BUYING A HOME IN CANADA
Homeownership provides stability, a place to call your own, and it is an investment in your future. Wealth creation is a combination of home appreciation and building your equity. If you sell your home for more than you paid for it you will have a capital gain. If the property was your primary family home for every year you owned it, you do not have to pay tax on the capital gain.
This is significant. Canadian tax rules allow your home investment to grow tax-free. Be sure to consult your accountant for up to date information as the tax rules are subject to change. It is advisable to have a long-term view of homeownership.
Buying a home is like a team sport with several individual players each with their area of expertise. Each player has important timelines, and much documentation to produce. Find a professional team you trust. The individual players must have the ability to work together.
If you have not done so already, you will need to choose a real estate agent. Consider the fact that some buyers may have only 5 to 7 real estate transactions in an entire lifetime.
An experienced real estate agent closes that same amount in a month. You should take advantage of their expertise. Take comfort knowing that their knowledge and experience will serve you well. You deserve to have an exceptional real estate agent. You are entrusting them with your major financial transaction in a complex market.
What are you looking for in a real estate agent?
- a) A sophisticated market analyst
- b) A kind and gentle hand-holder
- c) A strong and tough negotiator
- d) An expert contract writer
- e) A combination of the above
There are many steps your realtor must do well to complete the buying process. They should have the experience to know exactly what you need throughout. When things don’t go as planned, your realtor should have the ability to switch gears.
Another team player in the game of real estate is your lawyer. They are like the quarterback of the transaction. Hiring the right lawyer early in the home-buying process is important. This will not only reduce your risks, protect your legal rights but also give you peace of mind.
Your lawyer should have the ability to spot and deal with any problems before they erupt. The real estate process is time-sensitive so having a responsive lawyer is important. A good lawyer will provide you timely updates as you proceed through the process.
You will want a lawyer that can explain things in easy to understand language. Lawyers have many specialties so make sure you hire one whose main practice is real estate.
KNOW YOUR MARKET
It is an advantage to know the current housing market conditions. This will enable you to make strategic adjustments in your home buying approach. Real Estate has three types of markets:
- a) Seller’s Market: A seller’s market is when demand exceeds supply and the seller has the advantage. There are more buyers than available inventory. Because there are fewer homes for buyers to choose from, almost every home will sell. There is much less than six months of inventory in a seller’s market. In extreme seller’s markets, there are less than two months of inventory in reserve.
- b) Buyer’s Market: A buyer’s market is when supply exceeds demand. There is plenty of inventory and few buyers. This gives the buyer an advantage over the seller in negotiations. When supply is growing homes will take longer to sell, and some may not sell at all. In a buyer’s market, the number of properties sold dips below 12% of the total number of properties for sale. Most experts agree that if six months or more of inventory is on the market, it is a buyer’s market.
- c) Balanced Market: When demand from buyers is in balance with the supply from sellers, this is a neutral market. This is an equalized marketplace and usually, the interest rates are affordable. The scales don’t tip in either direction. The market is normal without volatile swings. Inventory is generally around four months, give or take. Note that good buys exist in neutral markets. There are no indications that favour buyers over sellers or vice versa.
Potential Benefits of Buying in a Buyer’s Market
- Negotiate on price
- Reduced price = Reduced mortgage (lower payments, pay less interest)
- Negotiate desirable terms and conditions
- A bigger selection of real estate for sale
- Time is on your side
- Post-inspection repairs paid for by the seller
- Contingent offers more likely to be effective (i.e. buyer needs to sell another house first)
DO YOUR HOMEWORK
Home buying has become more of a digital process. There is a new, empowered generation of homebuyers that does its homework ahead of time. It takes seconds for you and your realtor to do research that will support your buying decisions. You do not need to show up at every open house.
You can find suitable properties on the go with your smartphone or mobile device. Before making an offer, you must be aware of actual home values. Browse websites such as www.realtor.ca which is a popular and trusted real estate website in Canada. The Canadian Real Estate Association (CREA), owns and operates this website. It allows you to determine the current price trends.
Actual sale prices determine market values. Your realtor has access to a professional database and can generate a list of recent sales. You can compare what the asking price was and what the sold price was.
Also, check out the DOM (days on market) which is the number of days that property took to sell. You will be more knowledgeable about market trends and be able to determine fair market value. Once prepared and ready to go, you must watch the new listings and actual sales daily.
At this point in the process, you’re likely well informed about values. Being aware of comparable sales is important when you are ready to make an offer. You may have to spend several days, weeks or even months looking at various listings.
Decide with your realtor what fair market value is and make your offer with confidence. Know your limits and the state of the current market in your area. Remember that sellers will not accept a price that is lower than what they are willing to agree to.
In the right market conditions, don’t feel bad about making an offer much lower than asking price. You are coming to a mutual agreement on price and terms that work for both buyer and seller. In most cases, the seller is benefiting from the sale. It is allowing them to make a move, avoid further financial burdens, or help them in some other way.