Buying a home can seem daunting, but if you break it down it’s a predictable process. We’ve created bite-sized pieces of the process, in the order they’ll occur, so you’ll know what we’ll be doing when the time comes…
If you don’t already have one you will need a lawyer soon. They’ll need to know what you’re doing and be prepared to help if something comes up during the process. Your lawyer should take this opportunity to explain how their fees work and how the process will work once you purchase a property.
Then you need to pass the names, email addresses and phone numbers of your lawyer AND your mortgage broker on to me.
It’s shocking but true; most people who work with an agent don’t ever sign a contract that binds the agent to them in order to protect their interests. Technically, all agents work for the seller unless otherwise written. If you work with an agent and they make an offer on your behalf, it’s their job to get the SELLER the best price. NOT you. Even if the listing is not theirs and they’ve never met the seller and/or his agent before. I know it sounds crazy but it’s rooted in an ancient law regarding agency and the right to sell property.
This is why a thing called Buyer Agency has come into being. It’s a simple contract that binds me to you and makes my primary and fiduciary duties to you and no one else in a deal. It’s really not all that scary. If it doesn’t work out and you find yourself not happy with me, ask me to cancel the agreement. It’s as simple as that. During the period that we’re working together though, it’s in your best interests to have an agreement in place.
It’s really quite simple. Many agents are scared to ask a client to sign one, though because they don’t understand what it is or how to explain it to their clients. There’s also this misconception that signing an agreement somehow restricts what you as a buyer can do. The only thing it restricts is the number of agents you work with in a given area: only one at a time. Let’s put it this way, if you feel the need to switch agents often enough that you don’t want to be contracted to one, then you haven’t found a good agent. Also, more agents looking does not mean you find a house sooner: we’re all looking at the same information so chances are it will just be a waste of time getting the same listings many times over.
In order for me to help you, I’ll need to know what you want. You should write down all the things that you want and need in a home. This is a wish list so put down everything.
Then, you can sort them in order of importance. In a perfect world, all your boxes will be checked when we find your dream home. In reality, you might have to compromise on something. It’s my job to be able to tell you what NOT to compromise on and what you can let slide. Location is NOT something you want to compromise on in favour of a whirlpool spa for instance. You can always install a tub with glowing aromatherapy lights if you want but you can’t move the train tracks that run across the back of the property.
I’ll set you up in the computer system so that you receive automatic listings that match your criteria as you laid out in your wish list. This can also change over time. Once you start looking you might realize that you really want a detached home and you just won’t settle for a semi-detached. Or you might realize that you like one area better than another. You can always call or email (or just plain tell) me and I’ll make changes to your search criteria right away.
Listings can be a bit awkward and hard to read. I’ll send you an example of a full broker MLS listing and explain it line by line to you. That way, when you open your email every morning and start looking at these darned listings, you’ll know that BOM is not our opinion of the property but rather the fact that it’s “Back On Market” or that a HOLDOVER: 90 days is not some weird yoga pose you must perform prior to an offer.
Once you feel comfortable with the process, we need to get out and look at a whole bunch of houses. It’s important for me to take you to as many properties as possible in the first couple of showings so that I can get a handle on what you like and what you don’t like. You’ll also be surprised at how what you thought you wanted versus what you’re actually attracted to in a house changes once you’ve seen a few. It’s also important for me to point out what the pros and cons of each property are. It’s my job to point out any “permanent deficiencies” with a given property. These are things that you the prospective buyer cannot change about a property that may materially affect its value now and in the future.
As I mentioned earlier, train tracks running across the back of your property would be considered a PERMANENT deficiency. Even if you love trains, it’s not something that most buyers will want and it’s also my job to think long term: when it comes time to sell the property you are considering NOW in the distant future, will it be appealing to the largest number of potential buyers?
It still all comes down to the old adage “LOCATION, LOCATION, LOCATION”. You can change pretty much everything about a house once you buy it but you can’t change where it is.
You must be prepared to act quickly if the home of your dreams pops up. You should make sure you have enough money ready and available so that you can get a certified cheque, money order or bank draft (whichever is cheapest for you) as a deposit for at least 5% of the purchase price on the day of the offer or within 24 hours of acceptance of the offer.
Most people wonder why they have to have a certain amount as a deposit and technically a deposit serves only as consideration in a deal. It can be a dollar if you want. The reason it should be at least 5% is this: it shows the seller that you are liquid and financially capable of purchasing the property.
The maximum you can borrow for a mortgage is 95% of the home’s value so it is understood that you will have to have at least 5% in the bank in order to get financed in the first place If you offer a seller a deposit of less than 5% it could set off alarm bells that you will have trouble getting financed and/or that you don’t have the funds to complete the transaction.
Also, the deposit is made out in trust to the listing broker (the seller’s real estate agency) and it is held until closing. If the deposit is 5% or more, it will cover the commission and make the closing process much quicker and smoother.
Unless you’re a first time buyer, ideally you should have at least 20% of the value of the home in the bank. If you’re a first time buyer, as mentioned, you’ll need a minimum 5% of the purchase price.
In addition ALL buyers will need approximately 5% of the purchase price available for closing costs including land transfer taxes and legal fees.
Eventually you’ll find something you like and you’ll want to make an offer. This is the fun and scary part. You’ll encounter two basic scenarios when making an offer: the property is listed conventionally and offers are accepted at any time or there is an offer holdback placed on the property and offers will be accepted at a specific date and time as set out by the seller. In the first instance, there typically isn’t a competing offer. We make an offer and negotiate back and forth with the seller. In the case of an offer holdback, we, along with other interested buyers show up at an appointed time and place to present our offers and the seller typically picks the best offer.
In both instances, I prepare the offer and we decide on a price based on a thorough analysis of comparable sales in the area, factoring in the number of days it’s been on the market, how the list price compares with comparable sales and if the listing is an offer holdback or not. There are many other factors to consider and I’ll get into more detail with you prior to a specific offer. Once you have signed the offer, I meet with the seller’s agent to present the offer.
If there is no offer holdback, we wait for the seller to accept, decline or counter-sign the offer. If they counter-sign, the ball is bounced back to our court and we then decide if we will accept, decline or counter-sign back the offer. This goes back and forth until both parties come to consensus. In the case of an offer holdback, the only difference is that we must present our offer along with other interested buyers. We cannot know the contents of the other offers, only the number of other offers and the brokerages representing their respective buyers. This is basically a blind auction. We all make our bids and the seller ultimately chooses the best offer. Like a conventional offer, the seller can accept, decline or counter-sign an offer. The major difference is that if more than one of the offers is close, they can ask that those buyers consider improving their offers in order to break the stalemate.
The key word here is “close”. In the absence of any rules or laws to govern this practice, a considerate agent will outline the parameters of the offer presentation in advance of offers being taken and will give an indication of what the seller will consider to be close.
Failing that, it’s my job to get as much information as I can to help you make an educated decision. Eventually, once all offers have been reviewed a second (and sometimes third) time a seller will accept the best offer.
These days, one of the factors that determine whether a seller will accept an offer or not is if it’s a firm and binding offer or a conditional offer. A firm offer is unconditional and is considered to be final once all parties sign. A conditional offer is one in which you, the buyer, have placed conditions that must be met in order for the offer to become firm and binding. Typically a firm offer will always be of more value to a seller.
Again, it’s another old adage: “A bird in the hand…” This has given rise to the practice of buyer’s submitting offers without conditions or removing conditions to make their offers more attractive. In this situation a buyer can limit their risk if they have reasonable assurances from their lender that they will be approved for financing of the subject property in advance of the offer and also have access to a home inspection report or conduct an inspection prior to making the offer. In most cases, unless absolutely necessary, I advise that buyers make their offers conditional (see below).
These days there are two conditions that most buyers must have to protect themselves: a condition of financing and a condition of inspection. These allow you to make sure that the bank will finance your purchase and that the house you just bought won’t fall into the ground the day after you move in. Without these or any other conditions, an offer is considered firm and binding once signed and acknowledged by both parties. That means that you’ve just bought yourself a house and legally you MUST close the deal.
As mentioned above, sometimes it makes sense to remove your conditions in order to make your offer more attractive to a seller. I can’t advise you one way or another in this regard but as outlined above, the prudent course of action would be to confirm with your lender that you would be approved for the purchase of the subject property and have a home inspection carried out in order to satisfy yourself that the house is in an acceptable condition to you. Typically, you will have 3 to 5 days to conduct an inspection and get financing secured. Once you get the green light from both the bank and/or inspector, you must sign a WAIVER waiving the conditions prior to the expiry of those same conditions and the deal becomes firm and binding. You just bought a house!
You need to email or fax the conditional or firm offer to your bank right away so they can officially approve the mortgage. A pre-approval is in essence approving YOU for financing. Once the offer is accepted, your lender must also approve the HOUSE you just purchased. They will conduct an appraisal to determine that it’s worth what you paid for it and, worst-case scenario, if they had to foreclose and sell that they’d get their money back.
Also, if you’re financing more than 80% of the purchase price, you will have to be approved by the federal government for CMHC insurance. This is a percentage premium that the bank requires to insure the mortgage in case you default. This can be
rolled into the mortgage and added to your monthly payment of you can opt to pay it up front. CMHC premiums are based on a percentage of the loan based on the loan to value ratio. Please consult a CMHC calculator to determine what the amount will be.
They will then need to provide you a letter stating that you’ve met the conditions to afford this particular property. If your offer is conditional, you are now in a position to waive that condition.
If your offer is conditional on inspection, I will schedule an inspection within the time period allowed in the agreement. You MUST be present for the inspection. The inspector will have to go through his findings with you before he finishes. Typically an inspection lasts 3 hours and you’ll need to show up for the last hour.
If you’re OK with what the inspector has to say and are willing to accept the home in it’s existing condition, you may opt to have the condition waived. If a problem is discovered during the inspection then you must make the decision to cancel the agreement, if the problem is serious enough that repairs would be prohibitively expensive if not altogether impossible or if the problem is one that can be remedied within reason, have me negotiate with the seller for a discount on the purchase price in consideration for repair(s) required prior to closing.
I usually advise a negotiated financial rebate is the best option rather than letting the seller make the necessary repairs. If the seller agrees to fix a leaky basement, for instance, and on closing it’s still a swimming pool, you can legally hold off on closing but then you may have nowhere to live and a huge legal headache on your hands.
Also, it’s always best to remember that a home inspection is just an informed opinion. It is not a warranty or guarantee so even if you have one done, problems may still arise. The term “caveat emptor” or “buyer beware” is the guiding principle in this instance.
You must obtain home insurance as a requirement of your mortgage. If you don’t have an insurer already, I can provide you with a referral and/or get the current owner’s policy information and see if the insurance company is willing to transfer the policy to your name, providing that the terms and coverage are acceptable. You should get this arranged ASAP and not leave it to the last minute. This should be done within the same week you purchase, finance and inspect the property. You will have to provide the insurance company with a list of information about the property including:
- Purchase price
- Age of home
- Square Footage
- # Of bedrooms
- # Of bathrooms
- Age and type of heating system
- Age and type of wiring system
- Age and type of plumbing system
Insurance companies have become quite difficult with respect to the condition of certain mechanical systems in a home, chiefly among them, the wiring. Pending the results of the inspection above, you may have to agree to remedy any issues your insurance provider deems unsafe or uninsurable within a defined period of time in order to be covered.
Once the deal is firm, you need to fax or email it to your lawyer so they can handle the closing. There is one more hurdle though that will be written into the agreement: the title search. Your lawyer will have to search title in order to insure that it is indeed owned by the person selling it and they have the legal right to sell it to you. They’ll make sure there aren’t any old Indian burial grounds, outstanding liens and work orders or environmentally protected zones on your property and confirm that the property as indicated in land titles is more or less the same as what you bought.
It’s rare but it can happen that your lawyer discovers a problem with title. This allows you to get out of the deal without any financial penalties but it’s not ideal to say the least. Typically your lawyer has until two weeks before closing to clear title. It’s usually this late because if there is a problem, your lawyer and the seller’s lawyer will want as much time from the date you purchased the property in order to solve the problem.
This is where good communication on behalf of your lawyer is key. If they notice anything fishy, they need to let you know right away. The bottom line is that once the property is signed into your name on title, you inherit any outstanding issues that came with it. It’s imperative that you NOT inherit the seller’s mistakes.
Now is a good time to inform all your utilities, alarm company and Canada Post that you’re moving and make sure that as of the closing date, everything is being re-routed to the new address. Send out a change of address email to all your friends.
This needs to be done well in advance. The good ones get booked ahead of time and you don’t want to find out on closing day that you and your Subaru are the moving company.
You can elect to have visitation rights to the property on a few occasions prior to closing. I’ll schedule the appointment(s) in advance so that you can visit along with friend, family and/or contractors. It’s up to you what you do with this time. Typically people want to take measurements for carpets, curtains etc., to check paint samples and get quotes for repairs and renovations.
On the closing day or very shortly before, you will meet with your lawyer to review the deal and settle the finances. The lawyer will have determined how much you owe including your share of taxes and utilities (called ADJUSTMENTS) and he’ll present you will the final bill. You’ll need to keep in mind that you’ll need to pay the closing costs, which include adjustments, legal fees and land transfer tax. The land transfer tax is the largest fee you’ll be responsible for other than the purchase price and is based on a complex formula. Please consult a tax calculator to determine how much you’ll owe.
Typically you should have at least 5% of the sale price on hand to meet these obligations. You’ll hand over a bank draft, money order or certified cheque (as determined by you and your lawyer in advance) and in return receive all of the keys/pass-cards/fobs and codes required to access the property. You and I can also make arrangements to have another set of keys left with the brokerage or at the property in order to make moving day smoother for both yourself and the seller.
You should keep in touch with your lender and make sure that the funds are transferred from your account on the closing day. Many banks get tardy with this and it can cause a lot of panic at the last minute. Again, communication with your mortgage broker is key. Keep in touch.
It’s a good idea to change your locks when you move in. You never know who may have been given a key to your new home in the past. A locksmith can do his magic in a very short period of time and the cost is minimal considering the peace of mind gained.
Also, remember that I have been through this more than a few times and have good resources for trades people that you might need to help ensure a smooth move. I have all sorts of names up my sleeve so keep in touch and don’t hesitate to call me for
Cheers and Good luck!