100 Questions I Wished I Asked Before Buying My First Home (part 2)
A big welcome back to everything thinking of buying a home. This is the second part of our series where I answer the most asked questions by home buyers. In today's installment, we have questions about realtors in general, deposits, down-payments and what type of house you should consider, so let's get started!
1. This is my first time buying a home. Do I need my own real estate agent/broker?
This question usually comes up when a buyer meets an agent after calling in about an ad/sign or attending an open house. Quite often it is an inexperienced buyer that believes the agent knows the most about the house because they listed it, so that means the agent will do a good job for them.
This is simply not true. While they might know a lot about the house in question, they work for the seller! They are being paid to represent the seller's interests, not yours. While it is legal to represent both sides in a transaction, it is not a good idea. Who do you think the agent will be helping in the negotiations?
Agents will argue that they can service both sides successfully, but they have a very big financial interest in that argument. They get paid twice for the same transaction that way, often making twice as much.
Since you can pretty much throw a rock out your window at midnight and hit two agents with it, why not get one that represents just you? It will cost you the same upfront, and will likely save you some money in the long run.
2. Ok, so I have a real estate agent, do I need a lawyer as well?
YES! While a real estate brokerage does a lot of the work to complete a real estate transaction, the actual transfer of property is still a lawyer's domain. Even a paralegal can do a title search, but to convey an interest in real estate takes a lawyer.
3. How flexible am I regarding my needs and wants?
This is a question I ask all my clients, as a way to feel out what their major motivations are. Small compromises can make a big difference in the affordability or availability of your ideal house.
Take me and my wife as an example, we spent years talking about buying a home before we took the plunge. My wife prioritizes a short commute time and hates driving in the winter. For years I have wanted to buy a property that is never on the market within the city limits, something with a 5 or 6 bedrooms newer home and lots of flat yard for a pool, garage, parking for the camper. Houses like this don't come up for sale too often in town, and if they do they are priced well out of my budget. But my wife won't give up her shorter commute time so we are still living in town.
Having this conversation early in the process saved us a lot of time viewing properties we couldn't afford or that were too far out of my wife's comfort zone. We decided to concentrate on Holland Landing when we look for our next home. The wide lots allow for a pool and parking, and the location isn't too far off the major highways for my wife's drive.
4. Should I buy a fixer-upper to save money?
That depends, are you handy? Not just sort of handy, but very handy? And do you have flexible time? Lots of it? Do you mind buying a home that will be a construction zone for awhile?
If you said no to any of these, you might find that a fixer-upper isn't for you. I have found over the years that the typical homebuyer has a romanticized idea of what condition a true fixer-upper likely is. A few of the things I have found in fixer-uppers over the years;
- Rats
- Raccoons
- Squatters
- Broken Beams
- No Plumbing
- Knob and tube wiring
- Cast iron pipes
- Missing furnace and copper piping (long story, it was likely stolen for scrap metal)
Now don't get me wrong, there are still a few fixer-uppers that don't require a hazmat suit and Mike Homes to pop by for a few months. But, they aren't the deal that you think they are either. They are likely priced accordingly to their condition, so you're not going to be saving the fortune that most first-time homebuyers dream of.
And did I mention, renovations are expensive, even when you're a pro? A full kitchen remodel can cost between $25,000-$35,000 alone. A good idea when thinking of remodelling yourself, if you have a final cost in your head, double it at least. It's always more expensive than you initially believe.
If you are going to consider a fixer-upper type house, do yourself a favour and have a home inspection and at least one contractor evaluate the home before putting in an offer. Then you will have a better idea of how much time and effort will be involved and can position your offer accordingly. Hopefully, you won't find too many surprises as you renovate and repair.
5. How much downpayment do I need?
Downpayments are required by Canadian Lenders. I know you heard that guy on late-night TV who invested in real estate with "no money down".
"No money down" mortgages are terribly named, they should be called "someone else's money down" mortgages. These types of mortgages usually involve borrowing the downpayment from a third party, increasing the debt in the house. Why are they called "no money down"? Marketing I suspect.
So in the harsh reality of daylight, how much downpayment do you need?
There are two paths you can follow here. You can go for the traditional downpayment, 20% if you have that in your savings. Many buyers find that with the price of homes in the GTA that finding that $140,000 to $180,000 for a downpayment is impossible. In that case, they can put down as little as 5%, with mortgage insurance.
Here's how mortgage insurance works, if you can't afford the typical 20% down, you can purchase the insurance and make a downpayment of 5% on the first $500,000 borrowed, then 10% on the rest up to $1,000,000. 20% downpayment is required on every dollar over $1,000,000.
The Government of Canada has a page dedicated to the subject with some examples of how much the loan premiums would be, you can find it here.
6. How do realtors get paid?
We earn commission on each sale. In the Newmarket area, you'll typically pay a 5% commission when buying a home. This amount is split between the seller's brokerage and the buyer's brokerage. So 2.5% to each brokerage.
At this point, it's hard to say how much your agent will take home. It depends on his/her deal with their particular brokerage. Sometimes it a fee-based deal or it can also be a commission split.
Usually, the individual agent pays out of pocket for all their listing/selling expenses, all their monthly business overhead and any incidentals. So whatever is left is their earnings.
Something to think about, your real estate agent could wait as much as 4 months after a transaction closed to be paid for that transaction. So the next time you read on the internet that we're all over-paid, you know the real story!
7. How much should I offer?
You've found a place you like, and you want to make an offer but you don't want to overpay. How do you know how much to offer without coming in too low and getting no response, or offering too much and overpaying?
Well first, what phase is the market in? Are houses selling for over asking after only a few days on the market, or are they hanging around with few offers for weeks or months? Knowing if it is a buyer's, seller's or balanced market will go a long way to positioning your offer.
Working with a local full-time realtor is a must. Local knowledge that includes average days on market, average listing to sales price ratio and the average number of offers will tell you what phase the market is in.
As well, your local realtor should know where they would price that house if it was their listing. Judging from that, your realtor will know if the house is priced to sell or to sit. A well-priced house will sell fast, over-priced houses will likely languish on the market.
A popular tactic that we're seeing more and more is the under-priced listing. An under-priced house is usually an attempt to draw multiple bids. It uses a tempting price to draw a lot of attention, attempting to create an emotionally charged bidding atmosphere that ends up driving the price much higher than the listing would have sold for otherwise.
A good agent will different strategies with you before you place an offer based on the phase of the market and how the listing is positioned within it.
8. Does the local or regional government offer any buyer incentives?
This is a question I wish more buyers asked, and more agents talked about. I have heard stories of municipal grant money going well, "ungranted" because no one checked the municipality website to see what was available.
For example, Simcoe County has a grant program that allows current low-to-moderate-income renter households, in Simcoe County a chance to qualify for a 20-year forgivable loan of 10% for a down payment when buying a home in Simcoe County. The program at the time of writing has a waiting list, but applications are still encouraged. You can find out more about it here.
9. How much should I include with my offer as a deposit?
A deposit is used to convince the buyer that you are serious about your offer and seeing the transaction through. The standard rule of thumb is about 1% to 3% of the purchase price. That being said, if you're in a buyers market and you just have to have this house, I suggest going as high as you feel comfortable.
Here is why, you're putting money into the seller's hands, then asking them to give it back to you if they want to turn down your offer. The deposit doesn't go into their pocket when they accept the offer, but psychologically they know it is there. You're making it unattractive to give that money back if they turn it down, and if they do turn it down, you're still out nothing.
10. Do you know a good lawyer/home inspector/contractor et?
Of course. And a good roofer, plumber and even a guy who will do a bang-up job cutting your lawn. Want an introduction? Clients who sign up for preferred client status get access to my homeowner's concierge service, including my list of vetted professionals. You can find the link at the bottom of the page. It's free and painless and you can quit anytime.
I hope you found these questions helpful. You might want to check out the other posts in the series, you can find their links below. And if you have any more questions, or need help buying a home, you can send me a text or give me a call at 905-716-9017 and I would love to help you.
