listed the home for sale has a legal responsibility to the seller of the property?
Did you also know that a REALTOR® who acts on behalf of a buyer also has a legal responsibility? That responsibility of honesty, integrity and confidentiality is with YOU the buyer.
How about the payment of commission? Did you know that the seller typically pays the total commissionpaid and that you the buyer do not? Make sure you ask because there are some real estate salespeople who do charge the buyer.
So Why A REALTOR®?
- Purchasing a home or property is a complicated process and transaction
- Your REALTOR® must protect your interests in all discussions. They will provide YOU with the confidence that you will not only find but purchase the perfect property at the best possible price
- Locating the right home at the right price can be stressful and time consuming
- As a full-time professional your REALTOR® knows what to expect and also what is currently happening in the marketplace
- REALTOR®’s provide objectivity and remove the subjectivity – this is valuable when you come across a property that has certain features that may not be the best investment for you or may mean that you don’t get something else you need or will want in the future
- You will get full access to MLS data including property history, sales history and other sold, expired and active listings
What Will A Professional REALTOR® Do For Me
- Help you find the right home to purchase and preview properties for you to save your time
- Help you to better understand the whole process including the upfront and ongoing costs of owning a home
- Listen to you – ask the right questions of all parties involved to determine your MUST haves, NICE to haves and also considerations for the future. This includes determining how well you qualify for a property
- Provide you with information about current market conditions including recent listings, expireds and sales data in the area or neighbourhood you desire
- Help you navigate through the legalese and inform you about local bylaws, zoning requirements and future development that may affect your decision
- Show you homes that you might not otherwise have discovered using MLS, including For Sale By Owners and as yet unlisted or expired properties
- Help to develop an offer that protects your best interests by including contract clauses and in regards to timing
- Negotiate the best possible purchase agreement
- Refer you to other professionals and service provider contacts and provide assistance in finding and arranging mortgage financing, home inspection, tradespeople that may be required, landscapers, legal counsel and insurance
- Manage the details related to closing the purchase agreement
How Should A Client/Customer-Agent Relationship Develop?
- Initial meeting–Will be held at your REALTOR®’soffice or at your residence. You will need to gather important information about your requirements (such as location, price range, motivation, financing, etc…). Also, the various costs associated with buying a home, and home ownership, are discussed.
- Buyer Representation – Once you have decided that your REALTOR® is patient, competent, and excited about representing you in a real estate transaction, the next step is Buyer Representation.The Buyer Representation agreement ensures that we are working entirely for you (not the sellers). Without this agreement, when we are showing you homes we are essentially working for the vendors of those homes. You will not gain proper insight into vendor motivation, pricing, and comparative values without having Buyer Representation.
- Home Viewings– This is the most exciting aspect of buying a home and your REALTOR® will set up appointments to view houses around your schedule. A typical day out could consist of 1 viewing or 10 viewings. Usually, 5 viewings per appointment represents a wise amount otherwise you will be rushing and will be more concerned with making it to the next appointment rather than feeling what each house has to offer.
- Putting In An Offer – Often times, first-time home buyers will not grasp the importance of timing with regards to putting in a reasonable offer on a property they love. This, unfortunately, is most often learned through trial and error. Losing out on a home you were ready to purchase is a terrible feeling.There is a fine line between a REALTOR® gently reminding a buyer that time is of the essence when deciding to put in an offer on a home they love, and a REALTOR® aggressively insisting that they put in an offer. The reason it is a fine line is that they both sound like sales pitches, even though the first example has the buyer’ best interests in mind. Ultimately, if it is the home for you – put in an offer.
- Negotiating The Offer – In most cases, your initial offer will be different from the asking price. This discrepancy requires “negotiation” to arrive at a mutually agreeable price. Negotiation also extends to other facets of the offer including closing dates, clauses, and deposits.A REALTOR®’s training and experience with negotiations will shine here and we will represent your interests 100% during the process.Just as a note, despite our experience and competency, be prepared for an unreasonable seller who might simply be “testing the market”. It is not frowned upon to walk away from an unreasonable vendor. We will advise you if we feel that is the case.
- Conditional Period – After you and your REALTOR® has concluded negotiations and an accepted agreement is activated, the conditional period starts. This conditional period allows you, the buyer, time to arrange financing, confirmation of insurance, and also allows time for a home inspection.Once the financing and insurance has been finalized and the home inspection has been completed without a hitch, fulfillment of condition documents are signed to satisfy the “conditions” in the agreement. What is left is a “firm” agreement of purchase and sale.
- Preparing For The Move– Your REALTOR® will guide you through the moving process by answering all your specific questions, offering you preparation and moving checklists, and keeping the lines of communication open.
- After Closing – Finally, you are in your home, enjoying the benefits of home ownership. Your REALTOR® will ensure that everything is as it should be with the home, based on the safeguards included in the agreement of purchase and sale.Hopefully by this time, we have forged a great relationship based on trust, patience, guidance, and friendship, however, we do not feel the business relationship has ended here. Always feel free to contact your REALTOR® at any time with any concerns or questions. We want to be your REALTOR® for life!
Understanding the Cost of Buying
Although there are many good reasons for you to buy a home, building personal wealth ranks among the top of the list. Often referred to as an “accidental investment”, home ownership may be the best you ever make. When done right, buying a home can be an “intentional investment” that will help in preparing a solid foundation for your family’s financial well-being for years to come.
Base your decision to purchase a home on the facts and not on the fears.
- If you are paying rent, there is a good chance that you can afford to buy
- There is never a wrong time to buy the right home
- The lack of a substantial down payment doesn’t prevent you from making your first home purchase
- A less-than-perfect credit score won’t necessarily stop you from buying a home
Your REALTOR®and your mortgage broker or lender can advise you on the costs of securing a mortgage and paying land transfer taxes. You should ask your lawyer to give you a detailed breakdown of closing costs. Don’t overlook the cost of moving to your new home or doing those little things that make the home yours, like landscaping, decorating or buying new appliances, window coverings or furnishings.
What Other Professionals Do I Need
Your home purchase is likely going to be the biggest investment you will ever make. At this point don’t surround yourself with self-professed experts like the Uncle who has “been through that more times than I can count” , while he means well he may not do this for a living. Certainly listen to your family and friends but also involve a professional who has done this numerous times.
The team consists of a mortgage broker/lender, a lawyer, an insurance agent, a home inspector and possibly other specialized tradespeople if you are dealing with unique issues.
The typical real estate transaction will involve a few dozen separate individuals dealing with insurance, financing, assessors, underwriters, inspectors, buyer and seller agents, bankers, title researchers, and a number of other individuals whose actions and decisions have to be orchestrated in order to perform in harmony and get a home sale closed. It is the responsibility of your REALTOR®to coordinate all the professionals involved in your home purchase and to act as the advocate for you and your interests throughout.
What is a mortgage broker?
A mortgage broker is a licensed mortgage specialist who can tell you what’s available in the marketplace from banks and lenders across Canada and can guide you through the mortgage process. Mortgage brokers are also able to pass volume discounts directly on to you because of the high quantities of mortgage products they acquire.
The mortgage broker originates your mortgage financing for you, but a bank or financial institution provides the money and services your mortgage after the closing.
If you haven’t already gone through the mortgage pre-qualification process, you will need to find a good mortgage broker/lender to assist you during the purchasing process and for as long as you have your mortgage.
There are many different institutions that lend money for mortgages, such as banks, trust companies, credit unions, pension funds, insurance companies and finance companies.
Your REALTOR® works with specialists in this field all the time so they are a good source for a referral. You may already have someone in mind that has done work for family or friends but it’s a good idea to speak with a mortgage broker/specialist because terms, options and rates will vary
You will need a lawyer to protect your legal interests. Often even the seller of a property is unaware of outstanding liens, charges or work orders. Your lawyer will review all contract documents before you sign them, especially the Agreement of Purchase and Sale.
There are lots of experienced real estate lawyers out there. Ask your friends or co-workers but be sure they work in real estate and are familiar with the local bylaws. Your REALTOR® will happily give you the names of several lawyers experienced in real estate. Be sure you ask your lawyer how they structure their fees, and get an estimate of the other legal costs you can expect as they can vary tremendously.
There are a lot of legal steps to transferring ownership of land from one person to another. Even if pitfalls like fraud, government legislation, zoning issues or unpaid taxes don’t come up, your lawyer will more than earn their pay by making the legal transfer of the home a smooth one.
Before hiring a lawyer be sure to ask questions so you are comfortable that they will answer all your questions in plain language and be there to help guide you along the way.
You should seriously consider involving a professional home inspector to evaluate any home you are thinking of buying.
Their role is to inform you on the property’s condition. If mechanical or electrical systems aren’t functioning properly they may be unsafe and you need to know about it before agreeing to purchase a home. There may also be repairs that may be minor if addressed now and the seller may even complete these at their cost prior to the closing of the sale. Your home inspector can also identify areas where there have been past problems and provide advice and comment on whether you should be concerned moving forward.
Currently in Ontario there is not a uniform certification for home inspectors nor is there a specified education requirement for someone to offer this service. However, there are well established certification programs provincially and within the industry and you would be well advised to select a home inspector who has completed one of these programs and is affiliated with a recognized association. More information can be found at the Canadian Association of Home and Property Inspectors at http://www.cahi.ca The cost of a home inspection is money well spent.
You will want to work with an insurance broker for your property and mortgage life insurance needs. Your lender will require property insurance on your home as security for their loan. The cost of property insurance will vary as it is based on your homes replacement value.
Typically your lender may wisely suggest that you purchase mortgage life insurance. This would ensure that the mortgage value would be paid in full in the event of your death prior to mortgage retirement. Your lender often provides this type of insurance and the monthly premiums can be tied in with your mortgage payments. It is definitely worth your time to ask your property insurer or if you currently have a life insurance provider as they may have very competitive rates for you to consider.
You should also be aware that mortgage loan insurance (see Financing below) may also be required if you have a high ratio loan.
Financing the Purchase of Your Home
Just the thought of owning your own home can be a tremendously exciting thing,while the thought of taking on a mortgage,not so much. After all this is your single biggest investment so it represents a large financial commitment. It’s okay to be a little overwhelmed at the thought of it.
To minimize your anxiety do your homework in advance.
You will need to choose a lender/mortgage broker and make an application for pre-approval first. They will give you several payment options which are talked about below.
How much house you can afford?
Your lender decides what they will lend you to buy your home, but YOU decide what you can afford.
Lenders are certainly careful, but they will make their decisions based on averages and formulas. They likely will not understand the subtle differences of your lifestyle and what you consider normal spending on day-to-day items. That’s up to you to have a handle on. So, leave a little room for the unexpected as there are always going to be things to spend money on with your new home. Whether its things you choose like furniture, appliances or landscaping or it’s the repairs that will eventually come with home ownership.
In Canada lenders apply formulas to determine how much you can afford. The Gross Debt Service ratio (GDS) which is your mortgage payment, interest & taxes (PIT) compared with the buyer’s gross monthly income and it cannot exceed 32 percent. And the Total Debt Service ratio (TDS) or debt load, including car payments, student loans, and credit card payments, is not to exceed 40 percent of the buyer’s gross monthly income. As home prices have risen, some lenders have responded by stretching these ratios to as high as 50 percent. No matter how expensive your market though, we urge you to think carefully before stretching your budget quite so much.
Deciding how much you can afford should involve some careful attention to how your financial profile will change in the upcoming years. In the long run, your own peace of mind and security will matter most.
How are mortgage brokers paid?
Their commission is paid by the bank or lender providing the mortgage product based on how much money the consumer borrows. Mortgage brokers aren’t compensated on the interest the bank makes, so they don’t receive a higher commission if the client chooses a higher rate. It varies a bit, but the commission generally works out to an average of $80 per $10,000 of the consumer’s loan.
What is a fixed mortgage rate?
‘Fixed’ means your interest rate and regular payments will be the same for the duration of your mortgage term, whether rates rise or fall. It offers you stability and the least financial anxiety. But if interest rates drop significantly, you may be stuck paying a higher rate for the duration of your term, depending on the flexibility and features of your mortgage.
What is a variable mortgage rate?
Your mortgage payments will go up or down with the fluctuations in the ‘prime rate’, which is the market interest rate. The danger here is that a significant increase in the ‘prime rate’ increases your interest payable as well. But if it decreases, you’ll pay less.
What‘s better? Fixed or variable?
While over 60 percent of Canadians opted for a fixed mortgage rate in 2011, variable rates tend to be cheaper over time. Conversely, you may sleep better knowing you’re not subject to interest rate fluctuations. Making the right choice depends largely on the current rates at the time you’re taking out your mortgage. When interest rates are low and aren’t expected to drop further, locking into a fixed rate may be your best option. However, if experts are projecting that interest rates may fall, you’re probably better off with a variable rate, especially if there’s a significant difference between the fixed and variable rates.
What is a closed mortgage rate?
A closed mortgage can be fixed or variable. Closed mortgage rates are popular because they’re lower than open mortgage rates but unlike an open mortgage, you’re restricted on how much principal you can pay down annually and there will be a penalty to pay a closed mortgage out early. Terms range from six months to 10 years. Despite their low rates and relative stability, there are disadvantages so read the fine print before signing.
What is an open mortgage rate?
An open mortgage can also be fixed or variable. The interest rate will be higher than for a closed mortgage but it’s more flexible. Generally, you can pay an open mortgage off anytime or make additional payments without penalties. Terms range from six months to five years so you can’t lock in for as long as a closed mortgage. If you want to get rid of your mortgage quickly, or think you may be selling or moving in the near future, this is a good option.
What is CMHC?
Canada Mortgage and Housing Corporation (CMHC) is a Crown corporation that mainly provides mortgage loan insurance to residential home buyers. It was originally set up in 1946 to arrange post-war housing for veterans. Today it helps Canadians who can’t easily afford buying a house through their mortgage default insurance program.
What is mortgage default insurance?
It’s a type of mortgage insurance that’s mandatory in Canada if your down payment for a residential property is less than 20 per cent of the purchase price. The major provider of this insurance is the Canada Mortgage and Housing Corporation.
The insurance will cost you between 1.75% and 3.6% of your mortgage amount and the insurance cost will be added to your mortgage. It protects the banks and the money lenders if a home owner defaults on their mortgage but doesn’t protect the homeowner. However, lenders do offer lower mortgage rates because their risk is decreased.
Finding the Right Home
You will no doubt come across a few “perfect” homes for you and your family but you must always be realistic with what you can afford and what may actually be the right home for you now and in the near future.
Many factors go into the market value of a property, from the general location of a neighbourhood to the specific location of backing onto a park or on a cul-de-sac or a corner lot. From the style of home to the layout and from the way the home is presented with outside landscaping and inside trims to all the upgrades and updates that have been made to the home. Unless you just won the lottery or are fortunate enough to have an unlimited budget you are going to have to make a number of trade-offs and compromises. Make a list of the most important features and priorities and share all of that with your REALTOR®. Rely on your REALTOR®’s advice as they are viewing your purchase on a much more clinical viewpoint than you are. They will target your best possible property options while eliminating properties that are not going to meet your needs, goals and long term plans.
You may think that shopping for a home starts with jumping in the car and driving all over town. It’s true that hopping in the car to go look at homes is probably the most exciting part of the home-buying process. But the shine of looking at homes wears off pretty quickly when weeks go by without finding what you’re looking for.
So that’s why we stress that looking for your home begins with carefully assessing your values, wants, and needs, both for the short and long term.
Here are some questions to ask yourself:
- What do I want my home to be close to?
- How much space do I need and why?
- Which is more critical: location or size?
- Would I be interested in a fixer-upper?
- How important is home value appreciation?
- Is neighborhood stability a priority?
- Would I be interested in a condo?
- Would I be interested in new home construction?
- What features and amenities do I want? Which do I really need?
It makes a lot of sense to create your home wish list
Before the search begins, your REALTOR®will want to know as much as possible about the features and amenities you desire. Help make this process easier by creating a list of what you want and what you need in a home’s features and amenities.
- Age: Do you prefer historic properties, or newer ones?
- Style: Do you have a special preference for ranches, bungalows, or another style of construction?
- Bedrooms: How many?
- Bathrooms: How many? Are they updated?
- Living and Dining Areas: A traditional, formal layout, or a more open, contemporary plan?
- Stories: How many?
- Square feet: How much space?
- Ceilings: How high?
- Kitchen: How big? Recently updated? Open to other living areas?
- Storage: Big closets, a shed, an extra-large garage?
- Parking: A garage or carport? Room for how many cars?
- Extras: Attic or basement?
Amenities can be:
- Play/exercise room
- Security system
- Laundry room
- In-law suite
- Pool or Hot tub
- Patio, deck, or porch
Where you buy not only affects the home’s current and future value, but it also affects your lifestyle. Your agent will be able to conduct a more targeted home search if you outline your preferences in neighborhoods and nearby amenities. Here’s a checklist of items you should consider and communicate to your chosen real estate agent.
Location considerations can be:
- Urban or rural
- How far from work
- Certain neighbourhoods
- Access to shopping and entertainment areas
- Public transportation
- Health care
- Parks or golf courses
Negotiating a Deal
YourREALTOR® will assist you in making the right offer by:
- Providing you with solid advice on your proposed purchase price
- Ensuring that you are protected by including the right contract clauses for your unique situation
- Actively negotiating on your behalf for the best price
- Negotiating your best possible closing date
- Assisting you with the selection of legal counsel especially for matters that may require special knowledge
Work with your REALTOR® in discussing the schedule of events that have to happen between acceptance of an offer and the closing date. Make sure you understand what stays with the house and what goes with the seller and be clear about who pays for the closing costs.
Do Your Homework
Don’t forget about protecting your interests and your investment. Work with your insurance agent for the best package to cover against property loss or damage and for liability if someone injures themselves on your property.
Home inspection is another form of insurance so you know what you are getting into. That’s why we have set aside a whole section to talk about this part of the equation.
What does a home inspection provide for you:
- Peace of mind
- Helps to avoid possibly costly mistakes
- Alerts you of the potential concerns so that you can negotiate with the seller about making repairs
- Provides you with insight on how the home operates
- Detects potential problem areas
What is a Home Inspection?
- A thorough non-invasive visual inspection – while your home inspector cannot look behind the walls, except for the use of equipment to detect moisture and heat loss through the wall, a certified inspector has the knowledge to know what to look for and will then alert you to either the need for a more in depth assessment or to the latent material defects that exist
- Examination of the property outside the home
- Includes a printed report
- The home inspection will take between 2 and 3 hours
What a Home Inspection is not.
- Does not detect every conceivable flaw
- Is not a property appraisal
- Does not provide a warranty
What a Home Inspector inspects:
- Water heater
- Air Conditioning
Closing the Deal
Your closing date is the day you will want to circle on your calendar – it’s when your purchase is finalized and you become the proud owner of a new home. Closing dates are typically 30-60 days after the date you sign your Agreement of Purchase and Sale, and quite often fall on the last business day of the month. Because your closing date is the day you take legal possession of your home, there are a number of things that need to happen.
Your almost there now and most of the work left up until the move is in the hands of the professionals on your team. You have to close the deal first. Your REALTOR® and lawyer will do most of the closing work, but here’s some things for you to think about and do.
- Immediately begin satisfying any conditions of the agreement that require action on your part. Your REALTOR® can fill out the documents stating that the conditions have been satisfied.
- Your lawyer will begin searching title to the property. This can take a while, so listen to the advice of your REALTOR®to make sure you allow ample time.
- Well before closing, get your homeowner’s insurance to be effective on your closing date. Your insurance broker will give you a ‘binder’ letter certifying that you’re covered. You can’t get a mortgage without this letter!
- Contact your lender and have them finalize your mortgage documents. You may want to have your lawyer review them before you sign.
- Your lawyer may transfer essential utilities like hydro and water, but you’ll have to make sure telephone and cable companies switch their services to your name.
- If you rent, give notice to your landlord or sublease your apartment.
- Begin planning your move.
- Don’t forget about address changes particularly for your driver’s license, health care and with your employer. Complete a change of address card at the post office.
- A few days before closing, you’ll meet with your lawyer to sign the closing documents. Your lawyer will tell you in advance what certified cheques you’ll need to seal the deal.
If the timing of the close is any time prior to the date you must vacate your current home take advantage of the opportunity to complete the things you want done before moving in.
Your closing date and your move-in date could technically fall on the same day. No matter what date your closing date falls on, you cannot move into your home until it is registered in your name.
If you close on your home in the morning or early afternoon, you could potentially move in on the same day. But, for the sake of your sanity, you may want to consider waiting until the next day or the first weekend following your closing date. If you’re a first-time homebuyer, you may be itching to get into your home, but people who are buying and selling homes at the same time may be stressed to the max. Depending on when you have to vacate your current home, your move-in date may be entirely up to you. We suggest picking a day that works best for you and everyone who is going to help you.
Check with your REALTOR® about the timing for delivery on moving day at your new home. If the agreement says that close is at 5:00 p.m. make sure your mover knows not to show up before that as the seller may also still be moving out. It’s also a good practice to have your REALTOR® stay in touch with the current owner through their real estate agent to coordinate times and to make sure everything is on schedule.
The following tips can help your move go smoothly:
Check in Advance
Moving companies are limited by law as to how much they can protect you (liability) for lost or damaged goods. To cover potential damage or loss, check your existing homeowners insurance policy as to whether it can be used as a supplement. Also look into transit insurance as a supplement.
Carefully document an inventory of your belongings before you pack.
Make sure you know exactly what moving services the moving company will perform.
Information the Movers should Know in Advance
Inform the moving company of how many stairs there are at your new home or apartment.
Inform the moving company of low-hanging utility wires or tree branches in your current and new neighborhood, as it may impede the moving truck getting to your residence.
Contracts and Guarantees
Have the contract include a guarantee of how many hours the job will take.
Check that the contract clearly includes all charges and important dates; packing, pick-up, delivery, etc.
DO NOT leave your old home before the movers are completed loading the truck and are ready to depart for your new home (or storage, if the case may be). You must sign the bill of lading. If you do not sign the bill of lading upon completion of loading the truck, you open yourself to liability.
What you can do to help the Movers
On moving day, you should have everything ready to go but a few small things can make all the difference. For instance, when the movers show up in the morning, have fresh, hot coffee ready for them. This small gesture will help “warm” them up to you and a small amount of personable behavior never hurts when they’re carrying your beloved arm-chair. Likewise, you should also consider buying a couple pizzas for lunch.
What else you can do to help the Movers
Make yourself available to answer any of their questions or speak with them regarding any concerns. Open communication is key to your moving day. Make sure you know exactly what is going on. If you feel uncomfortable about something, let them know as soon as possible so it can be addressed. Be careful not to micromanage your movers. They do this for a living and draw from a deep well of experience. That said, if you are unsure about something make them explain it.
Do what you can to keep the mood light and spirits up. It will go a long way to making a long day a rewarding day!
Some Extra Tips to Remember
Important documents such as wills or deeds, jewelry, computers, artwork, photographs, and home videos are impossible to replace. Consider either transporting these to your new home on your own or moving these and other important belongings to a safety deposit box while you move.
Remember to fill any holes left in the walls. Your local hardware store will carry wall putty which is effective and affordable. This could mean a sizable difference in your security deposit (if you rent).
Throughout the course of your home-buying experience, you have probably spent a lot of time with your REALTOR®. That relationship of trust and good communication is one that you likely don’t want to just discard after your move. In fact, your REALTOR®wants you to keep in touch.
Your REALTOR® can still:
- Help you find contractors to help with landscaping, home maintenance or remodeling.
- Help your friends find homes, maybe nearby or just far enough away to remain friends.
- Keep track of your home’s current market value.
Protect your investment by maintaining a solid routine of home maintenance. There are two main categories:
- Keeping it clean: Perform routine maintenance on your home’s systems, depending on their age and style.
- Keeping an eye on it: Watch for signs of leaks, damage, and wear. Fixing small problems early can save you big money later.