For most of us, home ownership is a dream that we hold dear and desperately want it to be a reality. Needless to say, I also brought into the dream of home ownership. Hook, line and sinker! About 15 years ago, I took my first plunge to buy my dream home. Check out my first time venture into real estate. You will probably get a few laughs and chuckles about my insanity. And I digress. After saving enough money for down payment, closing cost and got my pre-approved mortgage amount, I started my dream house search.
Typically, people find a reliable real estate agent to help them with their first-time purchase. I did not. Why? Well, because I am cheap. I admit to my flaws freely. You must be wondering: real estate agents don’t charge buyer a fee, so what was your cheapness got anything to do with this? It is true that a real estate agent of the buyer will not charge fee, but he/she has to get some money somehow. Real estate agents earn big bucks so they are not doing anything for free. In this case, the agent will receive their income from the seller who will have to pay both agents from proceed of the sale. The seller will always factor in agent’s commissions in sale price. The fee for both agents (representing buyer and seller) is always baked into to the sale price. Now, if you can do it on your own and negotiate with the seller’s agent, you will likely save yourself a couple thousands. I brought all 3 houses without using a real estate agent and knock on wood, all three houses turn out to be sound investments.
5 Tips for purchasing house without real estate agent
If you want to buy a house without the help of a real estate agent, here are some tips for you. I learn these tips thru the old fashion “try and true” way after purchasing 3 houses without a single agent.
- Do your research thoroughly. You need to invest time researching the neighborhood you want to buy. Do online research and gather the information that will give you some sense of who live in the neighborhood. So look out for things like: school rating, average household income, distance to public transportation, number of restaurants and shops in the area. There are more to research on, but I focused on these items because I wanted to make sure I would be in a good school zone (no, I was not in school) because that typically indicate that the family in the area would be decent people and the value of the house would like hold for a long time because family want to purchase house near good schools. It is all about the next generation, folks! Lastly, do a walk or drive by thru the neighborhood and see for yourself if this is the neighbourhood you want to call home. The statistic will give you comfort that you make a logical decision, but nothing will beat the feeling you have when you visit a place. You have to love the neighborhood. You will have to live next doors to these folks so take a look and see if they are someone who you can live next door to.
- Get a house inspector as soon as possible. An inspector will help you find issues with the house so you can make an informed purchasing decision. The cost of an inspector is typically CAD$400-CAD$700, but it is worth the investment. My inspector found that the furnace leaked carbon dioxide and the roof was in the bad shape. The seller had to come down CAD$15,000 in purchase price because I would have to change the furnace and roof. Worth every penny! Even if you can’t get the seller to come down in price, you still need to know what kind of issues that you will have to deal with. I am a firm believer in proactive planning vs reacting to a situation. If I know that the roof is in a bad shape, I will set some money aside to fix it. By proactively planning for it, I won’t have additional stress when the roof leaks and I have to deal with an unexpected expense.
- Determine the maximum purchase price you want to pay for the house and stick with it. Don’t give in the temptation of bidding war with other buyers when you are on a tight budget. You will likely end up paying too much for the house and run into financial trouble. During the hot market time, people in Toronto paid nutcase high price for house. There were cases where a house went for 212% of its asking price. Resist the urge to best your opponent. Seller will be the winner if you do.
- Line up a lawyer to help you with the purchasing transaction. Don’t leave it till last minute. Being a banker had it perk, I worked quite often with a real estate lawyer as part of my job and he was my lawyer. I thought I know everything about real estate and mortgage since I was a banker. Wrong! He gave me a lot more information that I didn’t have a clue and saved me money in the process. Off course, you need to find a good lawyer, there are the irresponsible ones out there.
- Lastly, read what you sign! It is your hard earn money, so take all the time you need. Don’t let the agent rush you. Well, the agent who represented the seller pressed me to waive the inspection clause, but my lawyer told me not to. And he was right because if I waived the inspection condition, I would not get the $15,000 discount that I mentioned above. If my husband friend took a bit more time to read the mortgage approval agreement that his bank gave him, he might realize that he shouldn’t waive the financing condition and perhaps won’t lose the $10,000 in the process.
I found that I didn’t have to know everything but as long I had these experts (i.e.: a good lawyer, banker and a sharp eye inspector) in my corner, I was in better negotiating position and ended up with a decent deal. At long last, I found and brought my dream home. Though it looked a bit like a nightmare at first glance. A family of eleven lived in this house. I am not kidding! Three generations: grandparents, parents and grand kids hunkered down in a 2 bedrooms bungalow. I couldn’t believe my eyes. After recovering from my initial shock and despair, I assessed the house’s potential with practical and logical eyes.
The house met all my 3 “must” requirements and had large lot of land and good structure. It needed some works, but hard work never stopped me. That’s another advice that I like to give the first home buyer: “Don’t just look at the surface of the house. Look for potential and stick to your list of MUST”. You can repaint, change the countertop or even rebuild the house (that’s another painful story to be told), but you can’t increase the size of the lot or change the location of the house, so look for size and location of the house. This was how the house looked. It not what I pictured my dream house but it met my needs. So, I brought it.
Last couple of years, Canada and (particularly Toronto and Vancouver) has seen a big surge in housing prices. Last month a couple of real estate agents offered to list my bungalow for $800,000 (yes, its still the same bungalow, we only re-painted inside). That would give me a 300% return on investment in 12 years. Not too bad for my first try at this real estate venture. In summary, there are couples of thing that I want to reaffirm:
- Be realistic about what house you can afford
- Have a plan and know what you want
- Be realistic about your financial situation and set achievable down payment savings amount and timeline
- Have visual goals somewhere that you can see first thing in the morning and last at night to motivate and remind yourself of the end goal: homeownership!
- BE DISCRIPLINE about your savings. Use the automatic saving transfer to train yourself to live with less money
- Feed your inner impulses from time to time if you MUST! But get right back on the saving track and cut your spending the week after to make up for the shortfall immediately. Don’t delay!
- Know yourself and have a realistic budget about your affordability. Don’t go over your budget at all cost! You will get into financial troubles if you stretch your budget too much
- Share your house with someone. If you can’t buy the house with a family member as I did, how about a friend? I have seen friends purchase home together and they worked out great. There are a few tips on this topic too… I will share soon.
- Don’t look at the surface of the house. Look deep to find the house that meet your “MUST” list, decent location, has good potential and lot size
Hope you had a few good laughs and get some useful information. I will post four more postings on my home purchasing experience in the next few weeks. Real estate investment is tough to get in, but once you have a house and build up some equity, you can leverage the house equity to borrow at a lower cost and invest more. Real estate is not an easy to manage investment, but if you can stick with it, there is good return to be made. Stay tune!