What Your Home-Buying Support Team Should Do, And How To Find The Right People
If you’re feeling intimidated by the complexity of home buying, join the club. It’s a lot to take in, and most of us have no sense of the steps involved until we find the home of our dreams and actually start the process.
The good news is there’s plenty of help out there for you to lean on as you go through the home-buying process. As you select the right people to fill these essential roles for you, it’s helpful to know what they can and should be tasked with doing for you. Buying a home is one of the biggest and most expensive commitments you’ll ever make, so let’s take a close look at building a team that will ease your load.
Ask around, do your research, and work with the best professionals you can find. The most important trio of experts you will need are:
- Your real estate agent – it’s hard to imagine going it alone.
- Your mortgage broker – should not cost you anything and can save you thousands of $$
- Your real estate lawyer – one who has the patience and experience first time buyers need
Real Estate Agent
Real estate agents smooth out all the technicalities involved in a real estate transaction. In the buyer’s case, they give advice on properties that best fit the buyer’s stated needs.
They prepare the offer to purchase, ensure the proper deficiency disclosures have been made, and will represent you in negotiations with the sellers and their agent.
Ideally, both buyer and seller should have a real estate agent, but in many ways it’s more important for the buyer to have one, since your agent has a fiduciary obligation (for example, they are required to keep personal information confidential, try to get you the best price, avoid conflicts of interest, negotiate with the selling agent on your behalf, maintain loyalty to you, not make a secret profit, and more), which basically means they are legally required to act in your best interests. Better yet, as the buyer, these services are free to you.
The seller of the home is responsible for paying the real estate agents once the sale concludes. The sales commission is typically 2.5% of the purchase price, plus applicable taxes.
It is my view you would be nuts to enter into a home purchase without a real estate professional navigating this treacherous minefield for you.
With all due respect to friends and family, most of us know someone personally who is a real estate agent. Don’t feel beholden to give them your business. You should be convinced they are the best available resources for the task at hand.
If you think real estate agents are overpaid and do very little to earn their commissions, you are misinformed. Oh sure sometimes a blue bird falls into their lap, but most of the time assisting buyers and listing properties successfully is very hard work, and a good agent is worth every penny.
Top 8 Reasons A Real Estate Agent Is Essential For Home Buyers
Local Knowledge Of The City And Neigbourhoods
Market Price Knowledge
Access To Houses
Getting To The Homes You Want To View
Access To Up-To-Date Comparative Sales And Detailed Property Data
Experienced Deal Negotiators
Most people are not familiar all the areas and neighborhoods in their city and what makes them interesting, fun or potentially dangerous. Whether you are new to the city, or are a long-time resident, an experienced real estate agent will know right away which areas are best-suited to your family and your search criteria, and will be able to point out the things that make each neighbourhood special and give it character.
Do you know how much more you should expect to pay for a home in a trendy walkable neighbourhood with great restaurants, schools, parks and other extras, or what the premium is to live closer to downtown? Local market conditions vary quite a lot by neighbourhood, and similar-sized homes can be up to $100,000, and sometimes even more different in price. Your agent has detailed knowledge of market prices and trends, and can give you the best guidance based on your needs and budget.
Unless you are willing to spend a ton of time learning the market yourself, this knowledge alone makes hiring an agent worthwhile — your agent’s experience can get you the best deal, and potentially save you from mistakes that could cost you tens of thousands of dollars.
No matter how experienced you are buying houses, most sellers simply won’t allow you in their homes without an agent.
While you can contact the selling agent to book an appointment, there is no guarantee they will play ball, and their obligation is to the seller, which among other things, includes getting the highest price possible. Open houses are a good way to look at a houses, but they are more useful to the selling agent to get leads from other agents, and to find people who haven’t yet retained a buying agent. Plus, only a fraction of all houses for sale ever have open houses, so it is quite limiting to search for a new home this way.
And even if you are able to see the perfect home during an open house, or make contact with the selling agent on your own, you will also face the common bias that buyers without agents are considered “ignorant”, and you may not be taken seriously.
Whether you have your own transportation, or not, it’s extremely useful to visit homes in your agent’s car. For starters, they will usually know the fastest way to get there, and plan efficient routes if you are visiting several homes. It also allows you to focus on taking in the character of the neighbourhood and the surrounding homes, rather that paying attention to driving safely. For a house buyer who doesn’t own a car, this is almost essential.
When it comes time to make an offer, you are going to want to know exactly what all the recent sales data are for similar homes in the neighbourhood and surrounding area. Multiple Listing Service (MLS), which all realtors subscribe to, provides this data and is a big reason why it’s so valuable.
While you could go to city hall and look up comparable data for similar 3-bedroom semi-detached homes in Leaside, this is difficult, inconvenient and time-consuming, especially if you want to do it for more than one home. In a market where the best homes are often snapped up or taking multiple competing offers within a day or two, you just don’t have time for that.
Often when searching for a home, you will come across candidates that are in the right neighbourhood or the right price point, but which have problems with the layout, condition, colors or which might need an update to add a home office, for example, to make it perfect for you.
Real estate agents have seen the insides of thousands of homes, and tend to have knowledge of renovation and design ideas at their fingertips. They also usually have extensive contacts with various service providers from handymen, to interior designers, to painters, general contractors or whole-home remodelers, and can hook you up with people who can give you quotes so you will know exactly what it will cost to update the home for your needs.
Not only will your agent be able to give you guidance in how to change things, or help you see a vision of what a home could be, the best thing is, this is a free added-value service that your buying agent provides.
Getting down to brass tacks and negotiating the final offer can be like navigating a minefield. This is even more true in hot markets where multiple offers are the norm. You need an experienced deal negotiator advocating on your behalf. (And if you are making an offer in the teeth of multi-offer situation, you had better be sure about your mortgage financing in advance).
Agents will do all the administrative work needed for documents, finances etc. They do it for every deal, while this would be your first time. Enough said.
Again, there is no direct cost to you the buyer, so why would you not take advantage of the experience and expertise of the best real estate agent you can find?
A mortgage broker or agent can educate you on the financing process to purchase a home, and help negotiate the best deal for your needs. Unlike banks, which can only offer their own institution’s mortgage options, brokers have access to dozens of lenders, which can give you competitive rates and terms to select from, including access to lower unpublished rates.
This often results in paying less than you would by going to your bank on your own. Mortgage brokers represent some of the major banks, as well as credit unions and many other fine A-lenders. Choice is never a bad thing.
You can expect excellent service levels from a top mortgage broker, and you have a much better chance of dealing with the same person in the future. The thing about bank branch personnel is the good ones especially are moved around to different locations.
For a more in depth analysis of the differences between banks and mortgage brokers, there is an excellent article here.
Going directly to a mortgage broker/agent makes sense especially in these situations:
- You are a first time homebuyer
- You are at risk of being turned down by your bank
- You want a fixed rate mortgage, but you are fearful of high prepayment penalties if you have to break your mortgage mid-term.
- Privacy reasons – you don’t want your bank to know everything about your finances
- You want to make sure the entire mortgage market is being scoured for the best terms for your unique needs and circumstances
Why Mortgage Brokers Make Even More Sense For First Time Buyers
Brokers have been increasing their market share of the overall homebuyer mortgage market in Canada for years, gaining another 2% in year over year figures to 47% of the total according to the most recent 2019 CMHC Mortgage Consumer Survey. And the percentage of first time homebuyers who use a mortgage broker is even higher, according to an article in Canadian Mortgage Trends “Brokers Are First Timer Magnets” with 55% choosing a broker rather than going directly to their bank.
Why do they make that choice? CMHC’s survey tells us:
- 61% worked with a broker to get a better interest rate
- 52% of survey participants said they chose a broker to save time
- 50% said their reason was because of the advice they received
And, of the buyers who used a broker:
- 77% said their broker gave them advice on rates and terms
- 75% said they got advice on choosing a mortgage they could afford
In other words, brokers save you time, can often get you better rates, and provide essential advice to navigate the increasingly complex world of getting a mortgage for your new home. Additionally, first timers are more likely to have a low down payment and require a high ratio mortgage, and potentially have greater challenges passing Canada’s Mortgage Stress Test, and both of these are issues that a broker is ideally qualified to help you with.
What that says is that you need the best help available, and for most buyers, that help is free because the lenders are the ones who pay brokers for their services unless you have special needs.
It’s your biggest financial obligation folks and good advice can pay for itself 10-fold. Choose a mortgage expert, not a jack-of-all trades. If you want investing or insurance advice, get a separate referral.
Real Estate Lawyer
Your lawyer has a lot of responsibility and if you are buying without a real estate agent (not recommended), she will be even more valuable to you. Choose wisely; she can save you a lot of headaches down the road.
Your lawyer does many essential things to help close your purchase and protect you should any problems occur, including:
- Ensure the property you want to buy is in good legal standing, with no outstanding liens, penalties, clean-up orders, or other complications
- Verify that there are no claims against the property
- Ensure property taxes are up-to-date
- Review all contracts before you sign them
- Ensure you have a valid title on closing
- Arrange for needed Title Insurance
- Get all required mortgage documents together
- Calculate land transfer taxes that are due and make sure they are paid
- Exchange legal documents and keys with the seller’s lawyer
as well as answer any questions you might have.
As a buyer, this is especially important when it comes to the offer. If that document is accepted by the seller, the process is done and nothing more must be added unless both parties agree.
Your lawyer will also explain and handle the actual transaction of money during the escrow period.
At the end of the day, you want to feel secure in your new home, and that especially means being comfortable with your ownership, and that you don’t have lurking problems that could come back to bite you down the road. Problems such as an out-building that encroaches on a neighbour’s property (or vice-versa), or a right of way or easement that you didn’t know about, or an illegal basement apartment that you were counting on renting out or using as an in-law suite. There are many many things like that can pop up during the legal process.
For all these reasons, it’s critically important that you find an experienced real estate lawyer, and not simply ask your best friend from college, or your brother-in-law who’s a divorce attorney. It’s worth the good sleep you’ll enjoy in your new home by ensuring that all the i’s are dotted and all the t’s crossed.
Choosing your home buying support team are the most important decisions you should make before you begin your search. They professionals will help you to:
- know what you can afford, and arrange the right financing to suit your needs
- choose the right home, in the right neighbourhood, and negotiate the best price within your budget
- ensure that you and your investment are protected so you can enjoy your new home for years to come
If you have any questions about choosing the right professionals to help you buy a home, ASKROSS. He’ll be glad to help.
- Mortgages 101 — What You Need To Know Before Applying For A Mortgage
- Top Ten Things Your Home Buying Budget Needs To Include (In Addition To The Purchase Price)
- Why You Need A Down Payment Strategy
- Mortgage Pre-approval In Canada. What It Is & How To Get It
One of Toronto/GTA's Most Trusted and Knowledgable Mortgage Agents
Ross Taylor is recognized by his peers as one of Canada's pre-eminent difficult mortgage specialists. His ASKROSS blog and column in Canadian Mortgage Trends are focused on the intersection between mortgage financing and personal credit.
With unique dual certification as a licensed credit counselor and mortgage agent, Ross's insights are valued by mortgage professionals and homebuyers alike.
If you have questions about anything financial or mortgage-related, please contact [email protected]. Ross answers everyone personally.
For more information, visit About Ross Taylor.