Tag: real estate

How to win in Real Estate

Posted on June 15th, 2017

You have read enough about the wild ride that is the real estate market in many regions across the country, and beyond. It seems every day there are new stories about price records, bidding wars, and market indicators that show no real sign of a slowdown. And now you are asking yourself more and more, ‘how can I get in on this?’.

Perhaps you are a could-be investor looking to turn over a property for some big money, maybe your own home has appreciated significantly and a downsize/cash grab is a possibility for you, or like many others, maybe you are trying to figure out how to afford something in this ever more difficult market. In any case, there are some key tips you need to follow to avoid getting swallowed by the market, getting mired in stress, and overpaying out of false necessity.

KNOW YOUR OBJECTIVES

Just because the ‘market is hot’, doesn’t mean you should be diving right in head-first. You need to have a keen knowledge of your own end game in order to effectively tackle the real estate world. Are you looking for a rental property or a place to live? What are your timelines like? Do you need a place that has the ability to ‘get out quick’? Is this property a stepping stone to another one?

The more in touch you are with your goals, the easier it is to focus on the approach that makes the most sense for you. Every property and client is vastly different, and without nailing down the real meat of your objectives, you’ll miss out.

KNOW YOUR BOUNDARIES

Just as important as your objectives is the ability to set a firm set of limits around the particulars of a transaction.

Price is the obvious boundary to set, and you must be stubborn in your commitment to it. There will almost definitely be a world of temptation that draws that number higher, but you have your limits for a reason. One tip is to do your searching at a price limit that is quite substantially below your ‘true’ limit. The rude awakenings you’ll get from the market and the temptation will almost always force your initial price ceiling to rise, so you might as well work yourself to a landing place that is still within your comfort zone. Buying outside of your means might give you an immediate thrill, but there is a reason you have your limit…don’t fall victim to a hasty decision, the term ‘house poor’ is not a label you need for yourself.

Beyond price, understand the other boundaries you have. Location, for example. If you know that a certain set of attributes is pivotal to the location of your home (access to transit, good school district…etc.), don’t sway from that. When you compromise aspects of your search because you believe there is no other way to close a deal, you’ve let the market beat you.

The key message here is ‘stick to your guns’. Don’t be swayed by the messaging you hear. Just because your agent feels the house upon which you are bidding is going to go for $50,000 beyond your budget, the choice shouldn’t be ‘should we bid $51,000 more so we get it or not?’, it should be ‘is it worth bidding our limit, or should we wait for the next one?’.

While you may go a lot longer before you land the right home (or investment) using this strategy, you can at least rest assured that you followed the process according to your own terms. Remember you aren’t directly paying your real estate agent to guide you through this sometimes arduous process, but s/he is most certainly getting compensated, so don’t feel bad if it takes you a long time to land in the right place, that is the only way you’ll feel like a winner in the end.

BE MARKET SMART (OR WORK WITH SOMEONE WHO IS)

You will never win in any industry if you are surrounded by people who know more than you do. Real estate is certainly no different. You have to equip yourself with the right tools make you the smartest person in the room.

Once you have identified the key objectives and boundaries for your purchase, you need to become (or better yet, enlist) a subject matter expert for that set of criteria. Know what you’re getting into, the history, the comparables, the trends, and use it to your advantage. Also, learn about your perceived priorities to fact check yourself (Don’t get caught with “I know I need to live in this neighbourhood because everyone says it’s great” without first verifying the facts).

The smartest way to get smart is by working with a licensed realtor. It is their job to know everything and to be your soldier on the battlefield. If you go at it alone, that is your prerogative, but take the time to educate yourself.

Just because you watch a lot of HGTV, it doesn’t mean you know the market

While much of the drama that unfolds on real estate TV can very well happen in the real world, it is not the gospel, and shouldn’t dictate your assessment of a real life situation. Not every transaction is a roller coaster, and not every home is a sledgehammer away from doubling in value. Just because the market is hot, doesn’t mean every investment will yield positive returns. Do your research, and don’t leave your decisions to your gut.

ASK QUESTIONS

Ask a lot of them. Once the deal is done, the deal is done. You don’t get take backs because you forgot to question the huge septic tank in the backyard or what knob and tube wiring is. Every detail is important, because even the most minor of potential issues instantly become your issues once you close.

If you don’t feel you know everything to make you completely comfortable about a real estate transaction, make sure you do before you sign the dotted line. Get it all out before you make that offer, and you’ll feel much better.

HOLD YOUR EMOTIONS IN CHECK

Real estate can be the ultimate poker game. While the vast majority of the players are decent, well-meaning individuals, everyone’s goal is still to feel like a winner. In order to be in the best position to win, you have to protect your hand, and ensure you don’t give away too much information.

The biggest emotion to suppress during the process is LOVE. Once you have purchased your new home, you can and should love it unconditionally, but before that time comes, falling in love with a potential purchase is as dangerous as giving someone your banking information. Love is blind, and when you convince yourself you absolutely must have a property, you fall victim to an unfair negotiation.

Reserve all of your emotions for the closing, and until then, treat the process as the business transaction that it is. Easier said than done, but when the emotions do spill out when the game is over, they will be considerably happier, and rightfully so.

BE PREPARED FOR A RIDE

This whole process is not for the faint of heart, and there will likely be many peaks and valleys along the way. Try to have fun with it, and you’ll be much better off. Most of the people on the path you’re on are extremely stressed out…the process is stressful, but you don’t have to let it get to you if you are prepared for the process.

It isn’t as simple as paying the sticker price for a home in today’s market. It is however, exceedingly easier to survive the journey if you go at it with a calm and patient demeanour.

Go out there, enjoy the ride, if you aren’t afraid to miss out on a few places then you can really have a great time – and the more time you spend spinning your wheels in one spot, the more information you gather to better equip you with the right questions and answers for the next round.  It starts with the preparation above.

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Why Real Estate Escalation Clauses Should Be Banned

Posted on June 8th, 2017

If bidding wars aren’t enough to turn buyers right off of the home purchase process, the introduction of an ‘escalation clause’ will definitely make matters worse. This clause is downright confusing and currently, there aren’t any rules and regulations beyond some warnings from the industry on how this clause should be used. An escalation clause is used when a buyer agrees to increase their bid by a certain amount over the highest bidder when bidding on a particular home. This amount can be capped at a certain price if the buyer chooses.

In our opinion, this clause is dangerous for many reasons:

  1. This increases the risk of unethical behaviour by realtors. If Agent Joe knows that buyer Paul is coming in with a $600,000 offer with an escalation clause of $5,000 over the highest bidder up to a maximum of $700,000, and if Agent Joe is extremely unethical, he could get bring in a fake offer to push buyer Paul to his maximum price.
  2. Due to the lack of rules surrounding this clause from The Real Estate Council of Ontario (RECO), what happens if an agent isn’t aware of the details of how to use this clause but uses it anyway? This agent might not know you can put a cap on the price. As a result, the selling agent can effectively force a buyer into purchasing a home that is likely way over his or her budget.
  3. What happens if two or three or more buyers use an escalation clause? This is a scary situation that would very quickly inflate the selling price of a home to each buyer’s maximum price limit (if they even set one).
  4. What kind of disclosure is needed to other buyers when a buyer uses an escalation clause? Again, RECO doesn’t have any set rules regarding this clause so other buyers would have no idea that this clause is in effect. Let’s say selling Agent Joe has two offers on the home – one from Buyer Paul at $550,000 using an escalation clause of increasing the price by $2,000 over the highest bidder and another from Buyer Sally at $600,000 without an escalation clause. Buyer Paul’s offer has now been increased to $602,000 and Agent Joe will likely go back to Buyer Sally and let her know that the offers are very close and ask if she’d like to improve her offer. Buyer Sally agrees to increase her offer to $625,000 and now Buyer Paul’s offer has automatically increased to $627,000. Again, Agent Joe will likely tell Buyer Sally that the offers are very close and if she really likes the home, she might decide to increase her offer again, which means Buyer Paul is going up $2,000 more over and above Sally’s improved offer. Buyers can quickly lose control within the offer process and may regret their decision.

What about sellers? You might think that this clause will benefit sellers but if buyers are pushed to their limit without having any control within the offer process, they might regret their decision and decide not to proceed with the purchase (even if they need to forego their deposit).  This could leave a seller in a very difficult position. Not only is the home put back on the market but if the seller has purchased a new home, financing for this new home is likely hinging on the sale of the current home. It’s a scary position to be facing and we would never want to put a seller in a state of uncertainty that this type of situation could create.

What’s the solution? First, let’s ban escalation clauses altogether. Next, why not consider an open and transparent auction model? This method of selling your home benefits both buyers and sellers for various reasons. Buyers have full control over how high to bid and are fully aware of the offer prices of other bidders at all times. Sellers can feel confident knowing they maximized the sale price of their home without worrying about a buyer having second thoughts over the price they paid.

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