Ho's Homes

#6. What are my monthly costs going to be?

When you look at the price range and the type of property you’re buying in, your bottom line is ‘how much is this going to cost me on a monthly basis?’. First of all, you should get a mortgage preapproval prior to house hunting. Knowing the price range you’re in helps you in a couple of ways. By getting a mortgage preapprvoal, you know your budget in terms of what the banks are willing to give you to buy a house (aka. mortgage), on top of that, you’ll also get locked into the interest rates they quoted you at. So in the time that you’re house hunting (could be 2-3 months), the preapproval will honour the quote they gave you for an average of 120 days which means that if rates go up, you’ll still get the rate they preapproved you for. I use a mortgage calculators to figure out what my client’s monthly payments would be. Depending on the size of your downpayment, that would determine how big of a mortgage you’ll have. If your downpayment is less than 20% of purchase price, you will have to pay for CMHC mortgage insurance. This can range from 1-2.5% of the mortgage which will be added on top of your monthly mortgage payments or you can pay it upfront one time fee. Even though banks will give you a mortgage that is conservative to your debt-to-income ratio, you might have a lifestyle that you don’t want to give up because maybe you haven’t had mortgage payments before.

Secondly, depending on whether you’re getting a freehold or a condominium, it’ll determine whether you’ll have to pay maintenance or not. I personally think that condominium fees (maintenance fees) will add a lot to your monthly costs. Much more so than moving your mortgage up to a higher price range to buy freehold. Your monthly payments could mean that you can buy a higher priced freehold house (no maintenance fees) with similar monthly payments to a smaller condo with maintenance fees. You need to decide what lifestyle you want to live. What is available on the market for the price range and area you’re looking in? So if you’re looking for a condo in downtown Toronto, it could cost as much as a townhouse in Mississauga. If you want to be downtown, you still have options to get a high rise condominium (apartment), or even condominium townhouses. Generally, condo townhouses have much lower maintenance fees as opposed to a condo apartment. There are less amenities in a townhouse complex. They don’t have the pool, party room, theatre, bowling alley, guest suites, 24/7 concierge (‘i’ before ‘e’ except after c?), you get the idea. The maintenance fee pays for all those amenities. You need to consider what is important to you. Would you use all those amenities to get your money’s worth? A condo townhouse complex might have a pool, but that’s all you’ll get at most. However, you’ll find that there’s probably more square footage in your unit, perhaps a private terrace, a private garage, etc. Again, it depends on the lifestyle that you’re buying into and how much you can afford on a monthly budget type of way.

Thirdly, there is the fantastic government which want a piece of the pie (when do they not?) with Property Taxes! You can pay it annually but if you’re going to pay it monthly, you need to add this to your monthly payments. So during your house hunting, please note and calculate what your monthly payments would be like and see if you can afford it in according to your budget.

Lastly, your Utilities aren’t quite part of the house/mortgage costs, but it’s still an expense that you need to operate the property. Whether it be hydro, gas, water, or tv/internet, cellphone, car payments, insurance, student loan payments, etc., you want to get an estimate of what that would cost and how much you are obligated to before getting into the house of your dreams but leaves you living like a hermit and not have any toys that you want to have because you can’t afford all of it.

At the end of the day, you want to know if you can own a house/condo and maintain a lifestyle that you want to have.

#7. How much should our inital offer be?

This is an interesting question to answer because it depends on a lot of variables. Is there a certain amount you should offer initially to start the negotiations? What is the market telling us how much this particular property is worth? Some clients ask me if there is a rule of thumb of how much lower they should offer from the listing price.

We need to look at a few variables.

First, you look at most recent comparable sales of similar units. Depending on how much better or worse the subject property is (compared to recent sales), you need to decide how much the property is worth to you. Market value is the price the market (buyers) are willing to pay for that particular piece of real estate. A lot of people from the suburbs might not understand that a condo for sale in Toronto could cost as much as a freehold detached home in Mississauga. So you need to look at the most immediate area and the comparable sales that have occured most recently. Does the subject property have more upgrades and other features/amenities/views that are better than comparable sales? The market determines how much a certain property is worth. The list price (asking price), can be set low or set high, so you need to have a realtor who will do their job in finding out if you’re paying too much or if you’re getting a steal, instead of just getting a sale at any cost to you.

Depending on the time of the year or how much activity is going on in the market, if it’s in a hot market, you might encounter a multiple offer situation. That changes how you approach the offer table. If you’re in a multiple offer situation, there isn’t much negotiation room for you as a buyer. The ball is in the sellers court. The best way to handle it, if this is the house of your dreams, is to put your top dollar, with minimal conditions put in (make sure your agent is still protecting you). When you take out conditions, depending on the property, you might want a home inspection (for Freehold homes), or a status certificate (for Condominiums), and depending on your financial situation, you might want to keep the financing condition in the offer. Sellers in a multiple offer situation would want an offer with minimal to no conditions, but that is definitely not a beneficial situation for a buyer to be in.

A lot of my first time home buyer clients want a deal on their purchase, well, who doesn’t? Either way, when you are in negotiations, perhaps you might feel like the sellers are unreasonable on their price (which may or may not be the case, refer to above). Let’s assume that it’s a little over the most recent comparable sales, if you think about it, you’re looking to buy a piece of real estate for a large sum of money. $250k, $400k, $650k? If you’re planning to live there for the next 3-5 years minimum, a couple thousand dollars in the negotiations shouldn’t be a deal breaker. If it’s got what you want, location, size, layout, features, etc, it might be worth it to you to meet the seller’s offer (be it the asking price or counter offer, etc).

Having said that, please consult with your realtor, and if you don’t have one, remember: Steven Ho is in the House!!

Feel free to contact me at anytime.

#8. Why should I use a Buyer Agent instead of going straight to the listing agent?

In every transaction, there are 2 sides to any deal: The selling side and the buying side. Some first time home buyers may or may not realize this. There are different relationships that real estate agents have with clients.

For agents representing the Sellers, their obligation and interests are with the Sellers. So for buyers to approach the listing agent for the purchase of a property, they might think they can save money or save the hastle of having a buyer agent and do it themselves. That might not be the best thing to do. First of all, buyer’s don’t pay the buyer agent’s commission, the seller’s pay that. Second of all, the selling agent has the interests of the sellers and they’re trying get their sellers the most amount of money for their home. There are things to consider in putting an offer/agreement of purchase and sale together to buy a house. If the listing agent is putting an offer in for you, are they protecting your best interests? It’s not only the price, but the closing date, clauses/conditions to make sure you are protected because there is more than just the physical structure that you’re buying. Are there any structural defects that can’t be seen by the naked eye? Is everything that’s done in renovations and alterations on the property legal? What is the zoning for the particular property? There are lots of questions that you might want answered before you actually go through with the transaction. These can all be prevented if you use a buyer agent to look after your best interests. Not only will they help you put an offer together, they will also help you negotiate based on statistics (or at least they should) on the neighbourhood, comparable sales (similar units/sales), and help you find that diamond in the rough.

For agents who are representing both Buyers and Sellers, this is known as Multiple representation. These relationships are important to understand because at the end of the day, you need to know who’s watching your back and who’s protecting you. The buyer representation agreement, BRA, is a contract that is between the buyer and their buying agent. This is meant to take out the “buyer beware” philosphy so that you know what you’re getting before it’s too late. Some buyer’s that aren’t familiar with this contract need to understand that they have to buy with that agent for the term of the contract. So before signing a BRA, make sure you are comfortable with the agent and know that they have your best interests in mind. Some buyer’s refrain from signing it because they want to shop the market and give the agents a ride to end up buying something else with someone else. I don’t blame some of them as they might not know the agent well or aren’t sure of the relationship that they have. There are a lot of agents in the GTA (30,000+), so there are some bad apples in there that ruin the perception people have of agents. You can see this with 20% of the agents do 80% of the transactions and 80% of the agents do only 20% of the transactions. Choose wisely. To find a good agent, if you don’t know any that you can trust, ask a friend, get a referral, interview a couple of agents before signing any contract.

There are 3 ways where you might be obligated to pay commission to your buyer agent if they didn’t explain to you or if you didn’t realize. By signing a BRA with an agent, they get paid by the sellers at the time of closing if you are purchasing a house that is listed on the MLS. If you buy privately, from a FSBO (for sale by owner), or from a builder (if they don’t cooperate with agents), you might owe commissions to your agent. Discuss these scenarios amongst yourself and with your agent before signing anything. Having said that, over 90% of the houses sold are on the MLS anyways so that shouldn’t be too big of a concern. Just thought you should know as some agents probably don’t explain that part to their clients properly.

Hope this clarifies the whole relationship of Buyer agents to my fellow readers.
Should you have any questions, feel free to comment or contact me!

9. When’s the best time to buy?

I often get asked if the markets going up, are they going down, when’s the best time to buy? It’s a complex question to answer because it depends on what your goals and objectives are as a home buyer. Would it be for yourself to live or is it for investment purposes? If you’re buying for yourself to live, you want to see what your price range would be, how much you can afford, and for the style of dwelling you are looking at, do you have many options. With today’s market, there’s a lot of activity and my clients have been in a lot of multiple offer/bidding war situations which they may not be able to compete considering their price range. If you’re buying your primary residence, you should go see a variety of places to get the idea of what you want, need, and willing to compromise in terms of building, layout, location, amenities, etc. For a lot of first time home buyers, they don’t really know what’s available out in the market and what they can get for their price range. Depending on their reason/motivation for moving/buying and whether it is time sensitive, we know that in the long term, real estate is a sound investment. If you’re buying to live in for the next year or two, it might not be the best idea for you to buy because you want to come out not losing money. For investors, it’s a little more down to the numbers and whether you’re going to have positive cash flow or if the appreciation rate is worth having your money tied up for that length of time.

When you’re buying, depending on your down payment, interest rates, maintenance fees (if applicable), real estate fees, appreciation rates, and real estate goals, etc. you should use a Rent Vs. Buy calculator to see how long you have to live in the house to break even. The market goes into cycles with its sales. Activity flood the market in the Spring and Fall and that’s when most buyers and sellers enter the market at those times. If you’re thinking of Buying, looking in the slower times in the Summer and Winter might be beneficial with less competition and have sellers more receptive to your offer. If buyers know they have to buy but don’t know when, we know that in the long run, the history of prices in the last 50 years have gone up. There may have been peaks and valleys, but overall in the long term, real estate has had the most consistent growth.

Question for buyers is: When do YOU want to move-in by?

10. How much are closing costs?

Depending on whether you’re a first time home buyer or not, there are some government rebates that they giving out. For first time home buyers, the government will give you a credit/refund for the land transfer tax (LTT). However, if you’re buying in “Toronto”, there is a city land transfer tax on top of the Ontario LTT. The maximum tax credit you’ll get as a first time home buyer is $2000. This would offset most purchases under $400,000.

Legal fees variate between lawyers but try and budget 1.5% of the purchase price to be safe. A lot of the lawyer’s costs would be built into their price which could include Title Insurance, Government Levies, School board levies, etc. When it comes to title insurance, it should definitely be purchased with all the mortgage fraud going on these days. It could cost a few hundred dollars to over a thousand depending on the cost of the house. Most lawyers will buy the insurance for you automatically these days and just add it to the bill.

If you’re buying a condominium, you would probably get a status certificate from the condo corporation so you go into the purchase knowing how the reserve fund is (the pool of money used to do major renovations in the building), if there are any legal litigation cases against the condo corporation, it will tell you if there are any problems with the unit you’re buying, and any hidden facts you might just want to know before buying the unit based on its good looks. So if your agent isn’t putting a status certificate condition in the agreement without your consent, you should think and ask yourself if they have your best interests in mind. The status certificate costs $100 and with the new website allowing you to get it online, it comes to just under $130 to have it all emailed to you so you don’t have to pick it up.

If you’re buying a freehold dwelling, I would recommend getting a home inspection because there may be things that you may or may not know about the structure that a trained home inspector can spot out. This can cost a few hundred dollars. Having a condition put into the agreement that you are able to get a home inspection before buying a house blindfolded protects you as a buyer to know that there isn’t anything structurally concerning to you. For condominium purchasers, a home inspection isn’t as vital as the major components to the unit is the responsibility of the condo corporation to take care of. Rule of thumb: You’re responsible for everything within the walls of the unit and the Condo corporation is responsible for everything outside. So the biggest thing might be the kitchen, bathroom or laundry. Otherwise, it’s the condominiums responsibility.

House/fire insurance, renovation/repair costs, moving costs (get 2-3 estimates from reputable movers before you decide and get it in writing), etc. Depending on the seller, you might have to give a reimbursement to the sellers for payments they’ve made for the entire year (ie. property taxes) which they would prorate for your closing date in relation to what they’ve paid for. Costs for a survey or even getting a property appraisal will add on to your closing costs.

CMHC insurance (high ratio mortgages), these could all add up if you didn’t put aside enough for the closing costs and used most of it (probably) for the down payment. You can pay it up front or have it built into your mortgage payments.

In conclusion, when you know what price range you’re looking in (after doing the mortgage pre-approval), calculate and put aside approximately 3% or $10-15k of the purchase price separate from your deposit/down payment to cover your closing costs.

For any further questions, feel free to drop me a line! What’s your top 10 question as a home buyer?