Common questions for buyers
The Real Estate Council of Ontario (RECO) provides information to consumers about buying and selling their property, and about working with a registered real estate salesperson or broker. You may also find the information you need in the FAQ’s for Buyers below.”
WHAT PRICE CAN I AFFORD FOR A HOME?
The price that you can afford to pay for a home will depend on six factors: your income; the amount of cash you have available for the down payment, closing costs and cash reserves required by your lender; your outstanding debt; your credit history; the type of financing you select; and the current interest rates. Lenders will analyze your income in relation to your projected cost of the home and your outstanding debts, and this will determine the size of the loan you can borrow to purchase the home.
It is important to set your budget before you begin searching for your perfect home and a REALTOR® can help connect you with a financing professional who can help you determine what you will be able to pay for a home.
HOW LOW CAN I CONSIDER MAKING MY OFFERING?
A very low offer in a normal market will likely be rejected by a seller. In a strong buyer’s market, an offer below the listing price will usually either be accepted or generate a counteroffer. If few offers are being made on a property, there is a higher chance that a property will be sold at a price below the listing price. In a strong seller’s market, offers are often higher than full price. While it is true that offers at or above full price are more likely to be accepted by the seller, there are other considerations involved
- Is the offer contingent upon anything, such as the sale of the buyer’s current house? If so, such an offer, even at full price, may not be as attractive as an offer without that condition.
- Is the offer made on the house “as is,” or does the buyer want the seller to make some repairs before the closing of the transaction or make a price concession instead?
- Does the offer have a financing contingency? If not, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.
- Are there multiple offers on the table for the property? If so, then a price above the listing price is likely needed for the offer to be considered.
Your local REALTOR® knows the conditions of the local market and can help you determine the most appropriate price to offer considering the condition of the home and your financial position.
HOW AND WHAT DO I NEGOTIATE?
Different sellers price houses very differently. Some deliberately overprice, others ask for pretty close to what they hope to get and a few (maybe the cleverest) underprice their houses in the hope that potential buyers will compete and overbid. A seller’s advertised price should be treated only as a rough estimate of what they would like to receive.
Your local REALTOR® will help you by negotiating with the seller’s real estate agent. They will investigate how much comparable homes have sold for and will provide you with as much information as possible to help you determine what price to offer for the home.
WHAT IS THE DIFFERENCE BETWEEN A DEPOSIT AND A DOWN PAYMENT?
A “deposit” is the money that you put down, as part of your offer, to secure the property that you are purchasing, in other words you are proving that you are serious about buying the property. A typical deposit is 5% of the purchase price, although this can be affected by the purchase price, the current market conditions, the number of offers in competition for the property, and sometimes even by the seller. The deposit is typically held by the listing brokerage in trust until the closing of the transaction.
The “down payment” is part of your financing considerations. It is the amount of money that you are able to put up front when you purchase a property, which reduces the amount that you need to borrow. It will be considered by the lender when determining your eligibility for the financing and the rate that you will need to pay.
Your REALTOR® can assist you with determining the appropriate amount to put in your offer as your deposit on the property to give you the best chance of securing the property. A financing professional will assist you with determining the best amount to use as your down payment to get the best available financing option.
WHAT IS TITLE INSURANCE?
Title insurance protects homebuyers and mortgage lenders against defects or problems with a property’s title when there is a transfer of property ownership. If a title dispute arises during or after a sale, the title insurance company may be responsible for paying specified legal damages, depending on the policy. Title insurance may be recommended by your lawyer during the purchase of your property.
WHAT STEPS SHOULD I TAKE WHEN LOOKING FOR A HOME LOAN?
It is strongly recommended that home buyers are prequalified or pre-approved for a loan as their first step in the process. By being prequalified, a buyer knows exactly how much house they can afford, allowing them to make more informed decisions in the marketplace. A pre-approval is not a guarantee of getting a loan because their credit reports, wages and bank statements will still need to be verified before a lender will commit to the loan.
Almost all mortgage lenders prequalify people at no charge. Many will even do it online. In order to be pre-approved, an application will need to be submitted. For a fee, your credit report will be pulled, your employment and income will be verified, your checking and savings accounts will also be verified. In other words, all the necessary documentation will be completed in order for you to obtain a loan. The only things remaining will be for you to find a home, obtain an appraisal on it to prove its value to the bank and perform whatever inspections you may want on the property. This process considerably shortens the time frame needed to fulfil financing conditions.
Your REALTOR® can help connect you to a financing professional who will assist you in the prequalification process. It is important to be open and honest, and provide all documentation for the prequalification so that you will have an informed position from which to make an offer on the perfect home.
IS IT BETTER TO BUY A NEW HOME OR A RESALE?
The selling price of a new home vs a resale home is strongly tied to location, growth in the local housing market and the state of the overall economy. There are some advantages to purchasing a newly built home, such as energy efficiency, newer building materials, better insulation, and state-of-the-art technology. Existing homes, especially those that have been renovated, have the advantage of being in an established neighbourhood with more established landscaping and amenities.
A REALTOR® can assist you in making the comparison between new home constructions and established neighbourhoods and can help you with your offer to a builder on a newly built home, if that is the route you choose.
FIXER-UPPERS - ARE THEY GOOD OR BAD?
Distressed properties or fixer-uppers can be found everywhere. These properties are poorly maintained and have a lower market value than other houses in the neighbourhood. It is often recommended that buyers find the least desirable house in the best neighbourhood. You must consider if the expenses needed to bring the value of that property to its full potential market value are within your budget. Most buyers should avoid run-down houses that need major structural repairs. Remember the movie ” The Money Pit?” Those properties should be left to the builder or tradesman normally engaged in the repair business.
A local REALTOR® can help you decide if investing in a “fixer-upper” is a good choice, given the local market and comparable properties.
How do I find out about the condition of the home I'm considering buying?
It is strongly recommended that you include a “home inspection” condition in your offer to purchase a home. Hiring a certified Home Inspector to inspect the home will give you the piece of mind that you have done all that you could to reveal any potential structural or mechanical issues. The Home Inspector will give you a report indicating what they determine to be critical repair needs. With this report you can negotiate with the seller for a possible reduction in price or the repair of the issue.
While a seller is required to disclose any significant defects or malfunctions existing in the home’s major systems, however, there are also things that you, as a buyer can look for when you visit the home. It is important to have a good look at interior and exterior walls, ceilings, roof, windows, fences, driveway, sidewalks, floors, doors, foundation, drainage, etc.
The seller also must reveal the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachment of easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property.
If you are purchasing a condominium, you will also want to have your lawyer review the Status Certificate for the Condominium, which will reveal the condominium bylaws and rules and regulations, as well as the condition of the reserve fund that is used to pay for repairs and upgrades to the common elements.
Your REALTOR® can help connect you with local home inspectors and lawyers who know the local bylaws and building codes regulations to ensure that you have the best information to make an informed decision about your purchase.