09 Feb How I Would Buy a House (or Condo)
By Michael Meltzer
Let’s pretend I’m you. Or you’re me. It doesn’t really matter. And let’s pretend you want to buy a house in central Toronto. Even with all the knowledge and experience I’ve accumulated during my 25 years in the business, buying a house won’t be a slam dunk. No question about it, buying a house in central Toronto these days is really hard. But there are certainly things you can do to improve your chances so I figured I’d share them with you in case you really are thinking of buying a house.
Now, before we start, please don’t get the idea I’m saying this is the best or only way to buy a home in central Toronto. Ask five experts and you may get five very different and equally valid opinions. Everybody has their own way of doing things. But if you’re anything like me – detail oriented to the point of being called “anal”, extremely organized, hate wasting time, like to do your research and weigh all your options before making a decision, don’t like making mistakes and hate being pressured – then you may find some helpful tips here.
So let’s look at how I’d buy a house in central Toronto if I was you or you were me:
- Before You Even Start
The first question to ask before embarking on a house buying journey is “Am I ready to buy a house?” This is the time to determine if you’re ready to settle down and own a house, if it makes more sense to rent or buy and, if you already own a house, whether you should buy or sell first.
The first real step in buying a house is finding out how much you can afford. There’s no sense looking at houses you can’t afford. It creates false expectations and can be downright demoralizing. Most people tend to go to their bank to get pre-approved, but if it was me I’d go to a mortgage broker because mortgage brokers deal with mortgages every day and all day long. They’re specialists. You don’t have to shop around for rates because they do that for you and they also know which lenders offer the best prepayment terms. And you don’t even have to pay them (in most cases) because they get paid by the lender. One important thing to keep in mind at this stage: When you make an offer you’re going to need a deposit of approximately 5% of the price so I’d have this amount available on twenty four hours notice and not tied up in an RRSP, term deposit, etc.
- Make a Wish List
Once I knew how much I could afford, I’d sit down and make a wish list of the features I’d like my house to have. I’d divide it into two: things that I consider “must haves” and things I consider “nice to haves”. I’d be sure to also include what I want in a neighbourhood (schools, subway, parks, shopping, etc.).
- Online and Offline Research
Now’s the time I’d check to see how realistic I’m being. I’d go online to a site like realtor.ca to see if my budget allows me to buy what I want in the neighbourhoods I like and I’d also drive around those neighbourhoods to see how I like them. I may even go to a few open houses. At this point, I’m just looking for a general idea that I’m on the right track. (Funnily enough, the internet has a way of making houses and neighbourhoods appear much better than they actually are so it’s always good to check things out in person).
- Find Myself a Realtor
Before I get carried away and do too much research, I’d hire a Realtor because a good Realtor will be able to guide me in the right direction and save me a ton of time. I’d ask around for referrals and interview as many Realtors as I needed to until I found one I liked. I may hire the first Realtor I met or the fifth, but no matter who I interviewed, I’d be looking for three things: 1. Someone I could trust; 2. Someone who knows the neighbourhoods I like inside and out; and 3. Someone with the expertise to recognize the negative factors of each house and negotiate the best deal possible for me.
- Set Up a Meeting with My New Realtor
The first thing I’d do with my Realtor, if he or she hasn’t already suggested it, is request a meeting to find out everything I need to know about the whole house buying process, let him or her know everything I’d like in my dream house and talk about how we’re going to work together. I’m spending a lot of money and the place I’m going to live in is important to me so I want to be prepared and I want everything to go smoothly without any unpleasant surprises.
- Sign a Buyer Representation Agreement
I’d want to sign a Buyer Representation Agreement to make sure my Realtor is legally representing me and looking after my best interests and not those of the seller. I’d also want to make sure the agreement contains a clause allowing me to cancel it without penalty at any time in case I become unhappy with my Realtor. I can switch doctors, lawyers or accountants at any time so shouldn’t I be able to switch Realtors at any time, too?
- Ask My Realtor to Do Some Research for Me
To get a feel for what I’ll get for my money, I’d ask my Realtor to research my neigbourhoods and send me the listings for homes which have sold in my price range in the past 6 months or a year. It’s one thing to look at the new listings with their list prices, but list prices are almost meaningless these days and won’t tell me what I’ll get for my money. I need to see the sold prices for that. It’s also helpful to look at photos and read descriptions and then compare them to the sold prices.
- Getting New Listings
I’d ask my Realtor to set me up to automatically receive all new listings so I don’t have to do manual searches for new listings all day long.
- Seeing Houses
There are several things to consider here: Do I want to leave it to my Realtor to determine which houses I should see, do I want to call the shots myself or do I want it to be a team effort? Do I want to see all new listings or only selected listings? Do I want my Realtor to preview the new listings when they come out and let me know if they’re worth seeing or do I just want to go see them and take a risk that it’ll be a waste of time? Do I want to see them right away or am I content to wait a day or two and risk having them sell before I see them? If it was me, I’d let my Realtor determine which houses I should see to educate me about the market and my options, but I’d also look at the new listings and let him or her know if anything special catches my eye and I’d ask him or her to preview the new listings so I don’t waste my time. I wouldn’t start off by rushing out to see the new listings immediately, but once I knew what I wanted I’d make an effort to see them as quickly as possible because I wouldn’t want someone else to buy them before I had a chance to see them.
- My Realtor’s Role When We Look at Houses
When I hired a Realtor, I was looking for someone who would do more than book appointments and unlock doors. Anyone can do that. I wanted someone who would make sure I wouldn’t fall in love and buy the wrong home. To do this, he or she needs to point out the good and bad features of each home and let me know how each home matches up to my original wish list in case I get lost in the moment. Basically, I’m looking for a voice of reason and not a sales pitch.
- Change Course or Stay the Course?
Looking at houses serves two purposes – it allows me explore my different options and it educates me about the market. Almost all buyers make changes to their search criteria along the way. They may change neighbourhoods, increase or decrease their price ranges, become more willing to do more renovations than they originally wanted to do or make any number of other changes. This is totally normal and to be expected. Your wish list isn’t cast in stone. Looking for the right house is a fluid process and a process that’s well worth going through as it helps you end up in a house that best suits your needs.
- Finding the Right House
If we do things properly and follow all the steps above, there’ll come a time when I’ve explored my options and understand the market so I’ll know what I want to buy and approximately how much it should cost me. I’ll feel educated, comfortable and ready to buy. Now it’s a question of waiting for the right house to come along.
- Here’s the Right House. Now What?
There’s a lot to consider when the right house appears – Is there an offer day? Will the sellers look at a bully offer? Is there a pre-inspection report? What are the chances of there being multiple offers? Does the sellers’ closing date work for me?
If there’s an offer day, you’ll have time to think things over unless the sellers are willing to look at a bully offer. If a bully offer appears, you may have to act before offer day and before you’re ready to act. My advice: don’t ever act before you’re ready. It’s not worth it. You’re spending a lot of money, there’s no 30 day return policy and houses are like buses – another one will always come along. You might want to consider making a bully offer yourself, but only do that if you’re very comfortable offering a high price and confident there will be multiple offers on offer day.
Most sellers will provide pre-inspections these days. Ask yourself if you’re comfortable with their pre-inspection or if you’d like to do your own inspection. This is a matter of personal comfort. If a house looks to be well renovated and maintained and the pre-inspection report seems to be thorough and by an inspector with whom I’m familiar, I might just go with it. But if I get the sense the house may have issues and I’m not comfortable with the inspector who did the pre-inspection, I’d probably arrange for my own inspection. This really is a matter of personal preference, though, and you need to be comfortable.
- Offer Time
There are so many multiple offers these days that I’d assume I was going to be in a multiple offer situation. So what would I do to give myself an edge and avoid getting caught up in the moment and overpaying?
Let’s talk about price first. I’d determine my best price well in advance of the offer time so I don’t have to make such an important decision at the last minute. And I may decide to have two best prices – a lower one (but still high relative to the list price) if there are only 2 or 3 offers and a higher one if there are more than 3 offers. Why? Because the more offers there are, the greater the chances that someone will offer a crazy price. It’s possible that someone will offer a crazy price even if there are only 2 offers, but less likely. So I may have two best prices or, depending on how much I wanted the house, I may just have one best price and go with it no matter how many other offers there are. I’d figure out how much to offer by talking to my Realtor about the comparable sales, asking how much he or she thinks the house might sell for (but knowing that no one has a crystal ball) and taking into account just how badly I want this house and how much I’m willing to pay for it. The question I’d ask myself to figure out my best price is this: If the house sells for x and x is more than I offered, am I going to say “I’m disappointed, but congratulations to the other buyers because I wouldn’t have paid that much” or “I blew it because I would’ve paid that much!”
Now let’s talk about the other things I’d do to give myself an edge in a multiple offer situation. I’d give a larger than usual deposit, say 10% of the price instead of 5%, and I’d have it in the form of a certified cheque or bank draft to give with my offer. I’d make my offer firm (no conditions). I’d give the sellers their preferred closing date and let them keep whatever chattels and fixtures they want to keep. I wouldn’t put anything extra in my offer that didn’t need to be there. And I might even write a note to the sellers to let them know how much I love their house and why my family and I want to live there.
- After the Offer
Did I get the house? Yes? Great! Now I can stop looking at houses and start getting ready to move. No? No problem. I’m disappointed, but if it’s meant to be, it’s meant to be and another house will come along. No sense crying over spilled milk (almond or soy milk in my case).
I may not be with you when you buy your new home, but I hope you’ve found some helpful tips here from my 25 years experience. If you’d like me to be with you to guide you every step of the way, feel free to give me a shout. Or if you know of anyone else who’s interested in learning how the market works and who’d like to receive the kind of help that involves honest answers, straightforward advice, no pressure and being treated like family, please let me know the best way for me to connect with them because I’d like to offer them this kind of help. And as always, don’t be shy if you have any questions or comments about this post! Thanks for reading.