Here are 5 lessons to remember to make sure you do not make a major mistake when buying a home:
1. Research your seller and the neighbourhood
Make sure you are close to public transit. What schools are in the area and is there a waiting list to get in? Check out the police websites to study crime statistics in neighbourhoods. Walk any neighbourhood you are interested in and talk to people. By speaking to people, you can not only get a sense of the friendliness of the community, but also as to whether there are any surprises that no one is going to advertise, such as a former grow house, or the neighbour from hell. See if there are any basement apartments in the area if that is important to you as well. Ask any seller if they have had any major floods or made any insurance claims.
2. Find the right real estate agent for your needs
Do not go into an open house alone, thinking you can save commission. The agent is working solely for the seller and their job is to get the seller the most money they can. While focusing on saving a few dollars negotiating commission, you will invariably give away important information about yourself which will hurt you later in the negotiations. Start by asking family and friends for a buyer agent referral. Then study the agent’s own website. Do they offer you information that will assist you with your search? Do they have a team of professionals that they can share with you? When you interview them, ask them about their knowledge of the area; in particular, is it known for sewage backups, termites, flooding or mould. Ask for their own success rate when working with buyers, especially in bidding wars, and then follow up by calling those buyers yourself.
3. How much can you afford?
You should never live just to pay your mortgage, or else the rest of your quality of life will suffer. Meet with a mortgage broker in advance to determine how much you can safely borrow, based on your income and family needs. Remember that even if you prequalify for a mortgage, the lender will still do an appraisal and if the lender believes you paid more than the house is worth, they will not give you the full amount of the loan that you expect. So, be very careful about stretching yourself to the limit in any bidding war. Make sure you have an extra 5-10% as a down payment in reserve, just in case.
4. Choose a home inspector carefully
The home inspection is becoming even more important as it is still one of the only ways for a buyer to check against unwanted surprises after closing. Again, ask for references from any company you are considering and call these references yourself, especially those that bought older homes, where problems are more likely to occur later. There are now additional inspections that you can do, for a fee, to test specifically for mould or termites. There are video cameras that can tell you the condition of your sewage system and scanners that can look behind walls. If it is an older home, it is worth this extra investment. Remember, most inspection firms have a limitation of liability clause, which states that they can only report on visible defects, so if they miss something behind the wall that costs you money later, they are not responsible. Ask the company if they have ever been sued by a buyer. Consider paying for an inspection before making any offer if you are in a bidding war.
5. Understand the bidding war rules
This is the main reason you will overpay, when you panic while you are caught up in a bidding war. Find out first what the house should sell for, as many sellers deliberately list for a price below market value to attract a high number of buyers. Do not tip your hand. If you give your offer too early in the day, the seller’s agent will call everyone immediately to try and encourage a bidding war. Bring in your offer around 7 pm and make the irrevocable period no more than 4 hours. Put the pressure on the seller, not on yourself.
Instead of panicking, if you follow these steps and buy with your head instead of your heart, chances are you’ll get the house you want at a price you can afford, with no unwanted surprises later.
Mark Weisleder is an author and speaker to the real estate industry and Partner at the law firm Real Estate Lawyers.ca LLP.
Mark Weisleder is a Partner, author and speaker at the law firm Real Estate Lawyers.ca LLP. Contact him at firstname.lastname@example.org or (416) 702-2499
If you have any stories to share about the GTA housing market or just need some advice, please contact me at email@example.com.