People love to talk about real estate, whether it’s up or down, hot or cool, for buyers or for sellers. If you’re not a professional, however, you can be sold a false bill of goods, only to get a nasty shock when you try to break into the property market for yourself. David Fleming, a Realtor with Bosley Real Estate Ltd. Brokerage in Toronto, has said that the industry can be, at times, “chaotic, frustrating, and unfair.” Here, he shares some of the biggest lies swirling around the real estate market – especially if it’s a hot one.
Buying a home is fun!
Ten years ago, I’d have buyers say thigs like, ‘We’re going house-shopping!’ or call it ‘house-hunting.’ Now, when I talk to my first-time home buyers for the first time, the first thing I’ll say to them is, “I’m going to be honest with you, this isn’t a pleasant experience.” Because we’ve become desensitized with the way that reality TV shows like Property Virgins work: you go out, you look at three houses, then you sit down at a bar, have a cocktail, and discuss them, then you go and buy one and you always got it for less than expected and you got the seller to pay some closing costs (because that’s the way that it works in the United States). The biggest misconception I find among house buyers is that the process is going to be fun, they’re going to enjoy it, it’s going to be easy. I don’t want to be negative, but I’m being honest and I think there’s a value in that. Being prepared in this market and understanding the process is crucial. If you make a list of the 10 things that you want, that you gotta have, you may get six or seven. Or the first house you see you’re going to fall in love with, you’re probably not gonna get. You might – you’re probably – gonna lose in multiple offers at least once. Most agents don’t tell people that because they’re afraid of scaring people off. Me personally? I think preparation is key. I’m not doing my job if I don’t do that. The last thing I want is to drag somebody from February to June watching prices go up in that time period, seeing them get priced out. With the amount of coverage on the market, I think buyers are getting a little savvier now, I think they’re starting to see that it is, in fact, a very difficult market, but there are still a lot of folks out there who thinks this process is going to be fun.
Mortgage preapproval is unnecessary
When it comes to having a mortgage preapproval – every single offer that’s accepted in competition is unconditional. And I’ve been on the other side of the table where I’ve got a house listed, and I’ve got 10 offers and I have three unconditional offers. And there’s no way [one of those is going to win]. For those buyers – what were you thinking, what was your agent thinking? Some of it falls upon the banks. There are still lenders out there who will instruct borrowers to make a conditional offer. I don’t know if the lenders are uninformed; I really don’t believe from the top down any lender really thinks that’s possible. So you’ve either got a bad lender or you got bad advice, or your real estate agent doesn’t want to tell you what you need to do. When I get somebody that comes to me and says they’re going look for $800,000 and it turns out they haven’t formally been preapproved by a bank, I tell them that they have to do that. If they say that they just want to start the process, I tell them that they can’t. What if the bank tells you that you can only afford $750,000? Then everything you see is going to be a disappointment. So it’s surprising when I see somebody who doesn’t have a mortgage preapproval.
Reading about the market means you know the market
The market just moves so fast; you can’t expect to be completely in tune with it, because everything that you’ve read and everything that you’ve understood up until now has changed, and all of a sudden we’re in a different market cycle. A lot of our clients are using other portals than MLS so I tell them to send any property that they like to me and we’ll keep an ongoing list. There’s programs that you can use, whether it’s Dropbox or Google Drive, and you can update it. So they put a bunch of properties on their list and as they sell, I update them, and they say ‘wow, that $649,000 sold for $820,000. Now I understand.’ So a lot of the times it’s about educating in advance of searching for a property. I’ll tell people that we can get started right away, we can go out this weekend, but do you have a foundation underneath you? Do you understand how these properties are selling? A lot of people call and say they’re thinking about getting started in a couple of months, which is perfect – we then have two months to get your mortgage preapproval, start looking at neighbourhoods, parks, schools, transit routes, that sort of thing, and then we’ll look at every sale that comes through in those different areas. Sometimes we’ll play the price prediction game and it might add an element of fun. So we’ll do that for a couple of months, and as soon as we get out there in September, we’re hitting the ground running.
It’s easy to understand mortgage rules and requirements
I was naive enough to think that that the rules for insured mortgage change was self-explanatory, 5 per cent down [required on the first $500,000] to 10 per cent down [required on the next $500,000]. But then I really did have people coming in to me and assuming that they needed to have 10 per cent. And they look at you like a deer in the headlights. In that respect, sometimes buyers don’t understand. They don’t understand how CMHC fees work. They’ll pay the insurance because it’s only, say, $25 a month. And I’ll point out that if you sell your property, you have to pay the whole amount off. They thought this $13,000 was amortized over 25 years, and I’ll have to explain that that doesn’t mean that if you sell after three years, you just stop paying it; that it’s a lump sum. So a lot of it has to do with the mortgage rules. I don’t want to pass the buck here, but if you walk into a Big Five bank off the street, they’re not going to explain that to you. There’s no way. And buyers don’t understand prepayment privileges, they don’t understand the math in discharge penalties. It could be the buyer’s fault, but it could also be the lender’s for not explaining how these things work.
I saw it on online, so it must be true
Access to information on the internet is a blessing and a curse at the same time. It’s great to educate yourself, but I’ve read how to articles or advice columns where people are giving out these knowledge-bombs and I look at these and think, “Oh my God, I hope someone’s not actually reading this.” There’s a lot of stuff of the internet, and I would say, read as much as you can, but take everything out there with a grain of salt – even if I tell you something. Take everything out there with a grain of salt. Always play Devil’s Advocate, always look for an alternative point. There’s just so much information out there that it can be overwhelming.
Anyone can do the job
Yes, you do need a top real estate agent. Yes, you do need a top mortgage broker. I don’t believe anyone should go to the bank; you should go to a broker. And yes, you need a good real estate lawyer. You don’t need the best of the best, but you need somebody that’s been around a long time and somebody that’s done a tremendous amount. You don’t need your dad’s uncle’s friend in Milton if you’re buying a condo in downtown Toronto; you need someone that does 500 condo transactions a year. You have to surround yourself with experts. Your real estate agent should have contacts for a handyman, they should have a painter, they should be able to get you a deal on appliances, they should have all of those contacts. The good people in this business, they surround themselves and have made relationships over the years that the buyer can take advantage of.
David Fleming is a Realtor with Bosley Real Estate Ltd. Brokerage in Toronto. You can find more of his musings and contact him directly through his website, Toronto Realty Blog.
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