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Is
it a good time to buy a house as an investment property?
In real
estate circles, an "investment property" is one bought with
the hope of cashing in on the increase in the property's value in
future years. An example would be buying farmland in Richmond Hill in
1980, or my friend Chris who bought a house in Markham when it was
still a sleepy little village surrounded by farms out in the country,
or buying vacant land in 2008 in Collingwood, or Wasaga Beach. (I'm
not saying, I'm just saying....:)
Many people
consider a rental property to be an investment property, but that's
really an "income property." There are many landlords
living off of their rental income. They're a great way to make money,
but are much more complicated than buying an investment property.
To profit
from buying real-estate, or any investment, you have to buy it for
less than you sell it for. To make your real estate investment
decision today, you have to calculate the odds that your
"investment" will be worth more than today's value in
future years.
Real estate
values have historically moved in 5 year cycles. Values go up for 5
years, then down for 5 years. We're currently (2008) in the 13th year
of the latest 5 year cycle!
For the
past 8 years, all of the real estate "experts" have been
predicting that the next downturn would start soon. They all have red
faces. When it actually hits is not important. That it WILL
eventually hit is crucial to your buying strategy and profit margin.
At the end
of the booming 1980's market, prices reached levels that people in
1990 thought were crazy. Prices are now higher than they were in
1990, even adjusting for inflation (see When
should I buy?)
If you
bought in 1995 at the bottom of the crash, what would have been the
odds that the house would increase in value? Pretty high. What are
the odds that your purchase today will be worth more in future years?
Not very great.
The only
practical way to buy a house as an investment in the 2008 market is
to buy an income property; either living in the main floor of a house
and renting a secondary unit, or using the equity in your own house
to back a mortgage on a second home that you will rent out.
If house
values drop, you will still have the rental income to offset the loss
in value on the property. The same factors that lower house prices
will keep renters renting. Your house will have tenants.
Being a
Landlord is a whole other can of worms and your lawyer can advise you
on your legislated responsibilities, before you buy. As your Realtor,
I can help you determine which properties make business sense as an
investment/rental property. Get on the Fast-Track!
If you have
other questions, check out my
FAQ and E-mailed
Questions pages or send your own!
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I
want to wait to buy, so that I can save up more money. Good idea?
If
housing prices and interest rates were stable, waiting and saving a
bigger downpayment would save you a bit of money. By saving a larger
downpayment, you could reduce your total mortgage, reduce the overall
amount of interest you will pay, and reduce your monthly payments.
Let's say you reduce your mortgage by $6,000. That would lower your
blended Monthly mortgage payment by $35.00 (calculated for a 5.00%
interest rate on a 25 year mortgage on the saved $6,000).
Housing
prices have been rising in our area at an average rate of 4% per
year. In the last 12 months prices have risen 10% in the city of
Barrie. If that continues, a $180,000 house today will cost you an
additional $ 7,200 in a year's time. If you can save $6,000 in the
next year, a saving rate of $500 per month, your total mortgage
amount would theoretically be within a few dollars of the total you
would borrow today with the downpayment that you have now.
As
for interest rates, they cannot go much lower without the entire
economy becoming unhinged. That means that in the long term interest
rates will trend upwards, not downwards, to combat inflation. Even if
rates only rise 1/2% in the next 12 months, a typical $140,000
mortgage payment will be $ 31.00 more per month. And that's assuming
interest rates only go up by 1/2%.
So,
to summarize, if you're buying an average Barrie $180,000 house with
the required minimum $9,000 down today, you can start paying for and
enjoying your house today. If you wait and save $500 a month, you'll
be buying a $187,200 house with $13,500 down. The mortgage will be
the same - $171,000, but you'll be paying $ 31.00 more a month for
every 1/2% interest rates increase by.
Keep
in mind, if you are paying a typical rent of about $1,000 per month
for that year while you're saving, you'll be putting $12,000 in your
landlord's pocket rather than paying it against your own mortgage.
Now,
are you ready for the down-to-earth answer?
People
buy the most house they can afford. If paying that little bit extra
gets you the deck, or the second bathroom, or the jet-tub you dreamt
of, you'll pay it and go for the more expensive house. If you're a
typical human, and if you do manage to save $6,000 this year, you'll
probably just buy a house that's worth $6,000 more rather than buying
the same house you could have afforded this year and taking a
mortgage of $6,000 less.
Do
you want to move? Do you want to buy? Do you qualify for a mortgage
with your current downpayment? Then buy a house! I'll show you how my
Home-Buyers system can find you a house you will love. Why wait to be
happy? Call me now, and get on the FAST-TRACK! Back
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How
much money do I have to have for a downpayment?
The
banks want to know that borrowers have enough money tied up in a
house themselves that they won't walk away and leave the bank holding
the bag if things go wrong. They like to see a buyer put up at least
25% of the home's value as a downpayment.
Most
buyers don't have $50,000 lying around in cash, so in order to get
Canadians into their own homes, the federal government set up a loan
insurance program under the Canada Mortgage and Housing Corporation
(CMHC). CMHC acts kind of like a co-signer. They guarantee the lender
that they will pay the loan off if you walk away from the house. GE
Capital also provides similar insurance but doesn't stray far from
homes in Toronto.
With
that insurance on the mortgage, you can buy a house with as little
at 5% down. You can buy an average $150,000 home with a downpayment
of $7,500. There is a substantial fee for that coverage ($5,000 on a
$150,000 mortgage). The fee can be paid up front, but most people
lump it into the mortgage.
A
recent development though has buyers titillated. CMHC has relaxed
its rules and now will let you borrow the 5% you need for your
downpayment. You can, essentially, put your 5% on your MasterCard.
Banks are willing to give you a mortgage for 95% of your new home's
value, plus give you a side loan for the other 5% plus the closing
and legal costs; a 105% mortgage!.
The
interest rates are high, and the number of people who qualify is
very low, but it might be worth checking out if you're in a high-paying
job with no downpayment saved. As a long term investment strategy,
you're still better off paying part of your accommodation costs into
your own pocket rather than into your landlord's pocket.
There
are costs associated with buying, in addition to the downpayment,
that you need to budget for. When you're using my No-Surprises
Home-Buyers system, I'll work through those costs with you, in
writing, so that you know exactly what costs you will have to cover
when the keys change hands. No-Surprises! Call me now and
get on the FAST-TRACK! Back
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What
other expenses do I have to allow for besides the downpayment?
In
addition to the downpayment, you will have to money to pay a Land
Transfer Tax on the value of the property you buy, legal fees for
arranging the mortgage and title searches etc, CMHC fees if they are
not lumped into your mortgage, GST on the CMHC fees - up front,
possibly a condo estoppel certificate fee, the Ontario New Home
Warranty program registration, a survey, a Home Inspection fee, and
closing adjustments. The fees can easily add up to over $5,000.
As
part of my FAST-TRACK
No-Mystery Buyer's program, I spell out those costs in detail before
you begin searching for a house. You will know what you are getting
into when we begin working together, and you will not get an
embarrassing call from your lawyer looking for more money on Closing
day. Forewarned is forearmed. Call me now. Get
on the FAST-TRACK! back
to questions
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What
are closing adjustments?
On
the closing date, the vendor's lawyer will make adjustments for
costs associated with occupancy of the house. For example, the
municipal taxes will be adjusted so that the vendor pays up until the
closing date, and you pay from the closing date until the end of the
year. If the Vendor has not paid his taxes at all, the lawyer will
take money from the Vendor so that you can pay the taxes from Jan 1st
until the day the deal closes. If the Vendor has paid the taxes for
the whole year, you will repay her for the period between the closing
date and the end of the year - the period you will be living in the house.
Common
Adjustments:
Fuel
Tanks: The vendor fills the tank and
the purchaser pays the vendor for a full tank of fuel
Interest
on an assumed mortgage: The first
payment the purchaser makes on the load includes the days when the
vendor lived in the house, because the payment is made after the
month it is for. The purchaser is credited with interest for those days.
Rent:
Tenants pay in advance, so the purchaser is given credit for rent
from the closing date until the end of the month. The vendor keeps
the rent covering the days before the deal closes. If the tenant has
paid a deposit, that is credited to the purchaser, since it is the
purchaser who will pay it back to the tenant when the time comes.
Taxes/Local
Improvements: Municipal taxes are
paid by the vendor up until the closing date and the purchaser pays
from the closing date on. (See introduction above)
Water
and other
metered services:
Unless there is a bulk charge for a service (in which case it is
treated like the expenses above) the vendor and purchaser arrange to
have meter readings taken on the closing date. The vendor pays up
until the closing date. The Purchaser pays from the closing day onward.
As
part of my No-Mystery Home-Buyers system I will work through those
costs when you have made a decision to buy a home. At that point I
can give you specific costs that apply to the house you are buying.
You won't have any surprises on closing day. No Mystery! Call me now,
and get on the FAST-TRACK! Back
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How
do I know how much I can borrow?
With
the backing of the Canada Mortgage and Housing Corporation (CMHC)
you can borrow up to 95% of the value of the house you are buying.
For example you can buy a $200,000 house with a $10,000 downpayment,
but you do have to be able to cover the mortgage payments. You might
have the $10,000 downpayment, but still not be able to get the loan.
The
monthly mortgage payment (principle and interest) plus the annual
property taxes must not add up to more that 30% of your gross income.
You can use the chart that follows to determine your maximum
allowable Principle/Interest/Taxes (PIT) payments based on your
before-tax monthly income.
|
PIT |
Monthly
Gross Income |
|
PIT |
Monthly
Gross Income |
|
850 |
2833 |
|
1350 |
4499 |
|
900 |
3000 |
|
1400 |
4666 |
|
950 |
3167 |
|
1450 |
4833 |
|
1000 |
3334 |
|
1500 |
5000 |
|
1050 |
3500 |
|
1550 |
5167 |
|
1100 |
3667 |
|
1600 |
5333 |
|
1150 |
3833 |
|
1650 |
5500 |
|
1200 |
4000 |
|
1700 |
5667 |
|
1250 |
4166 |
|
1750 |
5833 |
|
1300 |
4333 |
|
1800 |
6000 |
Now
that you know your maximum PIT payment, you have to subtract the
municipal tax portion of the PIT payment to figure out how much of
the PIT is going towards the mortgage.
You
can use the following chart as a rough guide to the amount of tax
you'll be paying monthly based on the house your income can buy.
|
Monthly
Gross Income |
Mun
Taxes |
|
Monthly
Gross Income |
Mun
Taxes |
|
2500 |
90 |
|
4500 |
165 |
|
3000 |
115 |
|
5000 |
185 |
|
3500 |
130 |
|
5500 |
200 |
|
4000 |
145 |
|
6000 |
215 |
If
you subtracted the municipal tax payment from your maximum PIT
payment, you'll now know how much the lender will let you pay per
month for a mortgage. You can work backwards from that payment to
determine the total mortgage it will buy you.
Multiply
that principle and interest payment by 1,000. Now divide by the loan
factor for your interest rate below (based on a 20 year mortgage.)
Find current interest rates here.
|
4.00
% |
5.00
% |
6.00
% |
7.00
% |
8.00
% |
|
6.04 |
6.58 |
7.12 |
7.69 |
8.28 |
You
now have a close guess at the maximum amount that you can borrow.
Add that to the amount that you have for a downpayment, and you'll
know the value of the house that you can buy.
There
are other costs related to buying, and you won't be able to use all
of your savings for your downpayment. When you're using my No-Mystery
Home-Buyer's system or One-stop Home-Builder's system, I'll work
through those extra costs with you. I will l go through the
calculations you've just done too, using current interest rates. I'll
also help you work through average closing costs so you know how much
of your savings you can actually use for a downpayment. You'll know
what you can afford before we start looking at houses or builders. If
that kind of organized approach appeals to you, then it's time to get
on the FAST-TRACK! back to questions
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How
can I borrow money to renovate?
There
is a program, administered by the Canada Mortgage and Housing
Corporation (CHMC) and called "Purchase Plus Improvements,"
that makes is possible to buy a house and borrow money to renovate it.
The
lender will advance you the money, through a mortgage, to pay the
Vendor for the house when you buy. Then they will advance additional
money as the construction bills come in, and add that to the mortgage.
The
lender will lend you up to 95% of the total value of the house based
on what it will be worth after the renovations. There are limits on
the kinds of renovations that can be done though.
Whatever
is done must add value to the property. The only thing that adds
value to a home, from the lender's eyes, is square footage. If you
build onto the house to add a family room, for example, or a second
floor, that will qualify. If you want to renovate by putting in
hardwood or ceramic floors, and marble walls, and new bathroom
fixtures, that won't qualify because a lender considers that to be
only decorating.
The
lender's concern is, if they have to take the house back from you,
can they sell it and get out of it what they have loaned you. If you
bought the house at market value and spent $20,000 on gold faucets
and gold-plated bathtubs, using their money, they'd have to get the
same money back if they sold it. That decorating loses it's value
quickly though. In two year's time, they could not recover the money
you still owe by selling. Taking it to the extreme, if you smashed
the ceramics and stored your 427hemi engine in the gold-plated
bathtub, the decorating would be worthless. They could only sell the
house based on its size. You can destroy decorating, but you can't
change the square footage of a house.
The
only time the "decorating" would qualify is if the
decorating brings the value of the house up to the same standard as
that of other houses of that size are worth. That's the
"handyman's special" or "fixer-upper." You'd buy
it for, say, $20,000 less than it should be worth, borrow the $20,000
to replace the bathroom and kitchen, or whatever was pulling the
value down, and bring the value up to what you would have paid for a
similar house in good shape.
When
you're making an offer on a house with the intention of applying for
a Purchase Plus Improvements mortgage, your offer should be
conditional to "being approved for a Purchase Plus Improvements
mortgage" rather than using the standard clause covering a
conventional or high-ratio mortgage. If you don't, you could end
owning a handman's special with no money for the handyman to fix it up.
When
you use my No-Mystery Home-Buyer's system, I'll not only advise you
of your options, but I'll also know how to protect you if you choose
them. If you want that kind of peace of mind when you buy, call me
now and get on the FAST-TRACK! back
to questions
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Should
I buy a new or a resale home?
The
housing boom of the 1980's gave a whole generation the misconception
that houses go up in value. The truth is, houses are like cars - they
are worth more when they are new, and depreciate as they age.
The
land under the house, however, does go up in value IF there is a
continuing demand for the land. As long as the value of the lot is
going up faster than the value of the house is going down, your
"property" will be worth more every year. (Homebuyers in
the booming 80's discovered that land values can also go down, and
with it goes the value of the property.)
When
you buy a newly built home, you're paying the highest possible price
for the actual buildings because they have been built with materials
and labour paid for in year 2,004 dollars at year 2,004 prices.
You're also paying the highest possible price for the land.
When
you buy a resale home, you're buying a house that was constructed
with, say, 1970's material and labour paid for with 1970's dollars at
1970's prices. You will still pay the new inflated price for the land
under the house, but you'll be paying a depreciated price for the
house. If you are a first-time homebuyers, buying resale is often the
most practical choice for you. You will be getting the most living
space for your dollar.
Buyers
often rationalize the extra expense of a new home through the
savings they'll get in not having maintenance and repair costs while
the house is new. That benefit lasts only a few years however, since
any house begins to deteriorate the day it is built. Plan to spend
1/50th of the house's construction costs every year on preventive maintenance.
The
savings in repairs in the initial few years are offset by the added
costs of giving the new home personality and liveability. You'll need
to buy blinds, curtains or drapes (while they are often included in
resale homes.) Unless you like wall after wall of builder-beige,
you'll be painting and wallpapering the new home. (The resale home
has usually just been repainted, to dress it up and sell it faster,
and it is usually already decorated in a manner that appeals to you -
that's why you bought it.)
New
homes are not built on mature lots with hedges, fences and paved
driveways. The resale home however, usually has had those things
done. There is nothing to do outside of the house (unless you've
bought a real dog, in which case that would be reflected in the
price. ) After your first trip to the paint store and garden supply
store for your new home, you'll realize you've spent whatever savings
you thought you'd have in repair costs.
Resale
homes have character already built in, and that is usually the
character that brings people to buy a particular house. The older the
home is, the more character it has. Century homes are extremely
popular with the Martha-Stewart set in the Barrie area. That
character actually ads value to the home - it's known as "value
in use."
The
new home will be covered by the Ontario New Home Warranty Program
(there is a registration fee of around $700) as well as
manufacturer's warranties on the systems and materials in the house
(thermal-window seals, furnace, pool equipment, central vac etc). The
New Home Warranty covers major structural failures and defects in the
weatherproofing systems of the house (windows, roof, basement
integrity etc). The warranty will pay to rectify the cause of a
fault, say a water leak through the roof, but will not pay for damage
caused by the water that leaked in - soggy insulation/wet drywall.
The number of claims that are actually submitted for structural
faults are negligible compared to the number of people in the
province paying into the program.
To
offset potential repair costs when you buy an older home, you have
the option of purchasing a Home Systems Warranty at the time you buy.
The warranty covers the expense of major system breakdowns. If the
furnace dies, or if the pool pump explodes, for example, the warranty
pays to repair or replace it. For a few hundred dollars, you can buy
peace of mind for the older home's systems - the ones that are new in
a new home.
One
minor financial incentive to buy the new home, if you are a first-time
homebuyer, is the rebate of the Land Transfer Tax (to a maximum of $
2,000.) The rebate program was initially to be in place for only a
short time, but the Ontario government extends it every time it
reaches the end of its cycle. While it remains in place, it does
offer some incentive to buy new.
There
is also a rebate of the GST paid on the purchaser's portion of the
GST accumulated on a new home. Most builders factor the rebate into
their prices, and you sign the rebate over to them in the Agreement
of Purchase and Sale. You won't see the cash.
Now
that I've blown away all of the financial reasons you can use to
justify the new home's expense to your friends or family, you can see
that the new/resale decision is not a financial one. It's an
emotional one.
It's
nice to move into a modern freshly-built house! It's like buying a
new car. The styling is modern, the fixtures are modern, it's built
using the most modern and well-researched materials and components
available, and there are no huge spiders in the basement. And it
smells great too!
In
Chinese Feng Shui, it is considered bad luck to buy a resale home
because it carries all of the bad spirits and bad energies of all of
the previous owners.
One
great advantage of having a home built for you, if you have a good
builder who listens to you, is that you can have it built to meet
your particular needs in the distinctive style that appeals to you. I
work with custom builders who can translate your mind's-eye vision of
your new home into bricks and mortar. I can also use my design
expertise to put your ideas on paper, and then help you find the best
builder to construct your home.
I
tell purchasers to stop being rational about costs and square
footages and utility bills, and start being emotional. The house you
buy is going to be where you go to sleep every night, wake up every
morning, and come home to every night after work. If you hate it,
your going to be miserable, no matter how financially practical it
looked on paper. You're not buying a balance sheet, you're buying a
home. It should be an extension of your personality, not your cheque
book. Who cares what your friends and family think of what you
bought? They aren't going to live there - you are! If you walk into a
resale house, and you love it, buy it. If you can't find a resale
home that you like and if it means hiring a builder and having it
built for you, then, like the sports-shoe ads say: JUST DO IT!
My
FAST-TRACK
Systems will lead you through the new and resale markets. If my
No-Mystery Home Buyer's system can't find you the perfect resale home
, my One-Stop Home-builder's system will help you find the builder
who can build you a house you can love. Call me now, and get
on the FAST-TRACK! Back
to questions
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How
can I reduce the price on a new home?
Many
builders offer a "sweat equity" program that allows you to
do some of the construction work on the house yourself. The builder
reduces the selling price by the amount of the labour that he won't
have to pay out for the work that you will do.
The
type of work that you can do is limited by the flexibility of the
builder, and the restrictions of the Ontario New Home Warranty
Program (ONHWP.)
Some
builders allow the buyer to do work in the middle of the
construction process. Others only allow buyers to do work that does
not delay another trade following that work.
If
you elect to do the wiring in the house, the drywallers cannot work
until you have finished. If you are delayed, then the whole house
will be delayed, and the house will not be ready on closing day.
Under the ONHWP the builder has to compensate you for living expenses
if the closing is delayed. It's not fair that you are paid for that
when it was you that delayed the closing.
The
most common sweat equity work that buyers do is interior painting.
They let the drywallers board and spackle the drywall, then come in
to do the painting. Many lay vinyl or hardwood flooring themselves,
and install the trim moldings. It's an easy job for the do-it-yourself'er.
One
drawback to doing work yourself is that it has to be slotted into
the builder's schedule. When they call and say, "it's time to do
your work," you can't delay. You have to get over there and do
it. Many buyers have been unable to complete the work, due to work or
other time conflicts, and they end up hiring the builder to do the
work anyway.
Being
involved in a structural installation or a major system installation
will invalidate your entire ONHWP warranty. Decorating does not
invalidate the warranty, but any work that you do will not be covered
under the warranty (eg: the workmanship and materials coverage on the
hardwood floors.) If doing a large part of the work can save you a
large amount of money, you might be better off doing the work and
waiving the warranty's protection. If a major flaw developed in the
house though, you would be faced with taking the builder to court
yourself, to recover damages, rather than just applying to the ONHWP
for restitution. It's a gamble. How's your luck?
Hopefully
you'll be represented by a Realtor when you buy from the builder.
(Preferably me!) It's important that the sweat-equity, and other
arrangements, are well documented in the contract. Builders and the
rest of us speak two different languages. When you say you will do
the "trim", you're expecting to pay for and install the
moldings around the doors and windows and along the floors. The
builder then cancels his "trim" subcontractor and all of
the stuff that he does, which includes installing the shelving and
hanger rods in the closets. When you ask, "Where are my closet
shelves," he'll say "You said you were going to do
that." You'll say, "No I didn't, I said I was only doing
the trim!" Says "Yeah!" and a judge ends up sorting it
all out.
When
you're using my One-Stop Home-Buyers system, you'll have a clear
contract and a clear understanding of who is doing what and for how
much. I'll even attach pictures of your upgrades to ensure that you
are both talking about he same fixture. I also attach a Schedule B
that clearly spells out your conditions and clarifies what is and
isn't included in the home you're buying.
If
you want to buy the best house at the best price from the best
builder, call me now and get on the
FAST-TRACK! back
to questions
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Can
a "Power
of Sale" save me a lot of money?
There
are two legal ways for a lender to take a house from its owner - by
Foreclosure and by a Power of Sale.
In
a Foreclosure, the lender actually seizes the title to the home -
the lender then owns it and can do whatever he wants with it,
including selling it for the outstanding balance of the mortgage.
It's a Foreclosure that most people are thinking of when they talk
about buying from a bank. It's expensive for a lender to go through
the Foreclosure proceedings, so most use the "Power of Sale."
Under
the Power of Sale, the homeowner/borrower still owns the house. The
lender can force the sale of the house, and can decide which offer
will be accepted, but the lender is liable for any of the owner's
losses. If the lender accepts an offer that is lower than the Market
Value of the home, the home-owner can sue the lender for the
difference. The lender must sell at or near the true value of the
house, so there are really no huge bargains to be found in buying a
Power of Sale house.
When
you buy a house, the homeowner will provide you with warranties
regarding the systems in the house. If you take possession of the
house, and then find that the septic system is plugged solid, or that
the furnace didn't work while the vendor owned the house, you can
then collect money from the vendor to repair the problem.
When
you buy under a Power of Sale, you buy the house "as is."
The lender will usually accept less than market value for the house
because the buyer is assuming that risk. If there are hidden
problems, whatever savings you think you've made can be wiped out
pretty quickly. The Power of Sale is best suited to a handyman who
can do repairs using his own labour and expertise, and has materials
on hand. There isn't usually enough room in the discount to pay for
labour and materials to fix it up and flip it. For that, you need a
house being sold under a Foreclosure.
There
are Foreclosures that come onto the market, but they are rare. If
they are a good deal, they are sold to the Broker's
"in-house" clients long before the For-Sale sign goes on
the lawn. You'll have to be working as a buyer-client of a Realtor in
order to get in on those deals or to have a chance at the good Power
of Sales.
When
you're using my No-Mystery Home-Buyer's system, you'll have access
to them, and you'll buy the right house at the right price in the
right neighbourhood. Do it now. Get on
the FAST-TRACK! back to questions
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I
can't afford a BIG house on a BIG lot, but I can afford either a
small house on a BIG lot, or a BIG house on a small lot. Which is the
right one to buy?
The
value of a house - the building itself - is primarily based on its
square footage. The features inside the house that make it look so
nice (ceramic or hardwood floors, jet-tub) are just decorating in the
appraisers' and lenders' eyes - the decorating can be destroyed
through negligence or intent, but the square footage will still
remain. The condition and age of the house do affect the value to a
degree, but it is primarily the size of the house that determines its value.
When
I work with purchasers, if lot size is not an issue for them, I
first show them through the largest houses that are for sale in their
price range. The largest house on the list is usually a fixer-upper.
Even if they buy the second or third house on the list, with a little
bit of money and decorating they will own a large attractive house.
They could not buy a smaller more expensive (overpriced) house, and
add square footage to it to create the same house without a
formidable expenditure.
I
extend the same philosophy to the lot size; buy as much as you can
get for the same money. Land generally becomes worth more as time
goes on, even if it's only keeping up with inflation in some years.
Just
as cars are worth more when they are new and depreciate as they age,
a house itself become worth less as it ages and depreciates. If
something is going up in value, you want to own as much of it as
possible. If something is going down in value, you want to own as
little of it as possible.
If
the land is going up in value, and the house is going down in value,
then it's obvious your priority should be to buy the most amount of
land that you can. Land is priced per acre, or by lot frontage. If
land went up $ 1,000 per acre over the last 5 years, who would be
happier; the guy who owns 100 acres or the guy who owns 1,000 acres?
Buy land!
With
the little house on the big lot, you can use the equity in the
higher land value to build onto the house. With the big house on the
little lot, you're stuck with a big house on a little lot. You can't
build onto the lot, and the zoning bylaw's setbacks prevent you from
building much beyond the current size of the house.
My
No-Mystery Home-Buyers System will lead you through that
decision-making process. You'll have a range of properties to choose
from, and you'll pick the perfect balance of lot size and house size.
You'll invest wisely for the future, but you'll meet your family's
needs in a home. Let's do it now. Get on the FAST-TRACK! Back
to questions
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How
can a Home-Systems
Warranty save me from unexpected expenses if I buy resale?
A
Home Systems Warranty acts like insurance on the mechanical systems
in your house.
The
cost is reasonable at around $300 to $400. You can determine the
length of time the house will be covered and how many systems are
covered, which affects the cost.
If
the equipment fails during your coverage, the warranty pays for the
repairs or replacement equipment.
The
coverage is usually purchased by a purchaser, but it's not unusual
for a vendor to purchase the coverage for the purchaser as an
enticement to buy his home.
Homelife
was the first company to offer this type of coverage to homeowners,
but it is now more common. We'll discuss it along with other costs to
budget for as part of my No-Mystery Home-Buyers system. That is, if
you call me now and get on the FAST-TRACK. Back
to questions
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How
does the Ontario New Home
Warranty program/ Tarion Warranty Corporation
protect
me if I buy a new home?
The
Ontario New Home Warranty (ONHW) program protects new-home buyers
for a variety of problems.
If
the builder goes out of business during construction, it repays your
deposit up to a maximum of $20,000.
If
the house is not ready when it's supposed to be, the builder has
guidelines that he has to follow for notifying you and for the number
of times he can delay the closing. He is also obligated to pay you
living expenses after the original closing date, to a maximum of
$5,000. The guidelines also specify that any substitutes the builder
makes to materials have to be of the same or better quality that you
paid for.
Once
the keys change hands, the builder must repair any defects in
materials or workmanship for one year. The warranty does not cover
defects that develop as a result of material shrinkage as the
building dries out after construction.
For
two years, the builder must repair any defects that allow water
entry into the building - leaky windows, leaky roof, leaky basement.
The warranty does not repair damage done by the water. It only
rectifies the cause of the water entry. For example, if faulty sky-light
caulking results in water damage to the drywall and roof insulation,
the warranty will replace the caulking, but does not pay to replace
the drywall and insulation.
The
electrical, plumbing and heating systems, and the exterior cladding
of the house are also covered for two years. During that period, any
defects that contravenes the Ontario Building Code must also be rectified.
The
load-bearing structures of the house are warranted for 7 years, as
is any defect that prevents you from living in the house.
To
make a claim under the warranty program, it must be reported to the
Ontario New Home Warranty office as soon as it is apparent.
Homes
built by custom builders are covered under the program. provided the
builder acted as the general contractor for the whole project. If you
yourself hire one company to do the foundation, and another company
to construct the home, you are considered to be the general
contractor, and you cannot warrant your home under the program.
If
you do hire a general contractor, and do some of the work yourself,
(a builder's "sweat equity" plan) the home will still be
covered is some circumstances. You are permitted to do cosmetic work,
such as painting or installing cabinetry or trim. If you undertake
major work, such as doing the plumbing or wiring yourself, your home
will not be eligible for the ONHW program.
When
you use my One-Stop Home-Builders system, I'll advise you of the
costs you'll be liable for, such as the New Home Warranty, and help
you find a quality builder who will not hand you a house full of
faults. Get on the FAST-TRACK! back
to questions
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Who
is my Realtor
working for? Me, the seller, or both of us?
In
the past, the Realtors were all working for the seller. The Broker
whose sign was on the lawn had a signed contract to represent the
seller. The Realtors who actually brought in the buyer were also
working for the Seller, as the "Co-operating Broker".
Most
buyers thought their Realtor was working for them, but in reality
the Realtor was working to get the vendor the best deal, not the buyer.
Happily,
the Real Estate industry has evolved to the point where buyers can
choose between being a client or a customer of their Realtor.
If
you are a customer, the Realtor who is showing you houses is
actually working for the sellers. He can provide you with
information, but can't interpret the information for you or provide
you with advice. He will advise the seller of any information he has
about you that will affect the seller's negotiating position. No
information will be given to you about the seller or the market value
of the house. That's basically the traditional way that buyers were handled.
You
now have the option of being a client of the Realtor that is showing
you houses (it's free.) As a client you will be given
information about houses, an interpretation of that information, and
advice on the market and the likely outcomes of your choices. You
will be given any information the Realtor has about the house's value
or any information about he vendor that will affect your negotiating
position with any particular vendor. You will sign a Purchaser's
Agency Agreement with the Broker and Representative before you begin
to work with your Realtor as a client.
In
that situation you have a "Single Agency" relationship
with the Realtor. Sellers also have a Single Agency relationship with
the Realtor whose sign is on the lawn. The seller is one Realtor's
client, you are another Realtor's client.
What
happens if the Broker who is representing you as a buyer also
represents the seller? That's called "Dual Agency" and you
both must consent to that relationship for it to occur. It's
generally not a problem as long as you have a Purchaser Agency
agreement signed with the Broker.
The
rules are a bit different with Dual Agency. Basically the lines of
communication are wide open between you and the seller. If a
Comparative Market Assessment was done for the seller, it will be
made available to you so that you know what the seller was told the
house is worth. If the seller has given any indication about the
price he will accept for the house, you will be told. For the sellers
benefit, if you have been pre-approved for a mortgage, he will be
told for what amount. Anything you say about how much you will pay
for the house, when you make an offer, will be told to the seller.
There are basically no secrets, and the Broker does not take sides
between you and the seller.
Keeping
both sides informed and documenting the communications is vital to
avoiding giving one side an advantage, and avoiding a lawsuit. I
developed my Client Monitoring system to ensure that those kinds of
problems don't develop, and that both sides are informed.
Agency
relationships are a recent development in the Real Estate industry
and they were put in place to protect buyers. It's important that
your Realtor understands their new obligations to you either as a
customer or a client, and can explain them to you. Don't be afraid to
ask if they can. back to questions
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Do
I owe a Realtor anything for working with me?
Whether
your working with a Realtor as a customer, or as a client, you won't
have your Realtor coming after you for money. The vendor's lawyer
pays the Realtors out of the money he receives for the house from the
Purchaser. On paper, the vendor is paying the commission and the
buyer has no responsibility for paying it. In reality, the vendor is
using money given to him by the buyer to pay the commission. Think of
it as both sides paying the commission equally
Realtors
are not paid a salary. They are only paid commissions - i.e., they
don't get paid until they sell a house. If you use a Realtor's
services when you're looking at houses, and then don't buy a house,
the Realtor has provided his services for free in the hope that you
will come back to him when you are able to buy. It's a part of
building a relationship with a future client. But, if you use the
Realtor's services, and then buy through another Realtor, you have
used the first Realtor's services without paying for them. It is like
getting your hair cut and then walking out without paying, or taking
something from a store without paying for it.
What
you owe your Realtor is either your loyalty, or an explanation. If
you change Realtors because you are not satisfied with the services
you were provided, let the Realtor know. I set up my Client
Monitoring System in order to keep my clients satisfied, and part of
that system is to get ongoing feedback from you, my client, so that I
know if you're not getting what you expected. When you get on the FAST-TRACK,
I do my best to keep you on the FAST-TRACK.
back to questions
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What
is Title
Insurance?
Title
Insurance covers expenses related to correcting discrepancies over
lot lines and land ownership.
It
is popular in the United States where land ownership records are so
poorly organized that it is possible to buy one piece of land yet
actually own a different parcel of land. The system for recording
land ownership in Ontario was developed in the 1700's and is regarded
as the best in the world. Most counties are studying Ontario land
registry system and using it as a model for straightening out their
own systems.
In
Canada, title insurance applies more to issues of lot line
encroachments. If the pool, or the garage, turns out to be half on
the neighbours property and half on yours, the title insurance pays
to move it.
There
is a misconception that title insurance replaces a land survey. The
land survey determines where the actual lot lines are, and
demonstrates the location of any permanent structures in relation to
the lot lines. It's final. If your buildings are within the lot
setbacks, and on your property, you know it. They aren't going to move.
Title
insurance however, covers you if someone does a survey in the future
and proves that your pool is in their yard. The logical thing to do
is to have the survey done so that you know now where your house is.
The survey resolves the issue up front. Title insurance doesn't do
anything until you find out that you do or do not have a problem.
Your
lawyer will discuss your need for Title Insurance but. if you are
working with me, you'll be having a survey provided by the vendor, or
having one done for yourself after making an adjustment to the price
to cover the cost of the survey. My No-Mystery Home-Buyer's System
takes care of things like the survey. Like the name says: NO MYSTERY. Back
to questions
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Is
there a difference between rural and city purchases?
Purchasing
property in the city is fairly straightforward. There is a house on a
lot, on a street. There is most likely an existing survey that shows
the location of all of the buildings on the property. There are
municipal services rather than septic systems and wells. Basically
the conditions needed in an offer on a property in the city are for
arranging financing and getting a home inspection done.
Rural
properties are a completely different animal, especially if the lot
is a large one.
Fences have
a way of being put up with no regard to the lot lines. The only way
to be entirely sure of where the property starts and stops is to have
a new survey done with clear lot markings done on the ground.
Buildings
that have been constructed may or may not be on the property. A
survey will also show the position of the buildings. If it's a very
large piece of land, 5 acres or more, it may not be necessary to have
a full survey done. The surveyor can plot the corners of the lot, and
"eyeball" the locations of the buildings. The only real
concern with buildings is that they are as far back from the lot
lines as municipal bylaws require.
If the lot
is off the main road, where is the driveway? Does it come in on your
property, or someone elses? If so, is it a legal right-of-way, or did
farmer Bob make a deal with the neighbour over a glass of whisky 75
years ago?
On rural
lots, there are often no services.
If there is
a well, is the water drinkable? You'll need at least three water
samples that pass the Ministry of Health's bacteriological testing.
Your offer should provide that the vendor will install a water
purification system if they do not, before the deal closes. Does the
well run dry when you run the dishwasher? Be suspicious if there is a
clothes-drier in the house, but no washer and no dishwasher. Be sure
you offer includes a warranty by the vendor that the water supply is
adequate for average household usage.
Is the
septic system adequate? Was it approved for a three bedroom house,
but the house has two extra bedrooms in the basement? When was it
installed? When was it last pumped? If the vendor cannot provide
satisfactory documentation for it, the risk you are taking in buying
the house should be reflected in the price you are paying.
Has a
natural gas main been installed on the street, or is one coming? You
may be obligated to pay your share of the installation costs. Be sure
your Realtor stipulates in the offer that the vendor will pay the
Capitalization charge up front if there is one.
Waterfront
properties pose even greater challenges. Shoreline ownership is a
nasty surprise for many buyers - ownership in that they don't own it!
You may have a road allowance along your shoreline, and will incur
additional expenses to buy the land down to the water if that is your
intention. Even if you do own it, you'll need a new survey to
demonstrate where the water starts and where the lot is supposed to
start. Many shorelines have been filled in to extend the property, or
to provide a breakwater and stop erosion. Guess who owns the water.
Not you. The Ministry of Natural Resources will be along with a nice
big invoice for the portion of the lake that your expanding property
has consumed. The larger your frontage is, the larger the bill will
be. Be sure your Realtor covers shoreline ownership and modifications
to the shoreline in the offer. You shouldn't be liable for a problem
the vendor created.
Water can
also be a problem with non-waterfront properties. Lands adjacent to
waterways, including natural drainage paths, are under control of the
local Conservation Authority. You may not be able to put that
extension on the house, or build you shop, if it encroaches on a
waterway. There does not have to be water in the waterway for it to
be a waterway. Be sure you explain your future plans for the property
to your Realtor and be sure he makes your offer conditional to
approval of your plans by the Conservation Authority.
Another
invisibility issue is what's under the land. If there are storage
tanks buried in the ground, and they are leaking toxic waste or fuel
into the groundwater, guess who's going to get a massive bill for
disposing of the contaminated soil. Be sure that your offer includes
a warranty by the vendor that no soil contamination exists from
buried tanks or other sources. If the vendor will not accept such a
warranty, the price you pay for the house should reflect the
additional risk you are taking.
Clearly,
rural purchases are different from city purchases. Be sure that your
Realtor understands the issues that needs to be addressed. If he
doesn't, not only might you pay too much for the house, but you could
be facing some expensive surprises. back to questions
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Do
I need a home inspection?
A qualified
Home Inspector can save you thousands of dollars in unexpected
repairs or upgrades.
Your offer
should be conditional to a home inspection being conducted with no
major flaws being found in the house.
The home
inspection clause should include a dollar value that you will accept
in flaws. I generally use $500 or, if it's a large property, $1,000.
Putting a dollar value in has two affects. It demonstrates to the
vendor that you are serious about buying the house. It also
demonstrates that you are fair and not out to nail the vendor to the
wall. An unfair inspection clause has no minimum dollar value, and
has been abused by many vendors who want to get out of a deal because
they have cold feet or because they found another house while they
were waiting for the inspection.
When I
explain to the vendors why your clause has a threshold value for
flaws - that you really want their house, and are willing to accept
faults up to that level - I can actually see the vendors relaxing
across the table from me. When the vendors finally makes their
counter-offer, they are not making it to an adversary who is out to
screw them. They're making it to a reasonable person who appreciates
and wants his home, and has treated them fairly. It DOES affect the
final sale price of the house, to the buyer's benefit.
The Home
Inspector will inspect the entire house, from the chimney cap to the
drain in the basement floor. He'll provide you with a report on the
structural elements of the house, and it's mechanical, electrical and
plumbing systems. He'll address insulation , weatherproofing, and
even the drainage of rainwater outside the home. He'll take you
through the house while he is doing the inspection, advising you on
important maintenance issues to attend to once you've bought.
Your
home-inspection clause should cover how the major flaws in the home
will be covered. The vendor should have the option to remedy the
faults before the home changes hands. If he refuses to, the clause
should let you get out of the deal. Be sure your Realtor understands
the purpose of the home inspection, and how handling it properly can
get you a better price for the home, as well as protecting you from
unnecessary expenses. back to questions
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Where
do I go to look at
houses on the net?
After
some confusing years, all houses listed on the MLS system in Canada
are now on one website, www.mls.ca. This website allows you to narrow
down your search by price, number of bedrooms Etc. For some areas
addresses are listed, for some they are not. You can use the link
here to get to those sites, then email, to me, the MLS numbers of the
houses that interest you. I'll email the addresses back to you, and
answer any other questions about the houses from information
available through our Intranet sites. back to top Go
to those sites
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If
I see a house
with a for-sale sign, should I call the Realtor whose name is on the
sign, or another Realtor?
The
Broker whose sign is on the lawn is working for the person selling
the house. The vendor is the Agent's client, and they have a
"single-agency" relationship.
If
you approach the Vendor's Realtor as a purchaser, rather than as a
client, the Realtor will be working to get the best deal for the
Vendor, not for you, the purchaser.
The
only way you should be working with the Vendor's Realtor is in a
"dual-agency" relationship. You should engage the Realtor
under a Purchaser Agency Agreement. If there is a conflict between
you and the Realtor, you have court evidence that the Realtor was
supposed to be looking out for your interests.
During
negotiations, under dual agency, the Realtor is responsible for
getting both clients - the vendor and the purchaser - the best deal.
That means the deal has to be fair.
Without
a Purchaser's agency agreement you are only a purchaser, not a
Client. The Realtor is obligated to treat you fairly and honestly,
and can provide you with information, but does not have to provide
you with advice or an interpretation of the information. As a Client
with an agency agreement, you have access to whatever information has
been given to the Vendor about the value of the house, and you must
be advised of any information that would affect either your, or the
vendor's, negotiating position.
Keep
in mind, the "Agent" is actually the Broker behind the
sign, not the Representative whose name is on the sign. If another
Rep in the office lists the house, and your Representative also works
under the same Broker, all of this Dual-agency stuff still applies.
The Representatives are Sub-agents of the Broker.
Dual
Agency is confusing, even for many Realtors who have been practicing
under the old rules where everyone always worked for the sellers and
the buyers were always customers. In those days, buyers were little
better off the buyers on used car lots are today.
It's
important, when working with a Realtor, to work with one who
understand today's current laws, and regulations, and abides by the
Codes of Ethics of the Real Estate Council of Ontario. Don't be
afraid to ask if they do. back to questions
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I
am going to buy through the
Realtor whose name is on the sign so that I can cut a deal with the Realtor
and get
the vendor's commission cut, and then get the price down. Good idea eh?
If
you're going to ask the Realtor to accept a smaller paycheque, you
will have to be prepared to accept less service from her. Why would
she provide you with the same advice and service that she provides to
other purchaser-clients when you're not going to pay her for it?
Would you work as hard as normal for your employers on a day when
they were paying you half your normal pay?
Which
means, the Realtor will not be representing you as a client. You
will be treated as a customer instead. The Realtor will, however, be
representing the Vendor. If the house is overpriced, the Realtor
isn't going to tell you that because she is not representing you. The
Realtor and the vendor will have one goal - to sell the house for as
high a price as possible. You might save the vendor maybe $ 1,000 on
the commission but you WILL pay the vendor more for the house than it
is worth, probably at least $ 5000 more. You will not be at the
negotiating table. Only the vendor and the Realtor will be there with
your offer, looking for ways to get the VENDOR the best deal. Not a
great strategy for saving money. In fact, it will cost you even more
when you go to pay Land Transfer Tax on your house - tax on the
$5,000 or more that you would not have paid if you had been
represented by a Realtor.
If
you are working by yourself to find houses you will have access to a
fraction of the houses that would appeal to you. Many that are for
sale do not have lawn signs. Most that are for sale are not in the
newspaper ads. (There are close to 1,000 homes for sale in the Barrie
area at any given time. How many are in the paper? ) The MLS.CA site
is as much as a week behind the market, and does not disclose
addresses. What are the odds that you can even find the house you're
looking for?
If
you are a purchaser-client of a Realtor, you will have access to all
houses on the market, and you will be advised of new homes the same
day they hit the market. (The really good deals are often sold within
the office before they hit the market. Wouldn't you like to have
access to those "hot deals"? ) At the negotiating table,
your Realtor will work with the other Realtor to make sure you are
getting a fair deal. If it turns out that you are a client of the
Realtor who is also the vendor's Realtor, he has a legal obligation
to represent you and the Vendor equally. He must advise you of any
information he has about the price the Vendor is willing to accept,
and any information he has about appraisals or
market-value-assessments that were done when the property was listed.
Working
without a Realtor, you will be left with the overpriced dregs, and
your negotiating position will be little better than it is down at
the local used car lot. Not the best vendors to try to get a deal from!
Back to questions
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How
do I know how much to offer?
If you are
working as a client, your Realtor will provide you with sales
statistics for properties similar to the one you are thinking of
buying. He'll use his appraisal knowledge to help you compensate for
features that those houses didn't have, or that yours doesn't have.
You should
be able to arrive at a ballpark high and low estimated market value.
You can use those values as a sliding scale to start determining how
much to offer. You'll also factor in the competition in the
marketplace from similar houses. If there are a lot of houses just
like it on the market, you'll slide towards the lower end of your
offer-scale. If it's the only one on the market, supply and demand
forces will slide your offer towards the higher end of the scale if
you're serious about getting the house.
The number
of offers that are on the table will affect your offer too. If yours
is the only offer on the table, and the house has been on the market
for 6 months, your offer can slide towards the lower end of the
range. You will need to know the vendor's motivation to know how low
you can go.
If they are
both still together as a couple (check the closets for his and her
clothes,) if there are no boxes packed already in the house, if they
have not already made an offer on another property, if they have the
house priced at more than what you have decided is it's true market
value, and if they are offering a low commission, they are likely
motivated by money and are only trying to see how much they can get
for the house. There will not be a lot of flexibility in their price,
and you should probably move on to another house if you can.
If there is
evidence of a divorce or a job transfer around the house, if the
house is priced at or near it's market value, and if they are
offering a standard commission, they are serious about buying. The
vendor is likely in a position where he will lose more, financially
or emotionally, by holding out for his price than by letting you have
it for less than market value.
If you're
in a competitive situation with another offer, you should be at the
top end of the range if you want your offer to stay on the table. If
I know that there is another offer coming in to compete with yours,
and I know that you're not willing to come in at the full asking
price or slightly higher, I'll recommend that we not waste our time
by driving up the sale price for the vendor. He'd love us for doing
it, but you and I are not working for him, we're working for you.
The real
danger in competing against another offer is that you may end up
letting your emotions buy the house, rather than your reason. It's
natural to feel the house is worth more if you love it, and it's
natural to try to outbid someone else who is after it. Being human,
we always want the things we can't have. Auctioneers have used that
psychological principle to get the highest price for years. It's the
principle that I use to get my vendors the highest price for their
house. It's the situation I try to avoid with my purchasers so that
they don't pay more than they have to for a house.
When you're
on the FAST-TRACK you'll know what the reasonable price to pay
for a house is, and you'll have alternatives to fall back on if the
seller isn't reasonable about letting you have it for that price. You
have to maintain control if you are going to win. My No-Surprises
system keeps you in the driver's seat. If you want to win, call me
now. Get on the FAST-TRACK! back
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How
do
I make an offer?
Your
Realtor will prepare your offer using standards forms developed by
the Ontario Real Estate Association (OREA). The offer is actually a
contract, or agreement, and it's loaded with fine print, but relax.
An offer is always made to benefit the party making the offer, not
the recipient. (except for new-home builder's offers, but more about
that later.) The OREA standard offer is written to protect you, and
as your Realtor reads through it, you'll feel more comfortable with it.
When you
begin using my No-Surprises Home-Buyer's System I'll supply you with
a copy of a generic offer, with typical clauses, that you can read at
your leisure. You won't be surprised and intimidated by the forms
when it's time to make your own offer.
The OREA
offer is two long pages of preprinted large and small print. There
are blanks to be filled in, and areas for your Realtor to add
freeform terms and conditions. A term is something that will happen
as part of the deal. A condition is something that has to happen
before the deal can be completed.
The same
issue can be handled either with a condition or a term. For example,
to ensure the well water is safe, you could make the deal conditional
to the well water passing three tests for bacteria or else the deal
is off. The alternative is to use a term that says the seller will
either provide independent proof that the water is safe or he will
install an Ultraviolet filtration system. With a condition, you might
get the house and you might not. With a term, you will get the house,
but you're controlling the way you'll get it or what you'll get.
Your
Realtor will advise you on the terms and conditions you can include,
based on the circumstances of the house you're buying. Often there
are no existing standard clauses that apply to what you want to do,
so you'll be relying on your Realtor to draft clauses that are
legally binding and written so that they cannot be misinterpreted by
the seller, or by a judge if the agreement ends up in court.
The three
most common conditions used are for the purchaser getting a mortgage,
the house passing a home inspection, and the sale of the purchasers
existing home. Unless you can write a cheque to buy the house, always
make your offer conditional to your lender approving your mortgage.
The home inspection can get you out of the deal if there are hidden
problems with the house.
When I am
drafting an offer with a client, I work with a clause selection
schedule that covers all of the issues that should be addressed. When
you're dealing with a well and a septic system on a waterfront
property with an encroaching breakwall, tenants, a woodstove and
buried oil tanks, it's too easy to forget to address something
important and costly if you're not using a system. I don't rely on a
hit and miss approach.
You will
have to decide how much you will offer for the house, how much of a
deposit you'll be submitting with the offer, and the date that you
would like to take over ownership.
If there
are things in the house that you want, and that are not attached to
the house ( e.g. the satellite dish) your Realtor must make specific
mention that they are to be included. I go one step farther in my
offers by including a generic clause that specifies the inclusion of
things that have caused lawsuits between other buyers and sellers in
the past (e.g. central vac attachments, pool equipment, interlocking
landscape bricks.) Keeping you out of court is one of my many
responsibilities to you as your Realtor.
You'll also
have to decide how long to let the seller think over your offer. 24
hours is fairly standard. During that time, you are locked into the
offer you've made. If the seller accepts it, you will have bought the house.
Once you've
reviewed all of the details of the offer, you'll be asked to sign it,
and provide a deposit cheque made out the Broker representing the seller.
If the
offer is not accepted, you'll get the cheque back. If the offer is
accepted, even if there are still conditions to be fulfilled, your
cheque will be cashed by the Broker and the money will go into a
trust account. From there, the money can only be released by the
seller's lawyer when the deal closes, or by the Broker releasing the
money back to you if the deal falls through.
Your
Realtor will meet with the seller and his Realtor. He'll explain the
details of your offer, answer any questions they have, and then leave
them alone with the offer to discuss it. Your Realtor is your eyes
and ears if you are working together under a Buyer Agency Agreement
(you should be), and he's trying to get you a deal, so they don't
want him to be a part of their discussions. If you're not working
under a Buyer Agency Agreement, "your" Realtor is actually
working for the seller, and he could stay at the table and try to
figure out how to get more money out of you.
Vendors
usually do not accept an offer as it first comes in. Usually she'll
make some minor changes, sign it, and send it back as a
counter-offer. Usually it's the price and maybe the date of the sale
that change. If the vendor signs the offer and sends it back to you
with as little as one letter changed in the offer, you are then
released from your offer to her and you can walk away from the deal.
She however is then locked into her counter-offer to you, and she
can't accept other offers while you are considering her counter-offer.
You will have the option of accepting it or changing it again, and
sending it back to her. The offer can go back and forth forever.
Either you or the vendor can end the negotiations by signing the last
line on the agreement and accepting the offer that is being made at
that time.
The process
can be a grueling one, with the wrong Realtors. With the right
Realtors it can be a friendly exciting experience that gets you and
the vendor what you both want - A fair deal. Bad deals don't go
through to completion. You and I can beat the vendor up and force a
deal through, but she'll wake up tomorrow feeling used and abused and
she'll spend the next 6 weeks trying to get out of the deal - and she
will, or she'll cost you a ton in legal fees trying to.
Builder's
agreements, when you're hiring a builder to build a home, are written
by the builder's lawyers to protect the builder, not the buyer.
Builders have traditionally treated buyers as customers, not clients.
When I represent a new-home buyer, I add a schedule "B" to
the builder's pre-printed offer to turn the tables and put some
control and protection back in the buyer's hands.
Buying a
home is a major undertaking but it doesn't have to be an intimidating
experience. When you're using my No-Surprises Home-Buyer's system
you'll know that all of the scary stuff has been taken care of. You
can relax and enjoy the experience. If you want to ge the best house
at the best price, and still be able to sleep at night, call me now,
and get on the FAST-TRACK! back
to questions
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Should
I lowball my first offer?
By the time
time you've gotten to the point of submitting an offer on a
particular house, you'll have seen data on the values of similar
houses that have sold or that are currently on the market. You will
have a fairly good idea of the market value of the house. So will the
vendors though. Their Realtor will have reviewed the same data with
them when they were working out their asking price.
If they
have overpriced it out of greed, and if you are working as my client,
you won't be making an offer on it anyway. We'll be looking at other
houses that I know you can get a deal on.
If they've
underpriced it, for whatever reason, you'll be competing against a
stampede of offers from other buyers who also know what it's really
worth. Most of those offers will be at or above the asking price.
Your lowball offer won't even be considered when I try to present it.
So, you'll
be considering your options on a house that's priced close to its
market value, with no competing offers. That's the result of working
as my client.
Now, put
yourself in the seller's shoes. Would you sell your house for $10,000
less than you knew it was worth? Of course not. Why do you think they would?
The year
2005 housing market is a seller's market. The most you can reasonably
reduce a price even with an all-cash unconditional offer, and a very
motivated vendor, is about $5,000. There are too many buyers out
there who will pay what the sellers are asking. If they just wait,
the vendors will get their price, or close to it. They know it, and
you'll know it because I'll keep telling you until you believe it.
Your
lowball offer will accomplish two things, neither of which is good
for you. It will offend the sellers, and it will give them the
message that you will screw them at any opportunity. They will dig in
their heels, and in the end, you'll not only pay their price, you'll
pay them one or two thousand more than you would have if you'd made
them a reasonable offer.
Great strategy!
Do you want
the best deal you can get? Then let my No-Surprises Home-Buyer's
system find you the best house in the best neighbourhood at the best
price. It's time to get on the FAST-TRACK!
back to questions
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How can I
buy with no money down?
The answer
to this question changes as fast as I can update my website!
For most of
modern history the no-money-down schemes have been the domain of
late-night TV infommercial hucksters selling courses on how to buy
houses from widows and get rich in the process. The concept is based
on desperate sellers and vendor-backed mortgages.
The Bank
Act requires that when banks lend money to home-buyers, the buyers
must have at least 25% of the home's value in unborrowed funds. To
promote home sales, the government set up the Canada Mortgage and
Housing Corporation (CMHC) to act as an insurer, and then changed to
rules to allow the banks to lend more than 75% of the value of a home
IF the loan was insured by CMHC.
CMHC has
it's own requirements, one of which has been that the borrower must
have at least 5% of the home's value in unborrowed funds. At first,
only first-time homebuyers qualified for the 5% loan, but then they
changed the rules to allow any buyer to qualify for the 5% program.
At the same
time, private lenders, through Mortgage Brokers, were getting
creative and financing up to 100% of the homes value for their clients.
Competition
is a wonderful thing for consumers. CMHC's competition came from GE
Capital, a private loan insurer operating in the Toronto area. The
bank's competition came from all the other banks and trust companies
and private lenders. The result has been an increasingly competitive
mortgage market and increasingly easy terms for buyers to borrow on.
CMHC has
just announced that it is dropping its requirement that the buyer's
5% downpayment come from unborrowed funds. From reading what the
banks are saying, it appears that the mortgage will still be for a
maximum of 95% of the value of a home, but the banks will be giving
the buyer a second loan to make up the difference and even cover the
closing costs. The buyer must have sufficient equity or collateral to
cover the second loan, and still has to be meet the banks'
requirements for the percentage of income being paid out in mortgage
and loan payments.
There are
renters out there who now qualify as homebuyers who didn't before
only because of the old 5% rules. More buyers will be entering the
marketplace and creating an even greater upward pressure on housing
prices. If you are one of those buyers, be aware that you are buying
at the top of the market and will be buying high and stuck with it
for a long time if or when prices come down again.
There are
strategies for buying lower in a sellers market and your Realtor is
the key. See How To Buy Low
There are
instances where it still makes sense to buy rather than rent even in
an inflated market. We should go over your personal situation to
determine which is your best course of action. Call me now and
Get on the FAST-TRACK!
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Where can I
find a Rent-To-Own?
In a rent-to-own
agreement, the tenant pays the vendor the standard rental rate for
the property plus an amount that the landlord sets aside for the
tenants future downpayment. The time period of the agreement depends
on the amount of the monthly payment being set aside, and the amount
of the downpayment agreed to.
If the
tenant leaves without purchasing the property, the money set aside is
usually not returned to the tenant. If she stays though, the
arrangement can be a great way to find a place to live and save a
downpayment at the same time.
The
rent-to-own plan is an incentive that vendors use to sell their
properties in difficult markets - buyers markets. In
a sellers market,
such as we're in now, vendors don't have to offer incentives to
buyers to get them to buy.
If you're
renting, you know how hard it is to find a plain old rental. Trying
to find an available rental and a landlord that is willing to sell
the house to you in nearly impossible. They do come around, but very
rarely. When they do, the vendor often realizes he doesn't have to
wait to sell, and ends up putting it on the market as a straight sale.
There are
builders in Barrie that are now offering rent-to-own terms to entice
buyers to their product. Builders generally draft offers and
agreements to favour themselves, not their buyers. The rent-to-own
agreement is no different. One drawback encountered by many such
buyers is that the rent-to-own period is limited. When the term is
up, the "buyer" has not put enough money into the houses,
and has not saved enough, to qualify for conventional bank financing
on the property, and they lose the house and their deposit.
Markets do
change, and change back again. There will be a time in the future
when houses will be hard to sell and rent-to-own deals will surface
again. Start saving for your downpayment now. When the rent-to-own
comes available, you'll be able to move into the house to try it on
for a while, so to speak. By the time you're ready to buy the house,
you'll have accumulated your own downpayment plus the rent-to-own
downpayment, and you'll be flush with cash.
That's the
best position to be in when you're buying - with more than one
option. My No-Mystery Buyer's system keeps those options open for
you. When you're ready to buy, don't delay.
Get on the FAST-TRACK! back
to questions
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We
thought we'd look at houses until we found one that we liked but
we're just getting confused and discouraged. What are we doing wrong?
Many buyers
head out into the marketplace with an open mind, planning to look at
houses until they fall in love with one. There are so many new floor
plans and house styles, and so many older homes with character and a
variety of yards, that it's easy to get lost looking. It's even more
frustrating when you like a variety of house styles, and can't decide
which house you like best.
The buyers
who fall into that trap are usually the ones that don't HAVE to move.
The source of frustration is in that difference. Those that must buy
NOW will have a short list of criteria that they have to meet. The
ones that are lost have no real list of criteria for their new home
aside from esthetic likes and dislikes.
Form
follows function. Sit down and make a list of things that you do in
your life, and the things that the house has to have in order for you
to keep doing those things ie, working at home requires a home
office, long luxurious baths require a hot-tub or Jacuzzi bath,
homebrewing beer requires at least a laundry tub, an auto
refurbishing hobby requires an oversized garage, pool parties require
a pool, dinner parties require a kitchen large enough to accommodate
helpers and onlookers. Figure out what appeals to you. Do you like a
warm cozy home with small rooms or a cool open-concept home. Do you
have a large family and need spaces for the kids to get away from
each other, or are you empty-nesters? Make a list of all over those
things that you need in the house to accommodate those needs.
The next
step is to prioritize those needs and the features that facilitate
them. Is the homebrew tub more important than soaker tub? Is the
oversized garage more important than the pool? Can you live without
the guest bedroom more than you can live without the main floor
laundry room? Life is a compromise, especially when you're buying a
house. It's even more of a compromise when you're trying to balance
your needs against your spouse's and kids' needs.
Once you
have your list of priorities, you're ready to shop for a house. Your
Realtor can use the list to search for properties that have those
features. (You can do a limited search yourself on the online MLS
sites, but the search can't be done with as much detail as your
Realtors search engine can do.) You can then view those houses that
meet your needs and decide which one you would feel most comfortable
living in. It won't have all of the decor and design features that
you loved along the way in the other houses, but that's life.
When you
are using my FAST-TRACK No-Mystery Home-Buyers system, I will
use those search criteria to keep you informed about houses that are
coming onto the market and that might interest you. l will email, fax
or drop off new listings, depending on your preference. You can
choose the ones we'll tour. I'm a No-Pressure Realtor. It usually
takes at least 3 months for buyers to find even one house that
they're interested in enough to try an offer. I'll stick with you
through that time, provided you are willing to stick with me too. If
it takes 6 months or 6 years, I'll keep working with you until you
find the one for you. Some buyers have bought the first house I've
shown them. Some have had more children, and sent the older ones off
to college, and they're still looking! You've found the Realtor you
should be working with. Now it's time to get
on the FAST-TRACK! back to questions |
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Should
I find another house first, or sell my existing
house first?
The
short answer is, do first whichever is hardest to do.
It's
currently a seller's market. Generally speaking, it's easier to sell
a house than to find a house. Less generally speaking, it depends on
the type of house you own, and the type you want to buy.
Unique
homes are hard to find, and hard to sell. If you own a unique home,
or one that might be hard to sell for other reasons, and are looking
for an average home, find a buyer for your home before you make an
offer. If you own average, and want to buy unique, find your unique
home before you put your own up for sale.
If
you're trading sideways, time is not an issue, but money is.
You
can negotiate a better offer on your next house when you already
have a firm offer on your existing home. It takes a leap of faith,
but if getting the best deal is your priority, find a buyer first.
Here's why:
If
you do NOT have your house sold, you'll have to ask the other seller
to accept an offer conditional to your house being sold. No seller
will accept that kind offer for less than full price. You'd be asking
him to take his house off the market while you try to sell yours.
(It's technically still on the market, but in reality most buyers
will not make a second offer because they know the seller already has
dollar signs in his eyes. They don't want to compete with a full-price
offer.) Also, once you have a conditional offer accepted by him,
you're running against the clock. You are not in a good negotiating
position with buyers looking at your house. Therefore, you lose on
the buying side, and you lose on the selling side.
Buying
first does give you the added security of knowing that you have a
house to go to if your house sells. If your house does not sell, the
deal on the new home is off, and you still have your old roof over
your head.
The
bottom line then is, it depends on your priorities. If money is an
issue, get your house sold first. If security is more of an issue,
find your new home first.
You
can control the timing and price of your sale using my FAST-TRACK
Home
Marketing System. You can find the right house, at the right price,
in the right neighbourhood, using my Home-Buyer's System. Don't waste
time. Get organized. Get on the FAST-TRACK.
Back to questions
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In
a hot market, should I buy up or buy down in value?
It
depends on your motivation. By going against the market, you can
benefit financially.
The
thing to remember is that what goes up in a hot market must come
down when the next recession hits, and what goes down will come back
up due to the effects of inflation and a market recovery.
In
a hot market, house prices are climbing across the board, although
there may be some minor variations in rates of increase at different
price ranges. In a bad market, house prices are falling across the board.
If
house prices are rising at 10% per year, your $ 200,000 house will
be worth $ 20,000 more in 12 months, and is worth about $ 18,000 more
than it was 12 months ago. The neighbour's $ 100,000 house is only
moving about $ 10,000 per year.
Let's
say that last year's price is the sensible price for your house and
the neighbour's house. If you sell your house, you will have taken $
18,000 out of your house that is overmarket. If you buy the $ 100,000
house next door, you will only be paying $ 10,000 more than its
stable price.
When
the recession hits, and housing prices drop back down to last year's
value, the guy who bought your house is looking at a $20,000 loss in
market value. You are only looking at a $10,000 loss.
Now,
lets say you still own the $200,000 house, and there's a recession.
Housing prices are dropping an average of 10% per year. Assume houses
prices are dropping below their recovery level. If you sell your
house and buy down, your house will be worth $18,000 less than it's
worth, while the $100,000 house will only be worth $10,000 less than
it's worth. The $300,000 house across the street however, has lost
$30,000 of it's value. Buy it, and when the market recovers, and
prices go back to their stable level, you will pick up $30,000 on the
$300,000 house, while you would have only made $10,000 if you had
bought the $100,000 house.
When
the market is going up, buy down. When the market is going down, buy
up. If you're attempting to increase your equity over the long-term,
and are only interested in moving up, stay in your current house,
pack your money away in T-bills and wait for the next recession to hit.
As
part of my FAST-TRACK Marketing and Buyer's plans, I can
advise you on the market values of the home you are in, and the ones
you are considering buying. I can advise you about market trends, and
where prices are likely going. I can get your house sold and get you
the best price for your home. Don't play around with something as
important as the money you have invested in your home.
Get on the FAST-TRACK instead! back
to questions
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How
fast are houses selling in my area?
The
Barrie and District Real Estate Board reports "time on the
market" statistics for houses sold in our area. A house is
considered "sold" when the conditions on the offer have
been fulfilled, and the seller and buyer are locked into the deal.
There is still a period after that, usually 6 weeks, before the money
and deed change hands. The statistics that follow, therefore, are the
number of days between the time the listing Contract was signed, and
the time a firm deal is in place. Spring 2004 stats:
|
Adjala/Tosorontio |
52 days |
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Barrie |
45 days |
|
Clearview |
40 days |
|
Essa |
49 days |
|
Innisfil |
53 days |
|
Orillia |
74 days |
|
Oro-Medonte |
74 days |
|
Severn |
166 days |
|
Springwater |
83 days |
|
Tay |
46 days |
|
Tiny |
69 days |
These numbers
are averages. For every house that sells 30 days faster than
average, there must be one that sells 30 days slower than average.
How do you
control how fast your house sells? My FAST-TRACK Motivator
allows you to speed up or slow down the sale of your home with the
decisions you make about the 20 elements of your home's marketing
plan. Get on the FAST-TRACK
and take control! back
to questions |
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Can
I sell it myself to save the commission?
Sure
you can!
A
recent survey by the National Association of Realtors found that,
even with the Internet giving sellers another avenue to sell their
home, the number of people selling privately is dropping, not rising.
Only 16% of sellers in the study sold privately, down from 18% in
1997. What is more telling is that, of those who sold privately, more
than 50% indicated they would not sell privately again. Here's why:
Any
money you save on commissions will likely be offset by the lower
price you will get for your house. When you add to that the effort
you have to put into advertising it, organizing showings, negotiating
the sale, and the added legal costs of having your lawyer review and
explain the aspects of the agreement that are normally handled by
your Realtor, and you'll soon have lost a lot more than you've saved.
To
understand why, put yourself in the buyer's shoes. As a buyer, your
first option is to work with a Realtor and have access to a thousand
houses on the market. Your second option is to buy by yourself,
trying to find private sales, burning your own gas, not having the
professional advice of a Realtor, and having to negotiate face to
face with the owner, rather than having your Realtor do it for you.
Why
would a buyer choose to go it alone given what a Realtor can offer?
His only motivation is to get you to knock the commission off the
market value of your house. Your motivation for going it alone is the
get market value for your house, and keep the commission. The buyer
isn't in the door even, and he's already after the money you've saved.
To
get the best price for your home, you need to pull in multiple
offers. Can you get multiple offers when you're attracting only a
small fraction of the private buyers out there? There are roughly 415
Realtors in Barrie, each working with an average of 10 buyers at any
one time. With over 4,000 purchasers using the Barrie MLS system to
find homes, plus the ones working with Realtors from Toronto, it's
still uncommon to have multiple offers on a house, even in this hot market.
My
FAST-TRACK
Marketing
Program uses the psychology of timing to generate the most interest
in your property, and the FAST-TRACK Motivator positions your
home to make it as attractive as possible to serious buyers. You'll
have the best chance of getting the best price for your home when you
get on the FAST-TRACK. back
to questions
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Can
a discount
Broker really save me money?
Commission
rates in Toronto are averaging 6%. North of Barrie they are as high
as 10%. In Barrie, due to a commission war that was waged in the
recent past, the average rate is 5%. With a large property, over
$250,000, it's possible to negotiate a 4.5% or 4.0% commission if the
house will sell quickly.
Even
with the commission rates being earned by Brokers in Barrie, there
are several Brokerages that are teetering on the edge of bankruptcy.
Given the competitive nature of the Real Estate Brokerages in Barrie,
if it was possible to operate at a lower commission, and provide
quality services, the rates would be lower. 5% is the lowest
commission that a brokerage can charge and still provide full
services to it's vendors.
How
then, can a company offer you full services at 3.9%, or even 2.9%?
Are you familiar with the expression "You get what you pay for?"
As
a vendor, your primary interest is to put as much money in your
pocket as possible. It seems reasonable to try to cut a thousand or
two thousand dollars off the commission. The false assumption though
is that your house has a fixed price. It doesn't. If you knew that
your house would sell for less than the amount that you saved on the
commission, would you still sell through the discount brokerage?
Your
goal is to attract multiple offers on the house at the same time. It
makes sense that three people bidding on an auction item will raise
the price higher than if one person is bidding on it. You want as
many people as possible looking at your house.
When
I'm working with a buyer, I'm looking to get THEM the best deal.
They are my clients. I'm looking for a seller who is serious about
selling, and who I think I can make a deal with.
The
first place I look is the vendor's price. Is it reasonable or is it
overpriced? If it's at market value, he wants to sell. If it's
overpriced, he's either left some bargaining room in the price and we
can negotiate down, or he really expects to sell for that much and
he's only motivated by money.
To
figure out which it is, I then look at the commission. If he's
paying 6% I KNOW he's serious about selling. I know he's told his
broker, "I don't care what it takes, just get it sold!" We
can negotiate a good deal for my buyer, so that's the house I'll
recommend that my buyer try his first offer on. If he's paying 5%,
he's probably serious and I'll advise my buyer to try an offer, even
if it's overpriced - I assume that he's left bargaining room in the
price. If he's paying 4% or working with a discount broker, I know
he's only motivated by money. There is little chance that we can
negotiate a favourable deal even if he's right on the market value.
If he's also overpriced, I won't even tell my buyer about the house.
It's hopeless.
If
I'm not showing your home because of the commission, how many of the
other 415 Realtors in Barrie are not showing it? How many would be
showing it if you were paying full commission?
If
you want to put as much money as possible in your pocket, let my
Home-Marketing System position your home for a quick profitable sale.
Let's make your biggest problem which offer to accept.
Get on the FAST-TRACK! back
to questions
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Can
a fixed-fee Broker really save me money?
When you
pay a commission to a Real Estate Broker for selling your house, the
Broker pays half of that commission to the Broker that represented
the buyer, and keeps the other half. (Both Brokers then split their
share of the commissions with the Realtors that put the deal together.)
The
commission is usually paid as a percentage of the selling price of
the house. The higher the sale price of the house, the higher the
commission the Realtors get. That is their incentive for the seller's
Broker to get the seller the best sale price.
If you're
the seller, and your Broker is only being paid a fixed fee, he has
only one incentive - to get you to accept the first offer that comes
in so he can get paid. It doesn't matter to him if you get more or
less for your house, because he's being paid the same amount no
matter what your house sells for. He's not going to try to get you
the most money for your house.
Look at is
this way. If you're paying a conventional Broker a 5% commission,
that means for every $5.00 extra the Realtors get, you get $95.00.
You WANT them to be trying to get you to pay more commission. It's to
YOUR benefit.
Not only
will you get less money for your house, but your expenses will be
higher. The flat-fee commission does not include advertising. You pay
for any advertising, and you pay for it up front. You'll pay a $500
retainer that is not refundable if your house doesn't sell. The
flat-fee brokers are the only ones that charge for NOT selling a house.
But wait,
it gets even dumber.
The
fixed-fee Brokers pay the equivalent of a 2.5% commission to the
Broker that brings in the buyer. They have to pay that competitive
rate if they want their listings to be shown and sold. On a normal
listing the commission paid to the "co-operating" broker is
shown as a percentage. On the fixed-fee Broker's listing the
commission is shown on the listing as a dollar figure. That figure is
based on what you and the fixed-fee Broker think you will sell your
house for.
If I'm
working for the buyer, all I have to do is take that dollar figure,
multiply it by 40, and I know what you decided your house would sell
for, i.e. a price you would find acceptable. If the commission is
listed as $4,000, I know you assumed you'd sell for $160,000. You
might be asking $170,000, but after I've done the calculations, what
is the highest offer I'll let my buyer make? Probably $155,000. If I
hadn't had that information, I might have suggested an offer of
$165,000. You just lost far more than you saved by using the cut-rate Broker.
You could
get tricky, and offer the equivalent of 2.5% on your asking price
instead of the price you think it will sell for. You won't sell for
your asking price though. You'll sell for less, and then you'll be
paying a larger percentage commission than you would have if you'd
used a conventional Broker. What was the point of using the fixed-rate
Broker then?
Land agents
or Real-Estate agents have been selling property in North America,
for a commission, for over 250 years. Do you honestly think the first
person to say, "Gee, I wonder if we could get more customers if
we charged a fixed fee" was a Realtor in Barrie? All of these
gimmicks have been been tried before. They don't work. If they did,
it would have happened a long time ago, not here today in Barrie.
You can't
afford to trust the sale of your largest asset to someone playing at
an experiment. If you want your house sold quickly at the best price,
and want to pay a fair price for competent professional services,
then call me now. Get on the FAST-TRACK! back
to questions
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What
pricing strategies are working in the 2006?
Your
goal, as a vendor, is to attract as many buyers as possible to your
home. By doing so, you increase your odds of attracting multiple
offers and getting the best price for your home.
There
are two pricing strategies at work today in the Real Estate market.
The older strategy is to leave some bargaining room in the price
because "everyone assumes it's there." The other is to
price your home at it's market value, and not leave any bargaining
room. Overpricing your home can hurt you in two ways.
You
and I will know that you will accept less than you are asking, but
under the rules of Agency, I can't tell anyone that. The buyers who
are looking at your price will be comparing yours to the homes that
are priced at market value. If they have a choice between making an
offer on a market-value home, or your overpriced home, they will make
the offer on the lower priced home first. They assume they have a
better chance of getting themselves a better deal there. You're Mr
Really Greedy in their eyes.
In
the old days, houses were in MLS books, in the style of a catalogue.
If you were looking at the $150,000 page, the other houses at
$155,000 were also on the page, or on the next page. Your overpriced
house would catch their eye. Today, everything is on a computer
database. I enter "$140,000 - $ 150,000" and the computer
pulls up houses in that price bracket. My buyer will never know that
your house, priced at $155,000 but worth $150,000, is even for sale.
If they don't know about your house, they won't ask to see it.
If
you are going to get the best price for you house, you'll need to
attract multiple offers. My FAST-TRACK Motivator will help you
position your home to attract the most buyers and get the best price
for your home. Get on the FAST-TRACK! back
to questions
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How
can asking less for my house actually
get me more?
You
goal is to get as much money for your home as possible. The only way
to do that is to have more than one buyer wanting your home at the
same time. The only way to make that happen is to get those buyers
through your home. The only way to get them there is to make it
attractive to them, but also to make it apparent to them. They have
to know that it is available.
Realtors
once used an MLS catalogue of homes to search for homes. During
those times, the practice was to leave some bargaining room in the
price. The homes showed up on the same page, or on the next page, and
it was easy for a nice house to stand out of the page and attract a
buyers eye, even though it was not listed in the buyer's price range.
Today,
the MLS book has been replaced by a computer database. A Realtor
searching for homes keys in a price range, and that range is all that
the computer pulls up. You and I know that your house is priced at
$155,000 even though you'd accept an offer of $ 149,000. The computer
doesn't know it though.
The
people who could afford your house don't know that it's available
for sale. The people who do see it think you're nuts for asking so
much for your house. The result is, nobody looks at your house.
When
you do price your home at its market value, you will attract offers
from buyers who think it's priced right, and from buyers who think
they can negotiate your price down. The buyers' motivations isn't
relevant. What is relevant is that the buyers know there is another
offer coming in. The serious buyers won't know that the other offer
is a lowball offer. Serious buyers will make a full-price offer, or
even make an offer a few hundred dollars over your asking price if
they love the house.
If
you had priced your house $5,000 over that serious buyer would have
had to choose between making a low-ball offer on your overpriced
house, or make an offer on another house that was priced at market
value. He doesn't know if you've left bargaining room, or if you're
nuts. He will be thinking, if he can't get your price down, and he
wastes 24 or 48 hours negotiating with you, the other house could be
bought by another buyer. He thinks he might even be able to get the
market-valued vendor to come down a bit. Which house would you make
the offer on?
Your
goal is to get MULTIPLE OFFERS. My FAST-TRACK
System
addresses the other 20 elements of your home's Marketing plan, and
gives your home the best chance of getting those multiple offers and
the best price for your home. If you want the best price for your
home, get on the FAST-TRACK! back
to questions
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How
can buying a Home-Services Warranty help sell my house faster?
A
Home Systems Warranty is like insurance on the major systems of the
house - heating, electrical, plumbing, pool equipment etc. If
anything fails, the warranty pays to repair or replace the system.
The coverage costs $300 to $400 for a year.
Purchasers
often purchase the Warranty to protect themselves from unexpected
expenses for a year or longer after they buy. The older the home is,
the more likely they are to purchase the Warranty.
If
you're selling, putting the Home-Services Warranty on the home can
serve two purposes. It will protect you while you still own the home.
If the furnace dies, the Warranty will pay for a new furnace. It also
adds another element to attract buyers to your home. All other things
being equal, if two homes are side by side, buyers will purchase the
one with the Home-Services Warranty in place rather than the other home.
Homelife
was the first company to offer its clients the Warranty in Canada.
Their statistics show that homes with the Warranty sell on an average
twice as fast as similar homes without the Warranty.
The
Home Service Warranty is one of the items that we'll address with
the FAST-TRACK Motivator when we're determining how fast your
home will sell and how to move it up on the attractiveness scale. Why
trust your home to a Realtor with no system when you can
use the FAST-TRACK? back
to questions
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How
can I determine and control how fast my house will sell?
A
product on the grocery store shelf is more than just the product
itself. It's contained in packaging that was designed to set if off
from it's competitors on the shelf. Its price, its location on the
shelf, the location of the store, the hours the store is open, and
the helpful staff in the store, are all part of the what makes you
buy that particular product.
Your
home is also a product that you are offering to the marketplace. The
house itself is only part of the package. Can you help the buyer with
financing? When is it available for showings? Can Realtors show it
only when you're home, or at any time? Is it overpriced compared to
its 'competitors'? Is there a Home Services Warranty in place? A
survey? A Home Inspection report? T
The
average "time on the market" in Barrie is currently 47
days. If you package your offer to the marketplace properly, you can
beat the average. If you don't, you'll be one of the lagging listings
that sits around getting stale and even less attractive.
My
FAST-TRACK Motivator breaks down all of the 20 elements of
your marketing plan and rates each one on a scale of 1 to 5. You can
rank your home on a sliding attractiveness scale and mathematically
determine the odds of your home selling at the average time on the market.
When
you're selling the largest asset you own - and your family's home -
you don't want to be messing around with best guesses and mediocre
plans to sell. You need a systematic organized and effective
marketing program. You need my system. Call me now and get
on the FAST-TRACK! back
to questions
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Will
my Realtor
be working only for me?
When
you sign a listing agreement with a Broker, that Broker and all of
the Realtors working for him are working for you, trying to sell your
house. It's known as Single Agency.
Purchasers
also sign Purchaser-Agency Agreements with Brokers, in order to
ensure the Broker and his Realtors are representing the buyer's best
interests. The buyer also has a Single Agency relationship with that Broker.
When
a buyer for your home is working with a Representative of another
Broker, your Broker's Representative is working for you, and the
other Broker's Representative is working for the Buyer.
What
happens if it is one of your Broker's Representatives that brings in
the buyer? That's called Dual Agency.
How
would you feel if the buyer was told how much you really were
willing to accept, but you were not told how much he was really
willing to pay? That's the key to Dual Agency. The lines of
communication are wide open. If there is information that would
affect your negotiating position, or the buyer's negotiating
position, it is immediately communicated. That means if your
Representative did a Market Value Assessment to determine your home's
market value, that would be made available to the buyer. If the
office toured your home, and put their estimate of it's selling price
on it, the buyer has the right to see that value. If the buyer has
been preapproved for more than your home is worth, you will be told
that value. There are no secrets. Both sides are protected equally.
There
is an even more confusing situation that I call "Triple
Agency." What if it's not another Representative from your
Broker that is working with the buyer? What if it's the same Rep
whose name is on the sign on your lawn? She know everything about
you, and everything about the buyer. Some Realtors will not put
themselves in that position, and will refer the buyer to another
Realtor in the office.
If
you're confused already, consider "Quadruple agency."
That's when your Listing Representative is working with two buyers
who both want to make offers on your home. Throw in a third buyer
working with a Representative from another Brokerage, and you've
raised the lawsuit-hairs on the back of my neck.
Even
the body that governs Realtors is struggling to cope with the legal
ramifications of these different Agency relationships. What you need
to know is that your Representative understands the difference
between working for you and working for the buyer. The difference
could mean the quick effortless sale of your home, or a lawsuit and
months of sleepless nights. Ask them to explain Dual Agency. If they
can't, call me and get on the FAST-TRACK! You'll
sleep better. back to questions
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My
house didn't sell when I had it listed with a Realtor. What happened?
Your house
was in competition with close to 1,000 other houses on the Barrie and
District Real Estate Board. Yours ended up on the Expired list while
they ended up on Sold list because they were positioned for a sale,
and yours wasn't.
There are
20 factors that you have to address when you're positioning your home
in the Real-estate marketplace. Was it listed at market value? Did
you offer vendor-financing? Was it listed for a long enough period?
Did you have a lock-box on it and allow showings at the buyers'
convenience? Did you offer the buyer's Realtor a competitive
commission? Did the office tour it the same week it was listed? Did
you provide a survey, home inspection report, or Home Services
warranty to buyers? Were you flexible on your closing date? You don't
have to say yes to these and the other elements, but if you don't
provide enough of a package to buyers and their Realtors, your house
is going to sell far more slowly than the average of 95 days, if it
sells at all.
My FAST-TRACK
Motivator
actually scores each of the 20 elements on a scale of 1-5 and lets
you calculate the odds of your home selling. It keeps you from
wasting your time and from missing the best buyers in that first week
of your listing. Do you want to sell your house at the best price,
and as fast as possible? Then don't waste any more time. Call me now
and get on the FAST-TRACK! back
to questions
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How
can a Home-Inspection Report help sell my house faster?
A Home
Inspector inspect houses, covering systems and structures from the
shingles to the sump-pump, and issues a report on the defects that
are found, if there are any. Traditionally, it is the buyer that
hires the Home Inspector, but many vendors have figured out that
having it done up front helps sell their house faster. The Inspector
is liable for any faults that are missed, and they will transfer that
protection to the buyer. If there are faults discovered, you have the
faults rectified and attach the repair bill to the Report so buyers
can see that the faults have been corrected.
By
arranging for a Home Inspection at the time you put your house on the
market, you can appease buyers in two ways. You will have saved them
the expense of procuring their own Home Inspection report, and you
will be able to reassure them that the house is problem free.
With all
other things being equal, a buyer will choose your house, over
another house, because it has one more feature that the competing
house has, i.e. the favourable inspection report.
You will
help yourself as well. During negotiations, the buyers will not be
thinking about some defect they saw, and trying to get the price
lower because of it. You will be able to justify asking for a full-price
offer. Then, once the deal has been accepted, there will be one less
condition to be met before the deal can become firm. It will be sold
sooner than if it did not have the report done up front.
The Home
Inspection Report is only one of the 20 points covered on my
Fast-Track Motivator, a tool that helps you position your home for a
profitable and fast sale. By determining how you will address each of
the 20 points, you can control just how fast and profitable your sale
is. If you want that kind of control, call me now, and get
on the FAST-TRACK! back to questions
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Questions
on Industry
Trends: |
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What's
the difference between
a Realtor, a Representative, an Agent, and a Broker?
People
who have successfully completed a specified real-estate training
program are eligible for registration by The Canadian Real Estate
Association (CREA). The word "Realtor" is a registered
trademark of CREA and it indicates that the person using it is
registered with CREA. Under Ontario laws, to sell real estate, you
also have to be licensed by the Real Estate Council of Ontario. In
order to do that, you first have to be registered by CREA. To start
with then, everyone is a Realtor.
A
Broker is a Realtor who has undergone additional training and is
registered as a Broker.
Under
Ontario's Real Estate and Business Brokers Act, only a Broker can
undertake to "trade" in real-estate, i.e., to represent and
advise a buyer or seller. When you sign a listing agreement, or a
purchaser agency agreement, you are not agreeing to work with the
person at the table with you. You are agreeing to work with the
Broker whose name is on the papers. In my case, you're signing an
agreement with Homelife/Kempefelt-Kelly Realty Ltd, my Broker.
Under
Agency laws, only the person who entered into the agreement with the
seller can act as the seller's "Agent." As explained above,
since only a Broker can enter into an agreement to sell houses, the
word "Agent" therefore refers to a Broker. The word Agent
is often used, in error, to refer to a Representative. In fact, Real
Estate Agents are the Brokers, not the people planting For-Sale signs
on lawns or driving around with buyers.
The
people you are dealing with face to face are actually "Sub-agents"
since the Broker/Agent delegates the task of representing buyers and
sellers to us. You don't hear the word "sub-agent" though.
Instead, the term "Sales Representatives" has been used to
differentiate us from the Brokers.
Traditionally
we were called "Sales" Representatives because we all
worked for the sellers. The buyers were just customers and our role
was to sell them houses. Today however, we represent both buyers and
sellers, and we work in more of a consulting role. Our goal as a
buyer's Representative is to help them find the right house, not to
sell them on a house they don't want. As often as not, we talk people
out of buying a particular house, as opposed to banging them over the
head until they buy it. The term "Sales Representative" is
no longer applicable to our modern role. You will hear the term
"Client Representative" being used to describe us more often.
Along
with that change in roles has come a change of rules and
obligations. All buyers were once treated as customers. Today buyers
have a choice of being customers or clients. The obligations and
services due to clients is not the same as those due to customers.
It's important that your Realtor has kept up with these changes, and
can explain in detail how his or her obligations to you will change
depending on whether you chose to be a client or a customer. back
to questions
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How
are new homes affecting resale-home values?
There
are currently 65 new-home builders in Barrie. The competition
between them is fierce. Even though Barrie is the fastest growing
city in Ontario (or Canada or North America or the universe,
depending on who you ask), there are still not enough buyers to
sustain that many builders.
New-home
prices, as a consequence, are perched at the break-even mark for
most builders. A few are selling homes at a loss just to generate the
cash-flow they need to stay in business.
The
chart below demonstrates how the percentage of builder's homes being
sold through the MLS system has increased dramatically in the last
three years. These numbers do not include those homes sold directly
to consumers by non-MLS builders such as Pratt or Firstview. The
total new-home sale numbers are much larger. The increasing shift
away from two-story homes is also demonstrated.
|
Builder's
Sales |
Bungalow |
2
story |
Total |
Resale
homes |
combined
sales |
%
new homes |
|
1995 |
24 |
30 |
57 |
1110 |
1167 |
4.88% |
|
1996 |
49 |
18 |
71 |
1580 |
1651 |
4.30% |
|
1997 |
44 |
19 |
68 |
1609 |
1677 |
4.06% |
|
1998 |
76 |
31 |
110 |
1720 |
1830 |
6.00% |
|
1999 |
103 |
31 |
142 |
1824 |
1966 |
7.22% |
|
2000 |
122 |
60 |
192 |
1862 |
2054 |
9.35% |
|
2001 |
149 |
87 |
236 |
1873 |
2109 |
11.2% |
|
2002 |
132 |
51 |
183 |
2219 |
2402 |
7.6% |
|
2003 |
79 |
31 |
110 |
2568 |
2678 |
4.1% |
Being
price-wise consumers, today's home-buyers are shopping around for
the best deals. They are working on what is known as the Principle of
Substitution. They will not pay more for a resale home than they
would have to spend on another home of the same size, i.e., they'll
buy your neighbours house if its cheaper than yours. They are using
the same principle to play off the new homes against the resale
homes. They look at the resale home, even with the value added by the
landscaping and mature trees etc, and ask, "Why should I buy
this used home when I can buy a brand-new home for $5,000 less?"
The
irony is that property in the fastest-growing city in Ontario should
be at a premium, and our housing prices should be skyrocketing. They
are not though, because all of those people have attracted all of
those builders, and the builders are all selling at rock-bottom
prices to stay in business. The influx of people has actually
deterred new-home price increases and restrained property values for
existing homes.
If
you're selling into that kind of a market, it's even more crucial
that your Realtor has a system and plan that will work to get you the
best price for your home. You're not only competing against other
resale homes, you're competing against new homes. If you want to win,
get on the FAST-TRACK! back
to questions
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Why are
people using Home Inspectors? Are they just a scam?
You know
when you buy
a used car privately, and you dicker over who pays for having the
car "certified"? That's similar to the situation with a
Home Inspection Report. It is a document that a third party has
issued to say there is nothing wrong with the house.
With a car,
the person who is responsible for the certification pays for the
repairs needed to make it certifiable. That's why you dicker. You
either buy it with the certificate, or you buy it "as is"
and pay for the repairs yourself.
With the
house, there is no "as is" (except for a Power of Sale but
that's a whole other FAQ.) If there are defects discovered by the
Home Inspector, and if the buyer's Realtor has done his job properly,
there are provisions in the offer to either make the Seller pay for
the repairs or to get the Buyer out of the deal. The Home Inspection
really does benefit the Buyer by avoiding nasty expensive surprises.
It also benefits the Vendors because it takes some of the anxiety out
of buying an older home for a first-time homeowner. It makes the
older homes appeal to more buyers. More buyers means more offers.
More offers means a higher price.
Now, there
are mechanics and then there are mechanics. There are Home
Inspectors, and then there are Home Inspectors. I hear horror stories
from buyers about the wife's friend's brother-in-law who bought a
house after the Home Inspector said it was fine but then the roof
caved in, or there were bats in the attic, or pick any other
nightmare scenario. When you dig for more though, you usually find
out that the inspection was done by Uncle Bob, or by a Home Inspector
that did it under the table for next to nothing because somebody
"knew a guy."
The first
rule of real estate should not be location-location-location. It
should be "You get what you pay for!" Home Inspectors are
on the verge of being regulated, but for the most part almost anyone
can call themself a Home Inspector. Ask. If they have not been
recommended by a Realtor as someone you can trust, ask detailed
questions about their background. Ask what kind of guarantee they
provide. How liable are they for things they have missed? Is that in
writing? And whatever you do, DON'T do it under the table. You'll
never get any compensation if something does go wrong because you
won't be able to take them to court - unless you want to be charged
with tax evasion.
The Home
Inspection is a valid part of the real-estate transaction, and the
Home Inspectors do provide a valuable professional service, if you
use the right ones.
When you
buy or sell a home, it's an investment decision. When you make
investment or business decisions, you have to rely on the
professionals around you to keep you out of trouble. If you want to
work with a knowledgeable professional Realtor, whether you're buying
or selling, call me now, and get
on the FAST-TRACK!
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What
affects the market value of a house?
The average
house is expected to have a lifespan of 50 years. It's lifespan is
based on its liveability. After 50 years, it might be still be
structurally sound, but the systems could have deteriorated to the
point where it is not suitable for human habitation.
Imagine a
house that was built in 1950 and never touched aside from patching
the holes in the roof. It would cost more to upgrade the roofing,
siding, insulation, windows, plumbing, electrical fixtures, bathroom
and kitchen fixtures, than it would to tear the house down and build
a new one. The value in the property is basically its land value.
Now
consider the same house if its owner had upgraded the systems in the
house as new technologies became available and as building codes
changed and improved. It would be as liveable as a new house being
built next door. It would also have the same market value.
Appraisers
use the term "effective age" to factor upgrades into a
home's value. The house might be 50 years old, but because of the
upgrades that have been made over the years, it still has 45 years of
life left. Its actual age would be 50 years. Its effective age would
be 5 years.
Two
identical houses, side by side, with different effective ages will
have different market values. Doing those upgrades doesn't just make
the house more liveable then, it also helps to maintain the
market-value of the property.
Realtors
use the word "condition" to reflect the effective age of
the house, although "condition" is often used incorrectly
to describe decorating, rather than effective age.
The market
value of a property is based on the value of the land, the square
footage of the building, and the effective age of the buildings.
Decorating (ceramic tiles, hardwood floors, leaded glass windows)
makes a property more saleable, but it does not add to the market
value of the property. People often confuse cost and market value.
The Market
Value of a house is based on what a willing buyer would pay for it or
a similar house.
Consider
again, two identical houses, both brand new. One has a 100 foot deep
well. The other has a 800 foot deep well that cost $9,000 more than
the 100 foot well next door. Which house has a higher market value?
Neither. They have the same value. Which one has the higher cost? The
one with the deeper well.
A buyer is
looking for a house with a water supply. The experts call it the
"principle of substitution." A buyer will not pay more than
they would pay for the same item from a different source. The buyer
doesn't care how much the well costs. He can buy the same house with
a water supply for $9,000 less elsewhere.
Back to the
decorating. A floor is a floor, a bathtub is a bathtub. It might have
cost the owner more to put in hardwood floors rather vinyl, or to put
it a marble tub rather than a steel tub, but those extra costs do not
change the effective age of the house. The house will not last any
longer just because more expensive flooring was used. It's only decorating.
The
effective age is lengthened by changes in the technologies used to
construct the house, not by changes to its appearance.
Whether
you're buying or selling, it's important to know how your choices
affect the market value of your house. Many people pay more than the
market-value of a house because they have been misguided by their
Realtor. Many vendors spend money trying to improve the market value
of their property, but make changes that don't actually improve the
value. If you want to make the right choices, and get the most for
your money, call me now and get on the FAST-TRACK! back
to questions |
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Will
my house sell faster if I list it with a larger Brokerage?
The
short answer is, no. The culture in the office makes more of a difference.
The
Realtors who are working as Buyer's Agents are using the MLS system
to find houses. As long as your home is listed on the MLS system,
they will find it, no matter if the largest office or if the smallest
one-person operation lists it.
I
will let you in on a secret. There are Brokerages, like our HomeLife
office, in which the Realtors help each other satisfy their clients
and make deals happen. There are other Brokerages, which tend to be
the larger offices, where it's kill or be killed. In the competitive
offices, you don't leave a file laying around with a client's name
and number in it or one of your colleagues will try to steal your client.
Those
Realtors who are capable of stealing clients from a colleague's desk
also tend to make enemies in the process of running offers with
Realtors from other Brokerages. Their lack of ethics has earned them
a bad reputation, not only with me, but with every other Realtor they
have been involved with.
There
is one 'discount' Realtor in Barrie who has been so offensive in the
past, even with clients, that other Realtors in my office will not
even let him meet their sellers when he wants to present an offer.
There
are other Realtors in my market area who have done damage to me in
the past. When I'm making up a list of houses to show a buyer, those
Realtors' listings will always be at the bottom of the list. My legal
responsibility is to protect my clients and get them through the
buying process without getting them into court. Dealing with an
incompetent or corrupt Realtor is NOT going to help me do that, and I
avoid them for that reason.
So,
there are Brokerages, like HomeLife/Kempenfelt-Kelly Realty Ltd
where we all are friends and ask each other for help in satisfying
out clients. (Incidentally. on a month-by-month basis we trade 3rd
and 4th place for market share in Barrie with Century21. We are not
small!) Then there are other Brokerages, such as the largest in
Barrie, where Realtors have been shafted by the guy in the next
cubicle and often don't speak to their colleagues because of past insults.
Which
one is going to get your house sold faster?
If
I was a seller or a buyer I'd want a team of people working together
to serve my best interests, rather than acting like a covey of ravens
fighting over a carcass.
If
you want a group of friends helping you reach your goals, it's time
to get on the FAST-TRACK Back
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The
short answer is NO! You'll
pay more in the end.
The
seller has already anticipated your scenario.
When
the Seller negotiated the commission he would pay to the listing
Broker, he would have said, "Hey what if you find a buyer?
You'll be making double the commission!"
The
Seller negotiated a lower listing commission in an instance where a
buyer like you came along.
The
money you're hoping to save has already come out of the listing
Realtor's pocket and there is no money to be saved.
How
will it cost you more money? It involves Buyer's Agents and Seller's Agents.
When
you engage me as your 'Buyer's Agent" I'm obligated to get you
the best price at the negotiating table.
The
listing Realtor is working as the Seller's Agent and is obligated to
get the Seller the highest sale price.
If
you call the Seller's Agent to make an offer, who is going to
represent YOU at the negotiating table? The only ones there are the
Seller and his Agent. Getting YOU the best deal is not a priority for
either of them.
Real
Estate deals are far more complicated than they ever were. If you're trying
to put more money in your pocket, call me.
Trying
to work on your own , and manipulate a system that you don't
understand and still come out on top, is like trying to take out your
own gallbladder.
Let's
meet and
go over your personal situation to determine which is your best
course of action. Call me now and Get on the FAST-TRACK!
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