Buying a home and becoming a homeowner involves costs, risks and responsibilities. Did you know that more than one third of Canadian homeowners recently polled in a Manulife survey stated that they were caught short of funds at least once this past year? About 10% said it happened to them a few times and around four percent stated that they were in a financial shortfall almost every month. The survey was conducted by Environics Research between February 3rd and 20th of 2016.
Most home buying experiences are unique to the person and the home that they are buying. However, there are 15 must know steps in the home purchase process that are common to almost everyone. Knowing what they are can make you better prepared for what is the largest transaction in most peoples’ lives.
Step 1. Confirm you are ready for Home Ownership.
Home ownership is a very big decision and it involves a large upfront purchase and ongoing maintenance to preserve the value of the home and property. It also involves knowing what laws and bylaws apply to the land and home that you purchase so that you know what you can and cannot do with them. Some people think that they can do whatever they want on their property but this is not realty in today’s highly regulated world. Property use is regulated by local zoning bylaws and individual land titles often have things like covenants, building schemes, easements and other restrictions on them. In addition to the costs and responsibilities of home ownership there are risks. Earthquakes, floods, fires and other perils have the potential to do damage to homes and most people purchase insurance to address the potential risks thereby adding to the ongoing costs. Knowing and understanding what is involved in the purchase of a home is an essential first step in the home buying process. If you are a first time buyer check to see if any government plans apply to you (federal or provincial).
Step 2. Know and Understand Your Credit Rating
Because large sums of money are involved, your credit rating is important. Most people require mortgages to buy a house and the interest rates paid on mortgages are sensitive to and affected by your credit rating. Your credit history is maintained by at least one of Canada’s two major credit-reporting agencies. They are TransUnion and Equifax Canada. Financial lending agencies use the reports generated by these organizations to decide whether or not to give you credit. The poorer your credit the higher your risk and the more you will pay to borrow money. If your rating is low enough you may not even qualify to borrow money. It is very important to know and understand your credit rating and score so that you understand your financial health from the perspectives of the potential lenders. Credit scores range from 300 to 900 in Canada and they are produced under brand names such as FICO, Beacon and Empirica. For example, a score of 300-559 may be considered poor, 560-659 fair, 660-724 good, 725-759 very good and above 760 excellent. The specific numbers may vary between organizations but they are indicative. Higher numbers are better. Do you know yours and what it means?
Step 3. Get Pre-Approved for a Mortgage
Getting pre-approved for a mortgage is very important before you start to shop for a home. Locate a competent mortgage broker who can look at a range of options for you. Understand, however that a pre-approval is different from a pre-qualification. If a lender only prequalifies you they are only providing you with an estimate of what you could borrow. It does not mean that you will get a loan. If a lender preapproves you that lender is generally prepared to give you a loan after reviewing your financial information. While you are getting preapproved, and if you a first time buyer, ask the mortgage broker if there are any benefits that may apply to you as a first time buyer. After getting preapproved it is important to understand that the home that you choose and what you agree to pay for it also plays a role in the decision to give you a loan. So if you buy a high risk home and pay way too much for it the probability of getting a loan is greatly reduced. Knowing and understanding these three different factors will help get you prepared to contact a real estate agent to help you find and buy a home.
Step 4. Determine Your Needs and Wants
Thinking about what you need and want is also very important. What must you have in a home and property to meet the needs of your family? What would you like to have if you can afford to pay for it? Do you really need to have a nice view of the ocean or is being close to schools a more important need? Taking the time to think through and document your needs and wants will help you decide when you do start looking for a home. Buying a home can take the form of an emotional experience for some people. After all you will be purchasing your private residence and sanctuary and you will be living in it each day of your life.
Step 5. Engage a Real Estate Agent
The real estate industry is not well understood by too many people. This is borne out by statements such as: I am not willing to commit to a single agent; I am going to interview agents before I hire one; and I do not need the services of a real estate agent. The laws and regulations in BC stipulate that an agent cannot interfere with the professional relationship you have with an agent. In other words, you cannot have more than one agent working for you in the same area. If you choose to “interview” an agent it is important to remember that they are also interviewing you because they will be committing their time and money to helping you so the fit has to be both ways. As well, as a home buyer you can engage the services of a real estate agent without having to pay anything for their professional services. When you buy a home the agent is paid by the seller through the agent’s agency after the deal completes. Why would you want to do it alone if you can get the help of a professional without having to pay for the services that you receive?
In British Columbia you can engage the services of a real estate agent as either their customer or as their client. To understand the difference think of the professional business relationship like this. As a customer of the agent they will be selling you a home. As a client they are doing whatever they can to help you meet your needs in buying a home. The current law that applies to this relationship is referred to as the law of Agency and the current version is called Designated Agency. In addition to these two fundamentally different forms of representation there is also an option for limited dual agency in some situations. As a buyer you are best served by being a client of the agent and the agent should be working exclusively for you as your buyer’s agent.
Step 6. Know and Understand the Local Real Estate Market
The Courtenay real estate market, like any other financial market can and do change over time. In general terms a market can be a buyer’s market, a seller’s market or a neutral market. These general conditions can exist across the entire market and they can exist within segments of a particular market. Market conditions can and do affect the price that you can expect to pay for a specific home. Competent agents will understand all of the factors that go into the preparation of an offer and they will be able to advise you on things like terms, conditions, price and down payment. The motivations, character, competence and experience (both industry and life) will vary from agent to agent. Choosing the right agent is important.
Step 7. Start Looking Online
When it comes to looking for homes there are many sources of information. Magazines, newspapers and the internet all can provide information on homes for sale. The problem with print media is a fast moving market is the lead time required for publications to go to press. Magazines can have lead times measured in weeks and newspapers often are in days that can extend a week or more into the future. The most responsive mechanism is the internet but even it is not instantaneous. The information on websites needs to be refreshed to display new information and new pages need to be indexed to be displayed in searches. The internet is a great place to start looking but it is important to remember that homes and properties displayed on online listings can and often do look different in real life.
Step 8. Get Access to Local MLS Listings
After you secure the services of a real estate agent they should be able to create an account for you and send you Multiple Listing Service (MLS) listings as soon as new listings come on the market to help you in your home search. The MLS database feeds public websites that display MLS listings. Done properly this access will save you the time of going to public websites to search for and find what you are looking for. Understanding what the MLS is, does and can do for you is important. Your agent should take the time to explain this to you.
Step 9. Choose a General Location
A local real estate market can cover a very large geographic area. It may contain both rural and urban areas and a variety of urban areas such as cities, towns and villages. The home buying process usually involves a process of elimination that starts with choosing a rural or urban area that works for you. The more you can narrow down your search to a specific area or areas, the more time you can spend looking at specific neighbourhoods, homes and the features that they offer. For example you may be looking for homes for sale in the Comox Valley but then quickly decide that your needs are best served in or around the Town of Comox.
Step 10. Go View Homes
Viewing homes in person is an absolutely essential step. This should be done only after you are preapproved, choose an agent and if you have a home to sell, getting an accepted offer on your current home? Why you ask? If you find “the home” and fall in love with it, especially in a fast moving real estate market you will need to be in a position to make an offer on it to have a chance at buying it or risk disappointment and losing out on it. While you can make an offer on a home subject to the sale of your current home this condition may not be something that some sellers are willing to accepted in some types of market conditions. Sellers are happy to spend the time required getting their homes ready for viewing by qualified buyers but they do not appreciate having lookie loos (also called tire kickers) come through their private residences. Often sellers will ask real estate agents to ensure that buyers who wish to view their homes are both qualified and serious. In some market conditions they will also ask if the buyer has a home to sell before they can buy when they are not prepared to consider offers of that type. Few people like having their time wasted and home sellers are no exception.
Step 11. Narrow Down Your Choices
Most buyers will narrow down the homes that interest them to a short list of homes. When you have narrowed the list down to about three home that could meet your needs it is time to take a second look. Bring a piece of paper and make notes. Jot down what you like and do not like and what you would want included in an offer and if there is anything that you would want excluded. Once you select the best of the three you should be ready to make an offer. Rarely should it be necessary to go back for a third look at any home. Sellers will expect a second look by serious buyers and if a third viewing is scheduled they will expect that an offer is imminent. Fourth viewings are extremely rare and if scheduled the reaction from sellers is often negative. While there are exceptions to every general rule this is often the norm in real estate viewings.
Step 12. Choose a Home and Make an Offer
The real estate offer is where the rubber meets the road. The preparation of an offer requires discussion of price, deposit, and terms and conditions. Unlike many “reality TV shows” or crazy markets like Vancouver, most real estate offers will have conditions in them. These are commonly referred to as “subject tos”. The most common ones address things like title searches, property disclosure statements, financing, inspections and insurance. There are many others that can apply to a specific home or property and a competent real estate agent will be able to advise you on others that should be included to protect your interests as a buyer.
Step 13. With an Accepted Offer Investigate Condition Removal
When an offer is made subject to anything a specific amount of time will be written into the offer/clauses within which to carry out the investigation necessary in order to make a decision on whether or not to remove the condition or conditions. This may involve other professionals such as home inspectors, septic inspectors, land surveyors, biologists, municipal offices, notaries and lawyers etc. A competent real estate agent should be able to help you locate names of the professionals needed so that you can call them and choose the ones that work for you. As well, it is important to allow enough time for the condition removal period so that they can be scheduled for the appointments and for them to do their jobs and then for you to receive and review the information and then make a decision.
Step 14. Remove Conditions and Purchase the Home
The removal of conditions in a real estate contract is an extremely important step. Once conditions are removed and a contract becomes unconditional you have purchased the home via a legally binding contract.
Step 15. Complete the Buying Process
At this step of the process the focus shifts from the real estate agent and agency to your lawyer / notary who will deal with the next step of title and money transfer as well as the signing of final mortgage documents.
These 15 steps cover the main elements of the real estate buying process but it can often be more complicated than this and a competent real estate agent can help guide you through the entire process. When you need help in the Comox Valley, whether as a first time home buyer or as a senior citizen looking to downsize, contact Brett and get started meeting your real estate needs. Brett can also help you find an agent if you need one in other parts of the province or country.