Buyer Information

Are You Financially Ready?

Do you know how much debt you are carrying at this moment? Although this is an important piece of information that lenders will ask, many people do not know exactly how much they owe to creditors at any given time. Before visiting potential lenders, it is a good idea to get a handle on what is going out monthly for debts — doing your homework now will enable you to face lenders better prepared.

Click here to help determine your current monthly debt payments.

Using a Real Estate Agent to Purchase a Home

Since the commission for the sale of a house is almost always paid for by the seller, buyers are able to get assistance and information from Real Estate Agents, usually at no cost to them. It is for this reason that the vast majority of home buyers employ the services of an Agent for their purchase. In addition, since most houses are listed by Real Estate Agencies, it gives them the maximum number of available properties to consider.

The relationship between a home buyer and a their Agent is a little like a marriage: it must be based on trust, mutual goals (to get you the house that best suits your needs!) and understanding. To a large degree, the home buyer entrusts the Agent to always keep their (the buyer's) interest first and foremost. It is important that you understand who the Agent with whom you are working represents.

Agency Versus Buyer Agent

One of the most common misconceptions that is shared by a large number of home buyers is that when working with a Real Estate Agent, he or she will "automatically" represent you as a buyer. As we will discuss, unless this is specifically disclosed in writing, in all probability the Agent will be representing the seller.

The traditional relationship (probably going back to when the first thatched hut was sold by someone other than its owner) has been that a Real Estate Agent's primary loyalty was to the seller of the property. This relationship was in effect whether the Agent was the listing agent or working with a buyer. This situation caused many home buyers to be confused: they assumed that the Agent that had been driving them around showing them houses for the last 3 weeks was representing them. In reality, the Agent was representing the owners of the houses they saw, and was bound to reveal to those owners any information he or she knew about the buyers.

Buyer Agency, which is almost universally available now, changed all that. The buyer now often has a choice in representation: the Agent with whom they were working could continue to represent the seller in the transaction, or the Agent could represent them as buyers. The buyer is now able to compete on a more level playing field.

Although there are state to state variations (please verify the situation in your particular locality), the following is a basic summary of the types of agency, and who the Agent represents.

SELLER AGENCY: The "default" situation. Unless disclosed to the contrary, all Agents involved in a Real Estate transaction (and their Brokers--with whom a listing agreement is actually with) represent, and owe their allegiance, to the seller. If you contact an Agent who has a property listed, that Agent will always represent the seller.

BUYER AGENCY: When an Agent represents the buyer, that Agent "rejects" the implicit seller agency and thus owes loyalty to the buyer.

DUAL AGENCY: This occurs when 2 Agents--or the same Agent--working for the same Broker each represent a buyer and a seller in a transaction. This situation must be disclosed to both the buyer and the seller. Privileged information (e.g. the price that a buyer will pay or a seller will sell at) cannot be disclosed to the other party without the express permission of that party.

What to Look for in an Agent

• An understanding of your needs
• A willingness to work with you until your needs are fulfilled
• A sense of professionalism
• Someone who is dedicated to their profession
• A familiarity with the area in which you have an interest
• A familiarity with the price range in which you have an interest
• Professional designations: CRS--Certified Residential Specialist
• Strong references from previous buyers

Questions to Ask a Prospective Agent

• How long have you been in Real Estate?
• Are you a full time agent?
• Are you familiar with the area in which we want to look?
• How many home sales did you participate in last year?
• What is the average sold price of the homes you sold last year?
• Do you normally work with sellers or buyers?
• How many buyers are you presently working with? How many sellers?
• Where do you feel your strengths lie?
• What 3 buyers that you have worked with can you give me as references?

Common House Buying Mistakes

• Over-buying the first time: Being "house poor" is a very uncomfortable existence. A large and beautiful home with little or no furniture tends to be empty and cold. A life where almost every dime of your earnings goes to the support of your house wears thin very quickly and is a frequent cause of family stress. Pushing yourself right up to--or beyond--your limits leaves you highly exposed when the inevitable changes to the national or your personal economy occur. Leave yourself some breathing room!
• Finding out too late that you have no representation: This can be a real nasty surprise when you assume that the Agent with whom you are working represents you when they actually represent--and owe complete allegiance to--the seller.
• Not comparing mortgages: There are far too many variables--type of mortgage, term, lender and amount of points to mention a few--not to investigate all of your options. Don't simply accept the first plan presented to you, whether it is from a mortgage broker, an Agent or on the recommendation of a friend or relative. Spend time comparing to get the most advantageous plan for your requirements and financial situation.
• Not getting mortgage preapproval: Prequalification and preapprovals are a necessary part of the home buying process. Not only will it give you an exact price range for your purchase, preapproval will add a great deal of strength to your offer.
• Waiting for the "perfect" home: Many first time buyers make the mistake that they will, if they look around long enough, find a home that has a full 100% of their needs and wants. With the thousands of variables available in housing, including location, style, size, amenities and condition, this is almost always an unrealistic goal. There are two potential problems with this strategy: First, these buyers pass by homes that meet 90% or more of their requirements only to eventually give up (often purchasing homes with less of their requirements because they are worn out!) and second, while they are waiting for the "perfect" home, housing market prices (and often mortgage rates) continue to rise, adding expense to their purchase. Instead, it makes sense to determine the most important of your needs and the most desired of your wants and selecting a home that meets the majority of them.
• Shortcutting the inspection process: This can involve skipping a whole house inspection completely in order to save the relatively small amount of money involved or it may involve using a friend or relative with limited experience to conduct the inspection. In either case you run the risk of not exposing potentially expensive--or even hazardous--defects in the property. Protect yourself and invest the $200 to $500 for a professional inspection.

The Buyer - Seller Relationship

Closing the Deal

Your mortgage isn't the only expense when buying a home. There are also closing costs that include appraisal fees, lawyer's fees, insurance and more.

Generally speaking, your combined closing costs represent between 3% and 4% of the purchase price. These will vary by province and city, and are often linked to the price of the home. Your lender, lawyer or notary and real estate agent can help you estimate them.

• High Ratio Mortgage Application Fee: Paid to the mortgage insurer to process your application if you're applying for a high-ratio mortgage (less than 25% down payment).
• Mortgage Default Insurance: High-ratio mortgages (those with less than 25% down payment) require insurance against default. The cost is usually added to the mortgage, and ranges from 1.00% to 3.25% depending on the amount of your down payment. There is an additional 0.25% premium for variable rate mortgages.
• Appraisal Fee:The cost for a professional appraiser's opinion of the value of the property. Your mortgage lender will require an appraisal to determine whether the selling price is reasonable for that market.
• Land Survey Fee (or title insurance in lieu): The lender usually requires a recent survey of the property or title insurance in lieu.
• Home Inspection Fee: covers the cost of a professional inspection of your home.
• Legal Costs: Legal costs include fees for the professional services provided by your lawyer or notary, costs involved in conducting a title search, drafting the title deed and preparing the mortgage, as well as registration fees and other disbursements.
• Prepaid Taxes, Utility Bills and Other Charges: The seller may have prepaid some bills before the closing date, which you will have to cover. All taxes, utility bills, and other charges incurred after the closing date become your responsibility.
• Provincial Tax: Often referred to as the Land Transfer Tax, this tax is applicable in most provinces and is usually a percentage of the purchase price. Some provinces may also charge tax on new construction.
• GST: You pay GST on the purchase price of a newly constructed home.
• Fire Insurance: Mortgage lenders want you to protect your home – and their mortgage collateral – against fire and weather-related damage so it's necessary to purchase fire insurance.
• Moving Expenses: Costs will vary, depending on whether you do it yourself, rent a truck, or hire professional movers.
• Additional Expenses: These could include utility hook-up charges, any repairs you need to make after buying your home, the cost of appliances and window and floor coverings.

Information Sources

• www.ourfamilyplace.com/homebuyer/realtor.html
• www.ourfamilyplace.com/homebuyer/agency.html
• www.cmhc-schl.gc.ca/popup/step_etape/eng/steps/step2/step2_2.cfm