When I was conducting my research for the “10 passionate Canadian personal finance bloggers to follow in 2017” post, I came across a few interesting/disturbing real estate posts from other blogs related to purchasing properties. As a Realtor, I was curious about how other non-real estate bloggers view the real estate industry and what their readers’ feedback were. To my surprise, the majority of the blog posts and comments on those posts projected a very negative view of the industry and its participants’ practices and in some cases, the projected images were outright disturbing. I won’t go into details of how disturbing those posts were. However, I will use what I had learned through personal experiences and from those posts to create a thorough checklist to guide home buyers when they shop for their properties. Instead of trying to fix the industry issues, I think that there is a better way to overcome it – prevent it from happening in the first place. The best way to do that is through education and awareness. So, I’ve composed a list of things that you can do to save money and protect yourself from an unnecessary financial loss when you are planning to purchase your dream home. This list is categorized into three sections: before you shop, when you are shopping and after you have bought.
Before You Shop
In today’s information age, there are a lot of resources on the Internet and lots of ways for people to do their research when they are shopping for items such as a flat-screen TV or a laptop or a smartphone, or a pair of shoes. People are spending more and more time doing their research before they purchased their everyday items. So why not do the same research for one of the largest purchase that you’re going to make during your lifetime? The list in this category will be focused on the research part of your purchasing experience – Before you shop for your dream home.
1) Check Your Credit Score
One of the most important thing that you can do before you start your search for a new home is to check your credit score and report. By knowing your credit history, you can contact the credit bureau such as Equifax or TransUnion to fix any mistakes that may affect your credit score. A low credit score can either cost you thousands of dollars in extra interest payments or disqualify you from obtaining a mortgage. To find out how to obtain free credit reports or to improve your financial health, check out my two-part series on how to improve your financial health.
2) Prepare Your Finance
Another import preparation step is to prepare your finance before you start shopping. Are you targeting to put down a 20% down payment so you don’t have to pay for mortgage insurance? Or you’ll be asking the bank of mom and pop to lend you a few pretty pennies that will make up the difference between the 20% down payment and your savings? Or you have some savings in your Registered Retirement Savings Plan (RRSP) that you can borrow up to $25,000 (per purchaser) to purchase your primary residence? Regardless of the method that you use to come up with the required down payment, having a rough estimate will lower the financial risk when you buy and it’ll make the mortgage qualification process a lot more efficient.
3) Get A Pre-Approved Mortgage
To ensure that buyers are able to purchase the home of their dream, the majority of home buyers will most likely have to obtain a mortgage. By getting a pre-approved mortgage, you will be able to figure out the top range of your shopping budget. Just because you’ve got a pre-approved mortgage does not guarantee that the financial institution that qualified you will lend you the money. However, if your financial situation did not change drastically from the qualification period and the signing of the purchase and sales agreement, your chances of obtaining a mortgage amount that you were pre-approved for is pretty good.
4) Set Your Shopping Budget
Just because you have the 20% down payment and a lender is willing to lend you 80% of the purchase price doesn’t mean that you should use that number as your max budget. To ensure that you provide yourself some breathing room, you should set your max budget at 90% of total down payment and pre-approved loan. The reason behind it is to have some of your down payments leftover to pay for closing costs. Remember, you have to have extra money to pay for: lawyer fees, land transfer taxes, home insurance and moving costs, just to name a few expenses. The mortgage loan does not include closing costs.
5) Search For Your Ideal Realtor
Once you’ve had financially prepared yourself, it’s time to search for your ideal Realtor to assist you with your search. You don’t necessary have to work with a Realtor. However, I belong to the Toronto Real Estate Board (TREB) and the norm for commission payment is the seller paying for both the buyer and seller agent’s commission. So, if you as a buyer are not paying for a Realtor’s service, why wouldn’t you enlist a Realtor to be a part of your buying team? Check out one of my previous posts to assist you with your search for your ideal Realtor.
6) Review The Buyer’s Representation Agreement
Once you have met with a few Realtors, (you did meet with more than one, didn’t you?) and have decided to enlist one of them to assist you, I wouldn’t recommend that you sign the buyer’s representation agreement right away. Until you have worked with that Realtor for a while and are satisfied with the services provided, then you should review the buyer’s representation agreement with your Realtor. Ensure that you fully understand the agreement and ask any questions that you may have to clarify any misinterpretations. One thing that I am strictly against is a client signing a multiple representation agreement (this type of agreement benefit the Realtor more than it’s benefiting the clients). You can read about why it’s not beneficial for buyers or sellers to sign a multiple representation agreement in my questionaires for realtors.
7) Communicate Your Shopping Requirements
Realtors are not mind readers nor do they have a secret method to identify the perfect characteristics and requirements for their clients’ dream homes. Every client is different and they come from all walks of life. To ensure that buyers maximize the skill sets of their Realtors, it’s best for buyers to communicate as much information to their Realtor as possible. The more information that a Realtor has, the more efficient the Realtor can use that information to screen suitable properties to show their clients. Information such as availability of public transit, proximity to public schools, community centers, place of worship and grocery chains can benefit both the Realtors and the buyers.
8) Analyze Market Data
To ensure that my clients are well informed about the current market condition, I always provide current market information in the form of recently sold, comparative analysis and current listings reports. This way, I can set my clients’ expectations and provide them with an overview of what may occur when the time comes for them to make an offer on a property. I strongly believe that a Realtor’s primary duty is not only restricted to assisting their client finding their dream home, but it also includes providing education and awareness of the industry to their clients. Hence, the more information that I can provide to my clients, the better they are equipped to make decisions and manage financial risks.
When You Are Shopping
For me, the fun part of being a Realtor is spending time with clients to search for their dream home. Whether we are viewing one property a week or twelve properties over a weekend, the search is often exciting and interesting every time. Every property that I have visited is different and there are always something new to learn. For example, I have learned a lot about home decor, design, and space usage, and use that knowledge to make my own property better. At the same time, I often use my showing appointments to educate my clients on what to pay close attention to, what not to do when renovating, what will increase a property’s value and take note of what they like and what they don’t. I truly believe that shopping for a dream home is a rare opportunity that most people only get to do it a few times in their lives and it’s best to enjoy the process as much as possible.
9) Build Your Buying Team
Many first time home buyers get the impression that they only need a Realtor to assist them to purchase their dream home. In reality, there are many more professionals that will be involved in the process depending on where in the buying process the buyers are at. A resourceful Realtor will be able to provide a list of professionals to their clients to work with as needed. I’ve created a resource section on my site to assist anyone who’s interested in building a real estate buying team. The more prepared you are, the better your shopping experience will be. Having a list of reputable real estate lawyers, mortgage brokers, insurance brokers, home inspectors, movers and contractors will greatly decrease your stress level and make your shopping experience much more leisure.
10 Have A Battle Plan
After working with many clients for more than five years, I noticed that people quite often use their hearts to buy a property rather than their heads. I too was guilty of that once upon a time and there is nothing wrong with that. After all, you should only buy a home that you’ll love to live in, otherwise, why buy it? With a great Realtor on your team, that Realtor will act as the head to your heart. Your Realtor will work out a battle plan with you for different situations to ensure that you stick to your plan and not let your emotion interfere with the process. Without a battle plan, some buyers may fall in love with the wrong property and they will definitely overpay for the property or go over their max budget, or get into financial trouble. So always have a battle plan ready, regardless if you think you’ll need it or not.
11) Ask Questions
Once again, Realtors are just ordinary people and not mind readers. They don’t know what you don’t know. So if you have a question, always ask. There is no such thing as asking a silly question. For example, if you see something that is out of place in a property, it’s worth asking your Realtor. Who knows what that question will lead to. Sometimes, a single question can save you thousands of dollars in the long run. Quite often, people will place a carpet over an area of a floor to cover up issues with the floor. By being inquisitive, you may save yourself a few pennies or thousands in future renovation costs.
12) Manage Your Financial Risks
As a Certified Project Management Professional (PMP), I always have risk management on my mind no matter what I do. Hence, one of my top priorities, when I work with clients, is to manage and mitigate their financial risks. It’s best to be safe than sorry. For any transactions, if it doesn’t make financial sense to me if I am in my client’s situation, I would communicate to my clients that I would not proceed with the transaction if I were them. Ultimately, the decisions are theirs to make. However, I also have to make sure that they think twice or thrice before making important decisions.
13) Protect Your Finance
Last summer, one of my wife’s relatives from oversea was trying to purchase a property through a private deal and asked me to tag along to help review the purchase and sales agreement. To my surprise, the Realtor that claimed to represent both the buyer (my wife’s relative) and seller drafted a horrible agreement. My wife’s relative’s deposit for the agreement was entrusted to a third party that was neither a real estate broker or lawyer with a trust account. Suffice to say, I recommended my wife’s relative not to sign on the dotted line. In addition, I also provided a few more pointers to him to never give deposit cheques to an individual or a brokerage without a trust account, not to close a real estate transaction within less than a month, and to always do a home inspection if possible.
14) Managing Your Offers
In an industry where unethical practice regarding offers does happen from time to time. It’s best to manage your offers prudently. For example, I have encountered a few times when I tried to make an offer on a property that was listed on the market for a couple of months and suddenly there was a multiple offer situation when I submitted my offer. Chances were, some of the multiple offers were manufactured and my spider sense signaled cautious when that happened. If an offer situation does not feel right, we need to know when to walk away. Furthermore, it’s best not to make offers that last more than 24 hours or make unnecessary offers if you don’t really love the property. These types of offers do not benefit the buyer and it’s best to avoid it.
15) Take Notes
Sometimes, the home buying process can be a long and tedious process. Buyers may view quite a few homes before finding a home that they feel comfortable to make an offer on. During this viewing process, it’s recommended that buyers take note of features that they like or don’t like about certain properties and provide those feedback to their Realtors. This will allow the Realtor to better screen properties to make the showings more productive.
16) Reassess Your Requirements
When I started to search for my first property, I went from low-rise to high-rise and back to low-rise again. I changed the locations of my search multiple times. Whether it’s the neighborhood, or the daily commute, or the privacy of the property or access to transit, it’s best to reassess your requirements if you have been searching for a while and have don’t have any success. The worst thing that can happen is you buying a property and having buyer’s remorse shortly after the purchase.
17) Evaluate Your Realtor’s Service
Most Realtors don’t like this tip. However, if the working relationship is not productive or there’s a conflicting view in terms of the process, it’s time for the buyer to evaluate the Realtor’s service. For me, I take pride in the services that I provide to my clients and I don’t settle for second best. If my clients are unsatisfied with my service, I’d ask them what I can do to achieve their desired satisfaction level. Alternatively, we can always agree to mutually terminate the relationship if the service provided is not up to the clients’ standards.
After You Have Bought
Finally, you’ve made an offer for a property and after hours of negotiation, the purchase and sales agreement was signed. You’re a homeowner. Well, not yet. Signing the purchase and sales agreement is only half of the journey. The other half of the journey is to complete the necessary administrative tasks to get you the keys to your dream home. These steps may not be fun, but if you do it right, it can save you thousands of dollars after everything is said and done.
18) Buy Home Insurance
When you make an offer for any property, it’s always prudent to include three conditional clauses in your offer: insurance, home inspection, and financing. After your purchase and sales agreement is finalized, one of the tasks is to buy home insurance for your new home. For a list of insurers, check out the resource section of my site. To ensure that you are only paying for the required coverage such as flood, tornado or sewer damage, always research the natural disaster risks in your area. Also, to save money, you can always bundle your home insurance with your car insurance or raise your deductible.
19) Checkup On Your Property
In the schedule section the purchase and sales agreement, there should be a clause that allows the buyer to view the property at least two more times before the closing date. These viewings are exclusive of the home inspection/insurance appraisal/mortgage appraisal appointments. Normally, these appointments are used to ensure that the property and appliances are in good working condition. It’s best to save one of the viewing appointments for one or two days before the closing date to do a final checkup on the property.
20) Calculate Your Estimated Closing Costs
As mentioned earlier, there are quite a few costs at closing that are not part of your mortgage loan and you need to cover these costs with your own funds. Depending on the area that your future home is located and the purchase price, the land transfer tax can cost you thousands of dollars. You’ll also need to account for insurance cost, moving cost, lawyer cost, property appraisal fees and furniture costs once you close. By having a close approximation of the true costs will ensure that can close without any issues and avoid unnecessary legal actions from the seller if you can’t close on time.
21) Hire Contractors
Even though the home that you are buying is a dream home for you, it may be far from a perfect home. The best time to renovate you home (depending on your financial situation) is usually before you move in. You may want to paint the whole house or update the outdated kitchen or replaced the old carpet with hardwood floors. Great general contractors usually have projects lined up in advance and to ensure that you hire the right contractors for the job, it’s best to book them a couple of months in advance.
22) Do A Daily Life Test Run
One of the crucial tasks that buyers tend to forget is to do is a daily life test run of their new home. The best way to do this is to take a weekday and do a test run to see what life is like in your new home. This test run will allow buyers to evaluate their daily work commute and get a feel for the traffic flow to adjust to their daily routine. This test run can lower your future stress level significantly.
23) Prepare For The Move
Depending on if you are moving from your parent’s basement or your current home, there may be a lot of things to move. Buyers can prepare themselves by packing their belonging that they won’t be using for a while ahead of time. To ensure that the packed items get moved to the correct location in your new home, it’s best to label the room that those items will be moved to in your future home. If necessary, hire movers if you have large and heavy items.
24) Update Your Mailing Address
One of the most tedious tasks, before you move, is to update your mailing address, cancel/migrate utility services at your current home and register services for your new home. Here is a list of some important bills to change your address: utility/hydro bills, cable, internet, phone, credit card, bank statements, investments statements, subscriptions, insurance, etc. In addition, if you have kids, you’ll also need to transfer your kids to the new school in your new home’s area.
25) Apply For Tax Rebates
If you are a first time home buyer, then you can check out the first time home buyer’s tax credit from the government of Canada to see if you qualify for any tax credit or not. Depending on which province that you live in, you may also qualify for a provincial first time home buyers’ program like the one offered in British Columbia, or the land transfer tax refunds for first-time home buyers offered in Ontario. If you qualify, then you should definitely apply.
Congratulation, you are now a new homeowner. After such a lengthy search process with all the administration work on top of that, you’ve finally got a castle of your own. What better ways to enjoy this new home than to host a house warming party for family and friends? Go ahead, celebrate a little and share the love.
My Two Cents
Every industry has its pros and cons. Every industry has a few bad apples that either doesn’t follow the rules or don’t act ethically. The best way to protect oneself is to be armed with industry knowledge and be aware of unethical practices. With these 26 tips, I hope that your knowledge of the real estate buying process has been strengthened and you’ll be able to buy with confidence. Speaking of confidence, let me end this post with my real estate confidence by doing a little bit of shameless self-promotion with my slogan:
Guiding you is Leo T. Ly.