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Answers to Common Buyers Questions

For answers to any questions or if you would like more information about the home buying process please Contact Me. If you are looking to buy or sell a home or property please visit my Buyers Page or Sellers Page.

  1. What price home can I afford?
  2. How low can I consider offering?
  3. How and what do I negotiate?
  4. What is title insurance?
  5. What steps should I take when looking for a home loan?  
  6. When buying a home how much does my REALTOR® need to know?

 

Question 1: What price home can I afford? 

As a "rule of thumb" you can afford to buy a home equal in price to twice your gross annual income. More precisely, the price you can afford to pay for a home will depend on six factors:

  1. Your income
  2. The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender.
  3. Your outstanding debts
  4. Your credit history
  5. The type of mortgage you select
  6. Current interest rates

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Question 2: How low can I consider offering? 

Answers to Buyers QuestionsThere are always some sellers who for some reason must sell quickly, however in general, a very low offer in a normal market might be rejected immediately. In a strong buyer's market, the below-market offer will usually either be accepted or generate a counteroffer. If few offers are being made, an outright rejection of offers becomes unlikely. 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:

1. 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.

2. Is the offer made on the house "as is," or does the buyer want the seller to make some repairs before the close of escrow or make a price concession instead?

3. Is the offer all cash, meaning the buyer has waived the financing contingency? If so, 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.

4. Are there any requests for seller concessions, such as asking the seller to contribute towards points and/or closing costs? If so, the offer is not really full price.

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Question 3: How and what do I negotiate? 

Different sellers price houses very differently. Some deliberately over price, others ask for pretty close to what they hope to get and a few (maybe the cleverest) under price 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. If possible try to learn about the seller's motivation. For example, a lower price with a speedy escrow may be more acceptable to someone who must move quickly due to a job transfer. People going through a divorce or are eager to move into another home are frequently more receptive to lower offers. Some buyers believe in making deliberate low-ball offers. While any offer can be presented to the seller, a low-ball offer often sours a prospective sale and discourages the seller from negotiating at all. And unless the house is extremely overpriced, the offer probably will be rejected anyway. Before making an offer, also investigate how much comparable homes have sold for in the area so that you can determine whether the home is priced right.

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Question 4: What is title insurance? 

Buying a Home AnswersTitle insurance is a form of insurance in favour of an owner, lessee, mortgage or other holder of an estate lien, or other interest in real property. It indemnifies against loss up to the face amount of the policy, suffered by reason of title being vested otherwise than as stated, or because of defects in the title, liens and encumbrances not set forth or otherwise specifically excluded in the policy, whether or not in the public land records, and other matters included within the policy form, such as lack of access to the property, loss due to unmarketability of title, etc. The title policy form sets forth the specific risks insured against. Additional coverage of related risks may also be added by endorsements to the policy or by the inclusion of additional affirmation insurance to modify or supersede the impact of certain exceptions, exclusions or printed policy "conditions." The policy also protects the insured for liability on various warranties of title.

In addition, the policy provides protection in an unlimited amount against costs and expenses incurred in defending the insured estate or interest. Before it issues a title policy, the title insurance company performs, or has performed for it, an extensive search, examination and interpretation of the legal effect of all relevant public records to determine the existence of possible rights, claims, liens or encumbrance that affect the property. However, even the most comprehensive title examination, made by the most highly skilled attorney or lay expert, cannot protect against all title defects and claims. These are commonly referred to as the "hidden risks." The most common examples of these hidden risks are fraud, forgery, alteration of documents, impersonation, secret marital status, incapacity of parties (whether they be individuals, corporations, trusts or any other type), and inadequate or lack of powers of REALTORS® or fiduciaries. Some other hidden risks include various laws and regulations that create or permit interests, claims and liens without requiring that they first be filed or recorded in some form so that the potential buyers and lenders can find them before parting with their money.

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Question 5: 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. They can make more informed decisions in the market place. This does not mean they will definitely get the loan because their credit reports, wages and bank statements still need to be verified before you can receive a commitment from the lender for the loan. Almost all mortgage lenders prequalify people at no charge. Many of them will even do it on the internet. In order to be pre-approved, an application will be taken. For a fee, your credit report will be pulled, your employment and income will be verified, you're 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 to closing.

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Question 6: When buying a home how much does my real estate REALTOR® need to know? 

Home Buying AnswersBe sure to find out who your real estate REALTOR® is representing before you tell them too much. The degree of trust you have in a REALTOR® may depend upon their legal obligation of representation. An agency working with a buyer has three possible choices of representation. The REALTOR® can represent the buyer exclusively, called buyer agency, or represent the seller exclusively, called seller agency, or represent both the buyer and seller in a dual agency situation. Some provinces require REALTORS® to disclose all possible agency relationships before they enter into a residential real estate transaction. Here is a summary of the three basic types:

1. In a traditional relationship, real estate REALTORS® and brokers have a fiduciary relationship to the seller. Be aware that the seller pays the commission of both brokers, not just the one who lists and shows the property, but also to the sub-broker, who brings the ready, willing and able buyer to the table.

2. Dual agency exists if two REALTORS® working for the same broker represent the buyer and seller in the same transaction. A potential conflict of interest is created if the listing REALTOR® has advance knowledge of another buyer's offer. Therefore, the law states that a dual REALTOR® shall not disclose to the buyer that the seller will accept less than the list price, or disclose to the seller that the buyer will pay more than the offer price, without express written permission.

3. A buyer can hire a REALTOR® who will represent their interests exclusively. A buyer's REALTOR® usually requires a retainer which is refunded once the buyer purchases a house. The amount of the retainer differs from REALTOR® to REALTOR®. A buyer's REALTOR® can perform enhanced services for the buyer, such as preparing a market analysis on the home they are buying. All information provided to the buyer's REALTOR® shall remain confidential and will not be relayed to the Seller's REALTOR®.

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