Using A Real Estate Agent Guide
Can You Afford to Sell? Addressing Your Mortgage Balance
Questions for a Listing Agent
What to Expect from Your Listing Agent
Your Listing Agreement
Home Appraisals vs. Home Inspections
Your Agent’s Opinion as to Value
Marketing Your Property: Supplementing Your Agent’s Efforts
Fielding Offers and Negotiating Price
Closing Your Sale
Choosing Your Agent
Questions for a Buying Agent
What to Expect from your Buying Agent
Your Offer to Purchase
Is a Pre-purchase Home Inspection Necessary?
Closing Costs for the Buyer
Common Home Buying Mistakes
When you make the very important decision to buy or sell a home, weigh the pros and cons of using a real estate broker or agent. If you’re selling, a real estate agent will establish a fair market price for your home, successfully promote and market your home, show your home, and fine-tune all contractual terms and conditions; if you’re buying, an agent will help analyze your net worth and price range, share pertinent information about certain neighborhoods, tour homes with you, negotiate price, and help close your deal… all for a commission, of course.
A licensed real estate agent will makes it their job to get you comfortable with a sale or purchase price for a home. But, as with any other important decision, choose your real estate representative with care. Always choose a licensed, experienced agent, and consult their broker or their provincial board if ever you feel you are being taken advantage of.
Hoping to save money on real estate commissions, some buyers and sellers opt to purchase or sell a home on their own, also known as For Sale by Owneror FSBO. Home-buying and selling, however, can be a full-time job, especially when you’re juggling your own job, family and social obligations. Many people don’t have the flexibility in their daily schedule to undertake any of the processes involved in buying or selling a property, let alone deal with all of them at once. A licensed real estate agent, however, makes it their top priority to effectively reach the most lucrative outcome when it comes to buying or selling a home, and avoid the kinds of mistakes and errors that could delay or derail a sales agreement entirely. For the majority of buyers and sellers, that is well worth the price of commission.
What’s the Difference between an Agent, a Broker, and a Realtor?
Many people use the terms agent, broker and realtor interchangeably, but there actually is a difference between the levels of responsibility and licenses for each. In most provinces a real estate agent, which is also legally known as a salesperson, is licensed to aid a client, customer, or prospective buyer through the home buying or selling process. This agent will have taken the proper phases of certification for either a provincial real estate license or provincial real estate broker’s license. Sometimes this salesperson will have been sponsored by a brokerage to complete their certification.
After licensing, real estate agents then act as salespeople for a broker who employs them. Real estate agencies can often employ numerous agents, who all work under perhaps just one broker. Brokers, on the other hand, must complete coursework beyond that of a real estate agent; they also have more responsibility toward a customer, ensuring that the real estate transaction is carried out according to provincial standards. With much of the transaction’s work being divided by broker and agent, the commission of the transaction is most often split squarely between the two licensees. Further, an associate broker is simply a real estate agent who has completed coursework for a broker’s license, but who works for a brokerage.
Nowadays, if a real estate agent is working independently of a brokerage, it means they are also functioning as their own broker. The service level with broker and agent are relatively the same, in the sense any agent will have access to all the information and connections of their broker.
Finally, a realtor is either a real estate agent or real estate broker recognized as a member of the Canadian Real Estate Association (CREA), and who is able to display the REALTOR® registered trademark distinction. It means this agent or broker has agreed to abide by CREA’s strict code of ethics, which goes above and beyond basic legal requirements; the distinction also gives them personal access to Canada’s MLS database (see What is the Multiple Listing Service?). It’s estimated realtors make up only about half of all real estate licenses. All of the licensees described have the obligation of protecting their clients’ best interest, but realtors aren’t as limited as real estate agents during a real estate transaction.
What is the Multiple Listing Service?
Canada’s Multiple Listing Service, also known as MLS, brings together properties being sold and represented by licensed brokers. These brokers are members of the CREA, which retains the trademark on MLS. In Canada it’s estimated the MLS is responsible for about 90% of real estate transactions. Because MLS is limited to members only, it is often one of the biggest reasons to hire a realtor with access to this database, or an agent (with access through their agency). The service caters to more than 98,000 Canadian real estate agents, brokers, and realtors with MLS-access.
When your home is published in the MLS database, your terms for a broker, including features of the property and what the broker receives as commission, are also listed. It is up to your real estate agent to complete a thorough detailing of your home for MLS exposure.
As of 2010, the CREA now permits agents to list a property in the database for a flat fee, where previously a seller would have to engage the services of the agent for the entire sale in order to get MLS exposure.
Choosing an Agent or Notary
Once you’ve made the decision to hire a real estate agent, the process of weeding through the myriad realtors, brokers, sales associates, real estate agents, and broker’s associates begins. This doesn’t have to be a painful process, and going with your gut instinct about an agent (or, if you’re in Quebec, a notary) often pays dividends. What you don’t want, however, is to enter into a listing agreement with someone who won’t make your home a top priority (see Your Listing Agreement)
It’s estimated that only 20% of the real estate market’s agents process more than 75% of housing sales, so it’s extremely important to get a winning agent. Think of them as a good mechanic. You’d most likely consult your friends and family before entrusting your car with someone for it to be fixed. It helps to look at an agent in the same light. In the end, the housing market is a cutthroat industry, and both your real estate agent and broker need to be people driven by strong ethics and not just a quick commission.
Whether a seller’s market, a buyer’s market or a more balanced market, agents are always hungry to pick you up as a client.as they know the housing industry’s demands can change quite fast. It is estimated that two-thirds of sellers go with the first agent they meet. It’s smart to shop around. Compare notes on some of the more distinguished ones in your area; then interview a handful of them. Attending open houses for currently listed homes can also prove quite convenient. It allows you to meet with an agent in person and see how he or she promotes a home.
|Note: It’s best not to interview agents from the same agency. You don’t want coworkers arguing, competing for you, or discussing your interests in your absence.|
Negotiating an Agent’s Commission
Many sellers will make the mistake of choosing an agent based on the sole criterion of commission. Obviously, as a seller, you want to maximize your net profit for your home. However, choosing an agent because they charge the lowest commission is never the logical way to go about getting the best return. In a seller’s market, it will be easier for you to negotiate commission, but even if it’s a buyer’s market, you should not feel awkward about asking an agent or broker about negotiating commission. After taking into consideration their knowledge and past sales records, it may be you feel your agent’s commission is fair. Haggling, while fair play, is not required.
When interviewing a real estate agent about discounting their services, compare their commission with their listing and selling price ratio, experience in the business, and how highly they come recommended. You also want to have an idea of their marketing budget for your home, which is how much they’re willing to spend on exposure for your home. The higher this amount is, the greater your chance of landing a fair sale. In the end, if you have to continually lower your price because you went with an inexperienced agent who failed to properly market your home, it will amount to more of a loss than what you saved in commission. It’s also important to remember low-balling an agent’s commission may harm your sale in the end. A lack of incentive for an agent can result in a lack of enthusiasm over your property.
Note: Brokers receive commission on a home sale, which they split with their agent. The agent’s percentage is based on things like selling rate and experience. Though, it’s not unheard of for a successful real estate agent to get 100% of a real estate fee, and pay their broker a flat fee. Remember an agent who works for a brokerage cannot negotiate commission without consulting their broker. If an agent says their commission is non-negotiable, it may be that their brokerage has a pre-defined commission.
Some points for negotiating commission are:
- already having in mind the percentage you’re willing to pay
- discussing a flat fee and/or á la carte consulting fees
- noting weaknesses with an agent (a low listing to selling price ratio, lack of experience in the local market, low marketing budget, etc.) and using these to your negotiating advantage
- stressing a slow market and competing agents’ commissions
- using the agent for a dual sale, either selling multiple homes or using the same agent to both buy and sell a home
- discussing separate fees, like a percentage-based commission for the original listing price and a slightly lower percentage should you need to discount the selling price
Other Recommended Professionals
Your real estate agent has an ethical obligation to put you in touch with trustworthy individuals who specialize in fields beyond your agent’s expertise. It is specifically outlined in the Standards of Business Practices from the Canadian Real Estate Association (CREA), which states any real estate licensee must aid his or her client in seeking out the advice of certain professionals, when the advice is outside the scope of their own service. Failing to do this can be considered negligent misrepresentation. In addition, if your agent or agent’s brokerage receives a commission upon your referral, they are obliged to disclose it to you. Some of the other real estate industry professionals you will deal with during your real estate transaction include:
- real estate lawyers
- home appraisers
- home inspectors
- insurance agents or brokers
- environmental consultants
- land use planners
- mortgage consultants
Chalk it up to an aggressive home-flipping industry or massive strides in technology, selling a home has become one of the most complex decision-making processes one can undertake. Your home needs to have the most exposure possible to reach those potential buyers. The last thing any seller wants is for their home to sit on the market too long; buyers will start to think there’s something wrong with it, depreciating the home’s value and forcing you to lower your asking price.
Employing the assistance of a real estate agent or realtor can significantly ease the stress of selling, as they are well-versed in the selling process. The following points of interest will help you negotiate your way through addressing your mortgage balance, choosing the right agent (or notary, if you’re in Quebec), important questions to ask, what to expect from your agent, as well as what you can be doing alongside them during the selling process.
Can You Afford to Sell? Addressing Your Mortgage Balance
The biggest step before deciding which real estate agency to go with is whether or not you can actually afford to sell your home. When you sell a home it’s your equity that will take the brunt of things like home appraisals, inspections, any last minute maintenance, closing costs, commissions, taxes, moving costs, and other expenses.
Make sure you’re financially comfortable with all these things; and keep a strong dialogue with your agent, so that none of the aforementioned costs catch you off guard. Before you commit to selling, closely examine your mortgage options for your next home, taking into account your long-term monetary goals. Lenders will tell you how much money you’re eligible to obtain—not how much you can comfortably afford.
Questions for a Listing Agent
Your agent is someone with whom you’re entrusting the sale of your home; they need to treat you professionally, answer your questions in a timely manner, and not be afraid to refer you to their broker if they can’t give you a proper response. This last aspect of an agent—their level of transparency—should serve for the entire selling process. If your agent isn’t following through, isn’t answering your questions in a timely manner, contact their broker immediately. This will guarantee your home sale is being carried out competently and efficiently. Conversely, you should be wary of any agent who doesn’t ask you questions.
Here are some questions to ask a prospective agent (and potential red flags to be aware of) before signing a listing agreement with them, or their agency:
- What sets you apart from other agents? With this question, you’re trying to get a sense of your agent’s character. They shouldn’t falter in telling you how persistent, honest, logical, market-savvy, friendly, and respectfully aggressive they are.
- Are you willing to provide references? This should be a given. New agents should also be able to provide references. If an agent can’t provide suitable references and information about their previous sales, of the homes recently sold, as well as how long each was on the market, it should be a red flag. Furthermore, ask if any of their references were family members of the agent, and whether or not it would be alright if you contacted some of them. When you do contact these former clients, ask them for any advice and if they were satisfied with their home sale.
- How long have you had your license? Don’t be immediately put off if your agent is new to the real estate industry; sometimes this simply means they will have more time in their schedule to concentrate on you. At the end of the day, new agents will have the same access to their agency’s contacts and files, with a broker to correct any misstep. Should you opt for an inexperienced agent, it simply means you should make sure you’re comfortable with his or her brokerage.
- How many of the homes you listed sold in the past year? You want to know information about your agent’s former properties, where they were located and how successful he or she was in selling each one. Ideally, your agent will have detailed insight into your neighbourhood’s selling market and how successfully your home will fit in price-wise. A selling agents’ track record for the difference between listing price and selling price is extremely important. The agent’s average ratio for these two prices will tell you how good they are at negotiations. Your listing agent should have a list-to-sales ratio close to 100%. Anything under 97% in a buyer’s market is a red flag.
- How much commission do you charge? Are they paid by the hour, by flat rate, or a percentage of the selling price? Unless they are a licensed realtor, real estate agents will most likely be splitting their commission with a broker. Don’t be fooled: commission is never fixed by provincial law and is always negotiable. To rival competition, sometimes an agent will discount a fee to match those of other agents in the area. Finally, your agent should tell you of any arrangements they have with other brokers, including commission-splitting.
- Would you be willing to tour my home before I sign a listing agreement? Any good real estate agent or broker will be willing to take an hour or two from their schedule, if it means ensuring your business. A home tour is a great way to introduce them to your home and neighbourhood. If their response to your home isn’t as professional as you’d like it to be, this is a potential red flag. Again, if an agent feels lukewarm about the sale of your home, they’re not going to try their utmost to sell it.
- How do you plan on promoting my home? Any respectable agent’s answer should be more than just an explanation of Canada’s Multiple Listing Service (see What is the Multiple Listing Service?). As a client, you’re looking for maximum exposure, including printed materials, both public and agent’s open house viewings, online virtual home tours, and a willingness to privately show your home at a day’s notice. You want to know how regularly your agent will be showing your home and how well your property is competing as much as possible. You’re looking for an agent with top of the line technology know-how, as well as strong networking with buyer’s agents. This is also a good time to ask how fast you can expect call-backs or responses to emails.
- Will I be able to cancel the listing agreement, if I’m not satisfied? You want to know what your agent’s policy is on cancelling a listing. If you’re irritated with your agent, they could also be irritated with you. Tensions between agent and client can sometimes escalate when it comes time to negotiating with buyers. Unfortunately, this scenario can happen; and it’s best to know how your buyer representation agreement can be cancelled, should you feel your agent’s not doing what he or she can to best serve your interests. Ultimately, you want to know if the agency you go with will allow you to move on free and clear. For whatever reason, if you need to terminate their services, how does their agency handle a cancellation? You want the assurance that both agent and broker will release you from your listing agreement. Some will; some won’t. However, it’s best to go with the ones who will.
- Will I be able to look over documents before I sign them? As a home seller, you will have to sign a great deal of paperwork. You’re looking for an agent who will make these documents available for your perusal, before ever having to sign anything. Make sure your agent is ready to answer anything you’re concerned about. If they can’t, their broker can.
- Is there anything I should know that I haven’t already asked? Selling your home is a learning experience and you want an agent who will have the patience to explain things in a clear-cut, no-nonsense manner. If the agent you’re interviewing doesn’t care to take the time to offer up more information, or ask you some questions, this should be a red flag.
What to Expect from Your Listing Agent
An agent is your middleman for all things pertinent to a successful real estate sell. Your agent will work closely with you; however, there are certain aspects of the selling process, which are out of your agent’s jurisdiction. For example, a real estate agent cannot offer an appraisal of your property, which the lender of a prospective buyer would consider suitable. Below are two lists to help your understanding what an agent or realtor is capable of, and what they’re not.
Things you can expect from your agent or realtor:
- they will know the market at any given time and why your property may or may not be a top seller, factoring in local school ratings, home condition, and amenities in your area, which may make your listing more attractive
- they will make you fully aware of all foreseeable expenses related to your sale
- they will write-up all agreements in clear language, explaining all obligations and conditions
- they will disclose who they are representing, and must disclose whether they are representing both you as a seller and a potential buyer, as well
- they will calculate an asking price for your home, which you will be able to approve (see Fielding Offers and Negotiating Price)
- they will format a listing agreement for your home
- they will counsel you on the ways you can make your home more attractive, including any light repairs, landscaping or painting (see Beneficial Repairs)
- they will coordinate all marketing and advertising for your home’s sale, including exposure on the MLS database (see What is the Multiple Listig Service?)
- they will show your home to buyers, handle all buyers’ phone calls and screen potential buyers, ensuring they are financially capable of affording your home
- they will recommend the proper lawyer, home inspector, title company, and appraiser to carry out the real estate transaction
- they will successfully negotiate a selling price with a pre-screened buyer
- they will help you through the closing of your home’s sale
Things you cannot expect from your agent or realtor:
- they cannot function as your lawyer or legal consultant
- though there are realtors who also are licensed mortgage brokers, it’s often recommended you separate the two specialists
- they cannot intentionally mislead anyone about a property
- they cannot reveal confidential information about you
- they cannot offer commission to another broker without your consent
- they cannot enter into a dual agency without your written consent
- they cannot respond to any leading questions about an area’s dominant ethnicity or religion
- they cannot recommend the services of another party (i.e. real estate lawyer, home appraiser, or home inspector) and receive financial benefit without disclosing this to you
- they cannot offer professional advice beyond that of their expertise (i.e. advice on insurance, mortgage, land use planning, home appraisal, or environmental consulting) without encouraging you to hire a professional (see Other Recommended Professionals)
- they cannot attempt to sell a property to themselves, a member of their immediate family, or anyone with whom they have financial interest, without disclosing the relationship to you in writing
- nor can they allow you to sell to a buyer for a certain amount, while receiving cash under the table, in addtion (see seller kickback)
Your Listing Agreement
A listing agreement is a contract between you as the seller and your agent or realtor’s brokerage. This is a legally-binding and extremely important document, as it outlines your obligations and interests as a client, as well as the transaction terms for your agent. It also states your interest in the agent’s exclusive right to sell your property to a prospective buyer, which will be signed by both you and your agent. The listing agreement includes pertinent information, such as dates of property taxes, any liens on the home, and, in the case of an assumable mortgage, all things related to the home’s mortgage, such as dates and monthly payments.
Before signing the agreement, make sure you are completely satisfied with your agent and broker’s treatment of you as a client; that you understand everything laid out in the agreement; have listed the things you are including and excluding (also known as “chattels”) of the property; and that you’ve disclosed all there is to be disclosed about your home.
|Note: While discussing your listing agreement with your agent and broker, ask them about a seller’s obligation of disclosure. In order to avoid any type of liability as a seller, you need to completely disclose any information that could potentially affect your selling price or a buyer’s interest in your home. Failure to disclose certain information about a home is one of the leading reasons home sellers become involved in post-sale legal accusations, and even lawsuits (see Home Appraisals vs. Home Inspections).|
Your Agent’s Opinion as to Value
Your real estate agent will come up with their professional opinion of your home’s fair market value. This can be compared with a home appraiser’s core range. Though, in certain cases, a broker also happens to be a licensed home appraiser. Once a market value has been established, ask your agent how they came up with their asking price. Did they use a comparative market analysis? What factors diminished your home’s value and is there anything you can do about them before you list your home? Your agent should also be willing to go over their marketing plan with you.
Your real estate agent may also recommend a listing appraisal, in addition to their own estimation of value. Although a real estate agent can offer you their opinion of the fair market value of your home, a certified home appraiser will evaluate your property according to strict criteria. Your agent will also help hire a designated home appraiser.
Note: In certain cases, it be recommended that you hire a home inspector to examine your home’s condition. Usually, home inspections are carried out by the prospective buyer. Buyers can even make their offer of purchase contingent on a clean bill of your home’s condition. When selling an older structure, however, an agent may advise you hire a home inspector. What this does is it allows you, as the seller, to factor in any problems or repairs into an asking price. It also shows potential buyers you’re a thorough, motivated seller.
Home Appraisals vs. Home Inspections
Getting your home appraised before a sale can be beneficial for a number of reasons. Your real estate agent can talk to you about whether or not you should get what’s known as a listing appraisal. He or she will give you a written report of their analysis of your home, including an independent fair market value. An appraiser will also clue you into any renovations or maintenance your home needs. A listing appraisal buys you time to correct any minor problems, including any needed repairs potential buyers may try and use as negotiating points. Because there is no regulatory agency monitoring home appraisal, it’s best to hire someone accredited by the Appraisal Institute.
While an appraiser will take into consideration major selling points of your home to create a value for, let’s say, a prospective buyer’s lender, a registered home inspector (RHI) will examine major functioning systems of a home. Usually, a buyer’s agent will hire a home inspector, often making the purchase contingent upon an inspection (a pre-purchase inspection on a home in the 1800 to 2200-square-foot range takes about 3 hours, and costs about $500). As a seller, however, your real estate agent may advise a home inspector before putting your home on the market. Ultimately, the inspection puts you on the offensive; it says to potential buyers that you and your agent have done the due diligence in establishing a fair market value.
A registered home inspector will address your home’s: foundation, plumbing, heating/air system, roof, electrical system, and structural support. Through a visual examination, a home inspection will give you vital information about your home’s condition, allowing you and your real estate agent to factor any outstanding issues into a fair listing price. Depending on your province, your real estate agent may be obligated to recommend more than just one home inspector.
Making certain home repairs before listing your property is critical to getting a good offer. However, going above and beyond by making too many unnecessary repairs will only cost you extra time and money. With the exception of the few brave souls purposely searching for “fixer-uppers”, buyers want a house they can live in immediately—not one they have to spend their first few weeks renovating. It’s important to prioritize problems listed by your real estate agent and home inspector, but also pay attention details which can outdate your home, including flooring, fixtures, lighting, and paint.
Below, some of the most beneficial repairs with the best returns have been listed:
- Safety repairs: Repairing any loose boards, railings, wobbly ceiling fans, temperamental electrical outlets, or any other potential safety issue is a must.
- Roof repairs: Depending on your square-footage, a new roof should take no more than a few days, yet it’s a repair that, when your home is in need of it, a buyer expects.
- Flooring: If your home has its original wood floors, then great; hardwood floors never seem to go out of style. However, you note any cracked tiles in the house, fix them. Don’t spring for ceramic for a whole room, though: the return is simply not worth it. Finally, if your home has outdated shag carpeting, get rid of it; remember, the only carpeting considered relatively resalable is a neutral-tone carpet.
- Painting: Fresh coats of paint can truly save a resale home. Take the time to strip any wallpaper by steaming; and prime and paint any older wood paneling. Prospective buyers don’t want to see cracks, stains, proof of a leak, or evidence of smoke or smokers; but that’s not to say you should attempt to cover up latent defects.
- Landscaping: this can be one of the most beneficial repairs, in terms of how cost-effective it is. There’s no need to plant a backyard vegetable garden, but make sure your landscaping looks healthy and well-manicured, including flower-beds and tidy walkways. Fix and paint any fences, as well.
- Bathrooms and Kitchens: Returns on both are usually about 100%, so if you can renovate inexpensively, do so.
- Asbestos: Your real estate agent should be able to identify ceilings with this toxic substance. If your home has any, get rid of it immediately.
Marketing Your Property: Supplementing Your Agent’s Efforts
A listing agreement charges your agent or broker with effectively marketing your property. Your representative should be well-versed in marketing strategies, getting your home the attention it needs, whether in a hot or cold marketplace. During the selling process, if you ever feel as though your agent’s not doing all they could be in getting your home sold, talk to them about increasing your home’s exposure. If they don’t seem receptive, make sure you discuss it with your broker.
Make sure you agent is practicing the following tips in marketing your home:
- Your agent should offer a good commission for buyer’s brokers
- Both you and your agent should be available to show your home with short notice (your home shouldn’t be limited to appointment-only or 24-hour notice viewings)
- A lockbox should be kept on your property if you’re staying in your home until it’s sold; this allows your agent to show your home at the drop of a hat
- Your agent should post well-lit online photos (and plenty of them) with your home’s online listing
- Ask your agent to make a virtual home tour; buyers nowadays fully invest themselves in homes they find attractive online
- Use descriptive comments and don’t keep any information withheld in your listing
- Keep your home furnished during showings, or ask your agent about home staging
- Your agent should post a “for sale” sign on the property, including contact information for both agent and brokerage
Fielding Offers and Negotiating Price
One of the best pieces of advice when selling a home is encouraging a want to “get rid of it”. As a seller, untangling any emotional attachment to your home is a must. This mindset will help you and your agent negotiate prices more efficiently. Your agent will field each buyer’s offer, disucssing details about their offer with you, including price, any limitations or conditions to their offer (such as the sale being subject to a home inspector’s report), the offer’s expiration date (ending at midnight), and when they would like to take possession of the property. Most often, a prospective buyer’s offer comes with a deposit, as a token of good faith.
Some things to remember when considering an offer are:
- Try your hardest not to be too emotional about your home, but do go with your gut
- Don’t follow prospective buyers around during home viewings—let your agent do the talking and let your home sell itself
- Discuss with your agent what your lowest possible price is before negotiating
- Remember, sometimes the first offer is the best offer—don’t wait for competing offers that aren’t going to come
- Always ask your agent to counteroffer, never simply reject an offer
- Go into negotiations knowing buyers expect some sort of downward price negotiation (usually somewhere between 2% and 4%), conceding a bit makes them feel successful, so leave room for you and your agent to do so
- Discuss the chattels of your property with your agent, making compromises on more menial points of purchase, and never taking anything personally (such as when a buyer discusses taking out your beloved vegetable garden to make room for a hot tub)
- It is your right to extend any conditional offers or allow them to expire, speaking openly with your agent about each offer
- The higher the deposit amount, the more serious the buyer (usually it’s about 1% to 3% of the purchase price)
- Have your agent keep track of properties for sale in your area while your home is on the market
- Never sign anything without the presence of your agent or real estate lawyer
|Note: Depending on your offer, your agent may or may not ask you to fill out a real property report, also known as a current survey, which states the property being sold is yours and has no encroachments or liens on it, and defines any registered easements. Along with this report, the buyer may also want proof the property’s title bears your name.|
Closing Your Sale
At this point, you and your agent have successfully negotiated your price and are ready to close the sale on your home. Lawyers for you and your buyer will have set up a trust account specifically for the purchase of the home. Your buyer’s lawyer will have drafted the sales contract and carried out a title search; a date and time have been agreed upon to sign over the title and hand over the keys; and your real estate agent will have gas and water companies come read your final meters and shut off service. Your lawyer will closely monitor all proceedings, also ensuring you are reimbursed for prepaid expenses, including gas, electrical, and property taxes.
Finally, coming your way are closing costs, which include agent commissions, legal fees and other adjustments. Your real estate agent will inform you of all necessary payments; you should not be caught off guard by anything.
Closing costs to expect:
- Real Estate Agent’s Commission: This will be the amount previously decided upon in your listing agreement
- Legal Fees: A lawyer will be helping you carry out all the paperwork for the final transaction, of which you can expect about $300-$400 going toward finalities like registering the deed. Your lawyer’s fee will have already been determined, and should be anywhere from $500 to $900, depending on the lawyer.
- Mortgage Payment: At this point, you will have decided how to handle your mortgage upon selling. If you’re paying it outright and not porting it to your new home, you may be charged an early payment fee. Avoid closing on a Friday, as you could face being charged over a weekend.
- Moving Costs: Make sure you’ve left enough to move you things, as well as start-up fees for new utilities
Buying a home is one of the biggest purchases you can make during your life—even more so, if you’re a first-time homebuyer. The process requires organization, ample time in your schedule, and, of course, the financial capability. When you know it’s your time to buy, the first step is deciding whether or not you’ll be using a real estate agent.
An agent will help you correctly itemize the qualities you’re looking for in a home, have access to industry research tools not made public, and help steer you away from any pitfalls when it comes to the transaction. Granted, buying a home on your own saves on commission fees (normally, the seller pays a buying agent’s commission), which may get you a price reduction; however, buying a home is complicated and extremely time-consuming. It requires touring homes, meeting sellers and their agents, knowing how to write an offer of purchase, and having strong negotiation skills. And, unless you’re ready to treat the process as though it were a part-time job, hiring a real estate agent is the best way of getting yourself into your dream home.
Choosing Your Agent
Choosing a trustworthy agent to best serve your interests is a crucial part of your purchase. Ideally, you want a licensed, experienced, respectfully aggressive agent or broker representing you. While a listing agent’s selling/listing price ratio (meaning the difference between the listing price of a home and what it actually ends up selling for) should be high—something close to 100%—you ideally want a buying agent’s ratio to be less than 99%. A lower ratio shows how strong their negotiating skills are, because they consistently get their clients homes below the asking price.
It’s also important to know proper agent protocol. Here are some points to keep in mind:
- Avoid interviewing agents from the same real estate agency (same goes for hiring a listing agent). The biggest reasons for this caution are that you don’t want agents discussing your interests behind your back, and you also don’t want to pit competitive agents against one another.
- When interviewing an agent, let them know they’re up against other agents. A good agent will want to sell themselves to you.
- Always be on time when it comes to appointments with agents. If you’re going to be late, have the courtesy to call. This will ensure a solid, respectful working relationship.
Questions for a Buying Agent
Be prepared to interview a few agents before settling with one. Ask the same basic questions you would of any professional, including requesting a list of references, how long the agent’s had their license, and what sets them apart from others in their field (see Questions for a Listing Agent). This is a great way for an agent to get an understanding of what you’re looking for in your new home, as well as your financial parameters. You want a motivated agent asking informed questions, one who is clearly trying to get on the same page as you. In addition, here are some essential questions for you to ask:
- How familiar are you with the neighbourhoods in which I’m interested? You’re looking for an agent with local experience, one who’s familiar with the homes in the area, as well as their selling points and potential problems.
- What will you do to cater to our specific needs? An agent should be ready and willing to offer advice in determining the best home with your explicit interests at hand—this goes especially if you or your spouse are seniors or a member of your family has special needs.
- From what I’ve told you so far, how do plan on finding my home? A good agent will be calculating and have extensive knowledge of their market; after short listing your specifics, they should be able to clearly explain how they plan on handling multiple offers, how they present offers, and the industry tools they’ll be using during the process, such as Canada’s MLS database (see What is the Multiple Listing Service?).
- Will I be able to obtain copies of documents? It’s important that you have copies of agency disclosures, buyer disclosures, buyer-broker agreement, and purchase agreement as soon as the documents are available.
- Why should I work exclusively with you? As a homebuyer, unless you sign an exclusive contract with an agent, you are under no obligation to work solely with one agent. A good agent will give you incentives and explain why they should be the only one representing you, including flexibility when it comes to commission, experience in the field, and rapid response time.
- How practical are my parameters? Any good agent will tell you how practical your wants are and whether your price range will afford you that type of home—what you don’t want is an agent sugar-coating any situation or feeding into illusions which simply aren’t pragmatic.
What to Expect from your Buying Agent
Your agent will be guiding you through one of the most important purchases of your life. An agent will be your right-hand man or woman, but there are certain parts of the process out of the scope of their working knowledge. It’s important to know with what they’re capable of assisting you, and what they’re not.
Things you can expect from your listing agent:
- An agent will create a buying plan based on your price range, market trends, and desired home characteristics, among other features
- An agent will show extensive knowledge about the features of a local cluster (the grouping of homes in an area), such as crime rates, how close they are to schools, green zones, and cultural centers
- An agent will accompany you during home tours, explaining the facets and selling points of a home, including a home’s degree of modernization, large appliances, or any financial incentive
- An agent will go over the proper paperwork for the transaction, including any disclosures
- An agent will organize appointments with home inspectors, lenders, appraisers, or any other public or private professional required for the transaction
- An agent will draw up an offer of purchase, helping to determine any conditions that should go along with it
- An agent will be your eyes and ears when it comes to negotiating your purchase, bringing all offers to your attention and evaluating any weak points they may have
If you’re a motivated buyer, eager to get into your dream home and work well with your agent, finding the right home shouldn’t take more than a matter of weeks. A good agent will listen to your desires—including major factors like location, square-footage, and price range—and show you homes that fit your parameters. He or she will not waste your time arranging showings on homes that won’t meet your needs. You shouldn’t expect to see more than about 5 homes a day; and it’s rare an agent will show you more than 8 in a day. That’s not to say you can’t visit open houses without your agent, but there is definitely some industry protocol to keep in mind if you choose do so.
Here are some tips when touring homes:
- Let your agent do the talking. Never inquire about a seller’s objectives or how motivated they are. If you have a question, let your agent ask it in their own professional way.
- Check with your agent before touring a home by yourself; they may feel it best to accompany you.
- If you do tour a home by yourself, ask your agent for a handful of his or her business cards and bring them with you to open houses.
- Once at an open house, explain to the listing agent that you’re being represented and offer up your agent’s business card. Agents are obligated to ask if you’re being represented, but sometimes they can forget. If you allow a listing agent to show you a home, you’re allowing them to do your agent’s work for them. It also turns you into a “client” (a buyer represented by an agent or realtor) instead of a “prospect”. This can become complicated and extremely frustrating for agents (and understandably so), in terms of who’s representing whom.
- Sometimes two agents list the same home, so ask if the person conducting the open house is the listing agent. This is the only person you want to be dealing with after viewing the home.
- If you’re touring a home without your agent because you’re curious, or are simply trying to get a feel for the neighbourhood (which is perfectly fine), let the person conducting the open house know you’re “not inclined to buy”. This allows them focus on truly motivated sellers, and also encourages objective feedback.
- Ask your agent or the listing agent to see any available documents about the home, including the seller’s appraisal or inspection reports, seller’s factsheet, or any available blueprints.
- Keep track of your home viewings by taking copious notes—especially if you see that your agent is not. You want to be as informed as possible about each home you see. Some buyers opt to “grade” each home they tour, using a 1-10 rating.
Your Offer to Purchase
Once you find the right home, you and your agent will draw up an offer to purchase. Making an offer to purchase can be a nerve-racking experience for any home buyer, especially if it’s your first home-buying experience. Your agent will walk you through each step of this home buying aspect. What this entails is first discussing your initial asking price with your agent. By this time your agent should have a pretty good idea of where you stand with regard to budget and purchasing price. He or she will discuss downward and upward price negotiations with you before setting an asking price or entering into any counteroffering.
All offers and responses to offers will come to you through your agent. He or she will act on your behalf and help formulate any counteroffers based on things like: other home prices in the area, sales history of the home, overall condition of the home (see Is a Pre-purchase Home Inspection Necessary?), and current market trends.
Your offer to purchase will be accompanied by deposit as a measure of good faith. Your agent will discuss a proper amount for this deposit, but it’s safe to say it will be somewhere around 5% of your purchase price.
Note: It’s important to remember your first offer to purchase will most likely be lower than the seller’s asking price, but should leave enough room for negotiations. Don’t be afraid or embarrased to ask your agent to offer a significantly lower offer on your behalf. "Lowball" offers aren’t considered disingenuous or insulting to a seller—they’re simply meant to engage negotiations.
Is a Pre-purchase Home Inspection Necessary?
A home inspection isn’t always necessary, but many buyers feel more secure in their purchase if they know their soon-to-be home is structurally sound. Once you purchase your home, you buy any and all of its problems as well. For this reason, some buyers make their offer for purchase dependent on a successful home inspection. This is known as a conditional offer, and means your offer to purchase is contingent upon certain things like repairs or maintenance.
If the home is older (more than 5 years, in some cases) or is in evident need of repair, your real estate agent will most likely advise hiring a registered home inspector (RHI) for a visual inspection. An inspection will cost about $300-$500. Having a good idea of your new home’s condition, including its foundation, air/heating systems, electrical system, structural support, and roof, and any foreseeable problems. This knowledge can also help during negotiations over price—especially if the seller chose not to hire a home inspector.
Closing Costs for the Buyer
After a seller has accepted your offer to purchase, your agent will wrap up the finalities of the transaction. He or she will also have explained the closing costs involved in buying your home. So as not to be caught off guard, you should expect to pay anywhere between 1.5% and 2.5% of the home’s selling price in closing costs.
Along with your agent’s commission, here are some closing costs to be expected:
- Land Transfer Tax (LTT): Also known as land registration fees, this is a tax which varies from province to province and is either payable at the provincial or municipal level. It ranges from 0.5 – 2% of the property’s value.
- Appraisal Fees: Depending on your mortgage lender, you may have to have your property appraised, something that shouldn’t cost more than $350.
- Legal Fees: A lawyer will be helping your agent with all the paperwork for the final transaction, of which you can expect about $300-$400 going toward finalities like registering the deed. Your lawyer’s fee will have already been determined, and should be anywhere from $500 to $900, depending on the lawyer.
- Service Charges: Your real estate agent will help figure out what type of services and utilities, including gas, hydro and electric, are yours to pay and whether or not you need to set up new accounts. This can cost about $40-$50. If your home has a well and/or a septic tank, check with your agent about how to make sure these are working properly.
- Moving Costs: Make sure you’ve left enough money to move your things from your old property. If you can avoid moving on a weekend or at the start/end of a month, do so; movers charge premium prices for these times.
Common Home Buying Mistakes
Snags can and do occur during the home-buying process; however, that’s not to say the road to your new home will be laden with difficulties. As with any big purchase, you want to be aware of any lurking hitches, which is why a real estate agent should be someone you trust completely. They’ve made it their job to help you avoid any home buying mistakes.
For a smooth home buying process:
1. Ask any and every question: One of the biggest mistakes you can make as a homebuyer is thinking you know all the answers. These days homebuyers rely heavily on computer assisted research; but the Internet doesn’t have all the answers. Remember, there’s nothing too big, or too small, with which your real estate agent or broker can’t help you.
2. Use a separate mortgage broker: It’s best to keep your mortgage broker and buying agent separate. It’s not uncommon to find a real estate agent who doubles as a broker. The risk is that they will not have nearly enough training or experience to handle your mortgage needs as this is also a full-time job. This goes especially for Quebec, in that its civil code permits real estate agents, as well as those in the finance industry to perform mortgage brokerage.
3. Don’t juggle finances without informing your agent: Making significant purchases or changing credit payments before closing on your home is a huge mistake. Significantly altering your credit rating mid-loan can change whether or not you qualify for your new home. Your agent will be able to tell you what acceptable purchases you can make after a loan application and what you cannot (i.e. large appliances like washers and dryers, cars, and furniture).
4. Be honest with your agent: If you’re rethinking an offer or begin second-guessing any part of the home buying process, discuss it with your agent. It’s a huge mistake to purchase a home you’re not prepared for either financially or emotionally. Be straightforward about how you’re feeling. If at any moment, you feel your agent is not being sensitive enough to any reservations you’re having, contact their broker.
5. Don’t be afraid to ask your agent to put in a low offer: Many buyers avoid asking their agent to write "low-ball" offers (usually about 10% below listing price), thinking it makes them look bad or is embarrassing in the eyes of the seller. Talk to your agent about the advantages and disadvantages of substantially lower offering prices.
6. Never rush into a sale: It’s highly unlikely an agent is working on salary. The majority work for commission, meaning they get paid when the deal closes. Your agent should be motivated by your interests, not making a quick sale. Sadly however, some buyers can and do get caught up in the rush of things, ending up with a home they’re not truly happy with or simply can’t afford. Go with your gut and never let an agent rush you. If you’re not seeing eye-to-eye, call their broker about the possibility of another agent.
appraisal (real estate/home): based upon certain criteria and analysis, a real estate appraisal offers both buyer and seller a professional’s estimation of property value. This can be an oral statement, but is usually written for loan purposes.
Appraisal Institute (AI): International association comprised of more than 18,000 professional real estate appraisers throughout the United States, Canada (known as the Appraisal Institute of Canada, or AIC), and abroad.
balanced market: when demand and supply of property is at an equilibrium it’s known as a balanced market condition, meaning prices are generally stable and home sales happen in a reasonable amount of time.
broker: a real estate broker is the intermediary between a prospective buyer and home seller; they have completed coursework beyond an agent and bear more responsibility with regard to a real property transaction. Brokers can act independently during a sale or on behalf of a brokerage
buyer: a person attempting to purchase an interest in real estate, acting alone or represented by a real estate agent or broker.
buyer’s market: a real estate trend which occurs when there is an overabundance of property with very little demand, creating prices which favour prospective buyers.
Canada Mortgage and Housing Corporation (CMHC): Founded by Parliament during the post-Depression ‘40s, the CMHC is Canada’s leader in mortgage loan insurance, housing research and mortgage-backed securities.
Canadian Condominium Institute (CCI): The non-profit Toronto-based institute was formed in 1982 and is considered the final word on Canada’s condominium community.
Canadian Real Estate Association (CREA): representing more than 100 real estate associations, which include close to 100,000 real estate agents and brokers, CREA operates Canada’s MLS database and owns the REALTOR® trademark, of which only members of CREA can use, because not every real estate salesperson is certifiable by CREA’s standards.
counteroffer: a response to an offer, which renegotiates by requesting either different terms, higher price or both. If, as a buyer, you sign the offer back as is, or with a price lower than the counteroffer, which then becomes accepted by the vendor, the deal is concluded. You may also choose to reject the counteroffer altogether.
home inspection: a visual inspection which takes into account all working components of a home, identifying problems and potential repairs, and helping clients (both buyers and sellers) understand a home’s habitability and condition.
listing agreement: an agreement or contract signed between a client, who is attempting to dispose of an interest in real estate by means of sale, and a brokerage offering to sell the client’s property.
market value: using a competitive, open market as a constant, this is the fair price of a home for both buyer and seller, with both parties being informed and acting with their best interests at hand, the home had what the Canadian Uniform Standard of Professional Appraisal Practice (USPAP) calls a “reasonable” amount of time on the market to ensure fair exposure, and the price remains unchanged for any third party interests.
multiple listing service (MLS): an international database, which, in Canada, serves members of CREA and national real estate boards and associations, allowing brokers to set up compensation between other brokers in listing contracts. MLS listings account for about 90% of all home sales in Canada.
notary: also known as a notary public, this is a legal officer with the authority to record and authorize matters of judicial importance, private transactions or events. In Quebec, private law stems from civil law, and so a Quebec notary functions as a trained lawyer, capable of everything except pleading in a court of law. Quebec notaries specialize in real estate law, as well as wills and marriage contracts.
offer to purchase: also known as an agreement of purchase, this is a written contract presented to a seller by a prospective buyer, and usually includes a deposit of good faith, an expiry date, and any terms or conditions. An offer to purchase can be contingent upon a home inspection. If the offer is accepted, the agreement binds the buyer to the seller for the price offered, concluding the deal. Offers can be rejected or returned with a counteroffer.
real estate agent: a salesperson representing a prospective buyer, seller, or both during a real estate transaction. Agents usually work for commission, either independently or on behalf of a real estate brokerage
realtor: a real estate agent or broker who has completed the necessary requirements of the Canadian Real Estate Association (CREA) in order to display the REALTOR® trademark and have access to the MLS database. Their ethics and responsibilities go beyond that of an agent.
registered home inspector (RHI): a designation granted by the Ontario Association of Home Inspectors (OAHI), a provincial member of the Canadian Association of Home and Property Inspectors (CAHPI), to qualify their inspectors as trained practitioners, capable of addressing a home’s major systems and components.
seller’s market: this is a market condition which occurs when there is very little product with numerous prospective buyers, leading to an increase in overall home prices; and homes tend not to stay on the market for very long.