It has become damn hard to buy a home.

While once upon a time (a time not long ago at all), it was ‘buyer’s market’, that has become far from the case in numerous cities across North America. As buyers’ sanity levels are being pushed to the brink, it has become increasingly more difficult to purchase a home, let alone know enough about it to make an educated decision.

There is a lot of advice given to sellers on how best to leverage this market, the information to disclose, the information not to disclose, pricing strategy, time to hold for offers, the list goes on.

Where however, are the buyers left in all this? While demand outweighs supply in obscene multiples, the people who just want a place to live are left in a position where they have to submit to the new rules set by the lucky sellers. It is a hopeless situation, isn’t it?

Not so.

Here’s the deal – this is the biggest purchase of your life, and it begs the question – shouldn’t you be entitled to some degree of comfort? Why aren’t we asking more questions?

Where there has been worry that some cowboy will come in and outbid everyone for a house sight unseen, truthfully that shouldn’t impact the approach of the 99% of people who are sensible and entitled to a fair shot at the home. If a house is going to sell for a price that far outweighs that which a reasonable appraisal would value it, it is better to let it go anyway. The key here is that you deserve the opportunity to ask questions, and irrespective of the time crunch or expectations imposed by the seller, here are six questions you should ask before placing an offer on a home.

1)    Is this the actual price you want?

Five years ago, a question like this would have seemed insane, but the reality is that even in listings where there is no ‘offer date’, the listing price isn’t the price the seller would accept. This impacts not just the offer approach, but also the people who are exposed to the listing. If a seller is asking $799,999, but truly wouldn’t look at an offer below $850,000, it is incumbent on people who have a ceiling of $800,000 to know that…it is an unfortunate tactic to drum up showings and demand from people who often don’t even have the budget to purchase the home.

2)    Is there a home inspection?

Many listings produce a home inspection ahead of time, so they can receive offers without that condition. When there isn’t a home inspection, it is something to consider – waiving such a condition could put your offer into a weaker position than another, but consider the consequences. Flaws in a home can be minor in nature, but hidden problems can cost huge money very quickly, and can be avoided by understanding them ahead of time. 

It isn’t a requirement of a seller to provide an inspection, but without it there should be a reasonable expectation that a prospective buyer would want comfort over the home’s condition and future risks. Without such a document, take the time to bring an expert with you or ask if you can pay for your own inspection before offering (if the condition is that scary to the seller).

3)    What are the comparable sales in the area?

While this could be considered subjective in nature, you need to understand what the market has dictated. In some cases this could support a higher price than you thought for your target property, but sometimes a seller is taking a shot with a high expectation to try to set a new bar.

There is no harm in asking the seller’s representative if there are comparables, but this is where your own representative comes in quite handy. Find out the most recent sales in the area for similar homes, or if the area hasn’t had any recent sales, look for similar properties in as close an area as you can. More data is always better, and there are good reasons why one home might have sold for more than another (finishes, lot size, street, the list is endless).

The bottom line is that as a buyer you shouldn’t be struggling to justify the price that is being asked. The onus should be on the seller to explain the basis for the price. Again, this is the biggest purchase you’ll make, your only mistake would be not asking.

4)    Will my financing be ok after an appraisal?

As prices are increasing by huge percentages, the appraised values from banks who are helping you secure your mortgage aren’t necessarily moving as fast. In plain English, it is very possible that the bank won’t agree your new home is worth what you paid, and as such, won’t necessarily give you the mortgage you need.

You need to be sure that your offer on a home is not going to put you in an impossible financial position. A preapproval means you are able to borrow a certain amount of money, subject to a potential appraisal of the property. If a bank said you were preapproved for a million dollars, and you spend a million on a 400 square foot mobile home next to a nuclear power plant, you might be in a tough spot. Remember, the mortgage is tied to the asset you buy, so if you can’t make the payments, the bank has your property as collateral – it is unlikely they’d recover their million from your new trailer, so be cautious when making your offer. A preapproval is not a mortgage, but by waiving a financing condition, you leave yourself susceptible to a deal that falls apart and a deposit that you don’t get back.

5)    What kind of commission is this costing me?

In a survey of real estate buyers conducted by On The Block Realty in March 2017, 58% of respondents believed that they didn’t actually pay any commission on their purchase. Now while they generally don’t physically pay the commission out of their pocket, the math and the money are clear – the seller will pay a commission that is typically split in some way between their representative and the buyer’s representative.This means that as a buyer, you are most certainly paying, through the seller, a commission to your representative. This is most certainly the way it should be, your agent is doing you a great service, and thus should be compensated, but you need to understand what that represents.

 More importantly, when you don’t have a representative, you should understand who, if anyone, is getting paid on your side of the transaction. Often, the selling agent will double dip and take the commission that would have been granted to the buyer’s agent if the buyer has no representation. I’m not one to say that there isn’t additional work to be done if a buyer is unrepresented, but not to the tune of 2.5% of the purchase price – that’s ludicrous. Make sure you know where your money is being distributed before you offer.

6)    Ensure there is no conflict of interest.

When a buyer is unrepresented, you can effectively become a ‘customer’ of the seller’s agent as discussed above. The rules associated with that relationship (know as ‘multiple representation’) strictly state that there are two types of relationship for the agent, a ‘client’ relationship and a ‘customer’ relationship.

The client is entitled to a fiduciary duty, where the agent is working in their best interest at all times. A customer is entitled to fairness, honesty and integrity, but no such fiduciary duty. Plain English – the seller’s representative owes you nothing more than honesty, and will not advise you in a way that would give you an edge over the seller (at least the law dictates that they shouldn’t).

In any case, going into a real estate transaction without representation means you have to e careful what cards you show and to whom. An agent on either side of the table would have a clear conflicting objective if working with both sides, as the goals of both sides (other than getting a deal done) is completely the opposite – sellers want the highest price possible, and buyers want the lowest price possible.

I advocate strongly for representation for buyers. It is important to have an informed and protected approach to the buying process, and having a knowledgeable individual in your corner helps considerably. That said, there is a case to be made for those who want to go it alone. It does have the potential to save some money, and with the plethora of information available online and through various sources, much of the information and protection can be secured on your own.

While this post is for all of you who are going it alone as well as those with representation, the point is clear, you can’t afford to be silent when buying a home. You don’t have to go with the flow and feel like you are pigeonholed into the terms of the seller. As the market begins to level especially, it is time to ensure you are comfortable by continuing to gather data until you are satisfied.

 They say there is no such thing as a stupid question, and when it comes to purchasing real estate there is only one – the question that isn’t asked.

Good luck, and feel free to ask me any of your questions anytime.

Follow me on Twitter @SteinfeldSays and @Getontheblock

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