Things Canada's homebuyers are often clueless about
Buyers, especially ambitious, tech-savvy first-timers, have a lot of housing information at their disposal. A steady diet of daily real estate news, real estate agents' blogs and mortgage broker podcasts can make it easy to feel you have a handle on the market's ins and outs.
Christopher Alexander, chief strategy officer at Re/Max Integra, likens that kind of self-education to reading a book about parenting when your first kid's on the way. It's better than nothing, but when reality sets in and the screaming starts, most of what you've read or been told goes out the window.
"Generally speaking, consumers are more knowledgeable than ever before," Alexander says. "However, until you’re actually in the market looking for a property or selling a property, you don’t know what the dynamics are at that given moment."
Oikle, who serves the Ottawa area as a full-time agent, agrees.
"What I find when clients come to me is that they have data, but they don’t have knowledge," he says.
Let’s take a look at three different aspects of the buying process and address the shortcomings some of Canada’s most prominent real estate professionals see in their clients' understanding around buying a home in 2021.
How much home can you afford?
Initially: Not knowing where to turn
There’s no such thing as a stress-free home purchase. But finding a trustworthy mortgage broker or seasoned real estate agent will ensure you get the right advice as you move through the process.
But if you’re like most buyers, you probably haven’t given much thought to what goes into choosing who to work with. When every single broker and agent headshot looks the same, everybody seems like a professional. But that’s like saying every news story in your Facebook feed is equally true.
If you’re not sure about how to evaluate a real estate professional, here are some tips:
1. Don't work with part-timers: Part-time agents and brokers may be everywhere these days, but that doesn’t mean they’re actually closing deals and developing their skills.
"They aren’t selling enough" to be effective, Alexander says. “Most agents sell nothing or do less than four deals a year. The market has been so strong for so long that it has allowed a lot of marginal salespeople to stay in business."
When approaching agents, ask if they’re full time and how many deals they closed in the last year. If it’s only a handful, they’re either part-timers whose commitment can't be trusted or full-timers who don’t know what they're doing.
2. Find someone patient: Good agents won't pressure you to make offers or try to cajole you into doing anything you’re not 100% comfortable with. They'll also be willing to take the time to thoughtfully answer the questions you have about your finances, the market and anything else that might help put your mind at ease.
"Find somebody who’s not rushing through the questions, and who’s going to give you an honest answer about how high you should bid," says Centum Financial Group president and COO Chris Turcotte. "The last thing you want is somebody saying, 'Let's just get in there and we’ll figure it out as we go.'"
Turcotte encourages you to remember just how many real estate agents are out there competing for your business. If one’s not a fit, there are plenty of other more qualified people to take their place.
"You are in the driver’s seat as a consumer, he says. “Don’t be afraid to take your real estate professional to task."
3. Work with someone local: Real estate is a local business. There are too many variables from market to market for you to expect someone, even if they’re advertised as one of "Canada’s top agents," to have a precise read on an area they’re not familiar with.
“Don’t work with people who don’t have expertise in the area you’re looking in," Alexander says, "because that’s a recipe for disaster."
Before buying: Having unreal expectations
The best way to have your dreams crushed by the housing market is to approach it with unrealistic expectations around what you can afford. Homes do not sell for their listing price, so if your budget is hard-capped at $700,000, bidding on something that's listed for $699,999 probably isn’t your best move.
Oikle suggests that once you've gotten a mortgage preapproval, go out and look at properties with an agent to get a sense of what the home you can afford actually looks and feels like. At this point, he says, you should still be exploring, not necessarily bidding.
Look at a few homes in your price range, then see what they eventually sell for. It’s not like you’ll have to wait long to find out.
Knowing how much of a gap exists between list prices and sale prices in your chosen market can provide a lot of clarity when it comes to setting fair expectations for yourself.
“There’s no substitute for looking at properties for people to understand what their budget will get them," Oikle says. Once you know what you can afford, you can then reassess which of the features on your dream home checklist are actual must-haves and which ones are just inflating the cost.
Bosley Real Estate’s David Fleming, who also runs of one of the most informative, demystifying real estate blogs in Canada, says some buyers are under the impression that they’ll be able to do a preclosing inspection and make a list of items they want fixed before taking possession of their new home.
“You’re buying a resale home," Fleming says. "The property you bought is the one you saw during the listing period, not that same house freshly-painted with the kitchen cabinet hinges tightened, that bathroom counter chip repaired, the missing window crank magically found, etc."
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Making an offer: Going naked on conditions
Buyers are being forced to make a very risky choice when putting in a bid: Add conditions, which makes their offer far less attractive, or stick to their guns and insist that certain key conditions, like mortgage financing and a home inspection, are included.
It used to be that only buyers in cut-throat markets like Toronto and Vancouver would put in unconditional offers, but the strategy’s everywhere now.
"Everybody ultimately seems to want to go in condition-free because they’ll bid on 15 or 16 homes before they just get frustrated and say, 'I can’t lose again. Make it as easy for the seller as possible to accept my offer,'" says Paul Taylor, president and CEO of Mortgage Professionals Canada.
Taylor says a scalding market is the perfect place for buyers making unconditional offers to get burned.
“In a very hot sellers market, a lot of people who have problem properties will use that opportunity to get rid of a thing they know has structural issues and may need thousands and thousands of dollars in upgrades,” to the plumbing or wiring systems, he says, adding that some properties could even be riddled with asbestos.
In addition to waiving conditions that call for building inspections, some buyers also fail to put in conditions that can protect them if financing falls through.
That can happen in a variety of ways. Maybe your mortgage wasn’t the done deal you thought it was, and you get approved for an amount that doesn’t cover the size of your offer. Or, awash in the toxic brew of envy, rage and fear that fuels most bidding wars, you bid more than your lender will approve you for.
"You’ll forfeit your deposit because you can’t close the transaction," Taylor says. "That can be 10, 15 years' worth of people's savings in today's market that they're gambling on a property meeting their expectations or not needing a tremendous amount of additional work."
At the finish line: Not understanding pricing or financing
One thing Taylor says buyers need to keep in mind is that it’s not just real estate agents and mortgage brokers who are busy. Lenders are under severe capacity constraints because of all the applications they have to evaluate.
You might try to impress sellers by telling them you can close tomorrow, but you and your lender might not be operating on the same schedule.
"An offer with a very quick closing can be very, very difficult to actually complete in time," Taylor says. "There are legal requirements around lenders: due diligence for income verification, source of down payments, money laundering FINTRAC requirements. That doesn't happen overnight."
One of the last questions you’ll need to answer is what kind of mortgage is the best fit for your budget. Turcotte says variable-rate products still look good. He actually opted for one when he refinanced one of his own properties recently.
"Rates are so low right now that even with a correction you’re still better off than with a fixed-term," he says.
With the market reaching what some feel may be its peak, buyers need to prepare themselves for a correction in prices. Don’t be bullied into overpaying, Turcotte says, and if your home does somehow lose value, be financially and emotionally prepared to wait it out, even if it means staying in your house longer than you had planned.
The most important things to know when approaching the market for the first time are your own limits.
“If you’ve got to potentially expose yourself to this much risk just to get into the market, you have to ask yourself if it’s worth it,” Turcotte says. “It’s scary as hell right now.”
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