12 Calgary Home Buying Secrets You Should know for 2008
Are You Thinking of Buying Calgary Real Estate?
You need to know these 12 DANGEROUS Issues
Dear Prospective Calgary Home Buyer or Investor:
- is now a good time to buy, or should you wait until the market has corrected?
- will prices continue to go down this year (the US economy is getting hammered, what will this mean for Calgary)?
- September showed prices have started to rebound, will this last or is it temporary?
- what can a Mortgage Broker do for you that you can’t do for yourself? Is it worth calling a Mortgage Broker, or is better to call you local banker and hope they can get yo a mortgage (what options do they offer, rates, terms, prepayment options, services?)
- how do you find the best deal or how do you know if you're getting a deal?
- how much can you afford (just because I sold my $658,000 house, doesn’t mean I’ll be approved for the same type of mortgage)?
- where in the city will appreciate the most?
- Are there good schools close by and public transportation?
- Is WeList a good place to look. How do you know if the prices are fair or if it's an investor trying to sell at an inflated price to an unsuspecting buyer
I developed Strategic Home Buying to help new home buyers avoid what I consider to be the 12 biggest mistakes when buying a home.
If You are thinking of buying a house in Calgary this year (2009 or 2010), take the next 5 minutes to read this page before you go out and buy a house, I guarantee it will be well worth it.
12 Mistakes Calgary Home Buyers Make
Here are the 12 mistakes that I see most home buyers and investors make.
Shane's Assumption : I am making 1 critical assumption- that you are viewing your next house as an investment.
"What do I mean by that?
I'll explain the opposite of an investment, and maybe it will help.
If you are buying your dream home, then you are not as concerned with price, location, whether or not you get the best deal, maybe you are willing to overlook some minor defects, and you are not really that concerned with the resale. In other words, you are looking to buy and live there for a very long time (20 years +).
Investment- to me means that you are looking to buy a house with the main goal to have it appreciate as much as possible.
In other words, resale value on the house is most important to you.
1. Avoid Buying on Emotion. How do You make a Proper Offer on a House?
How would you make an offer on a home?
One of the biggest problems buying in Calgary's hot 2006 market was the lack of inventory (Supply was less than 600 houses at the peak). Bidding wars where the norm and buying on emotion and unconditionally (no home inspections, no financing conditions) was the only way you could get a house.
Buying on Price:
-Offer a lower price (depending on the house, but I've submitted offers as much as 15% lower than list price).
-You are willing to allow the seller to dictate the terms of the sale (within reason), such as accepting a longer possession date, closing the deal quickly or taking over the tenants in the house.
Buying on Terms:
- You offer list price or very close to, but you buy on your terms.
- Maybe you need the seller to carry a second mortgage on the property (to help you qualify), or maybe you can't take possession for 4 months because you have not moved yet.
Bidding Wars (not really a concern in 2008):
- Some Realtors will try an use fear and greed to emotionally charge you into buying a home. In 2008 there are enough houses for sale that you should not be tricked into over paying for a house.
One other thing- just because there are multiple offers on a house, does not mean that the offers are at or over list price. Most often in a multiple offer situation, the offers will still be less than the list price.
Unconditional Offers:
- Never buy without a home inspection (unless you are qualified to make that call)!
You can't bank on the fact that your Realtor will recommend or encourage a home inspection. You really do need to spend the $375 to give you the peace of mind on your new purchase.
Quick story: A few years back I bought a newer 2004 bungalow directly from the seller with no home inspection. I knew the guy selling and went through the house from top to bottom looking for any signs of a problem. I had experience looking at hundreds of homes and I didn't see anything- so I bought it (actually an investor and I bought it).
When it came time to sell the house 6 months later, and the new buyer asked for a home inspection. Even though I was sure that it would come back clean, I couldn't sleep for 2 days. I kept wondering if I had missed something or if there was going to be some structural issue that I couldn't see without certain tools. Luckily the inspection was good, but I tell you the stress wasn't worth it.
Do yourself a favor and write into all your contracts: Subject to a home inspection.
Conditions vs Terms: when making an offer- there are Conditions and Terms.
Conditions are easiest to explain like this: Each condition will have a specific time frame to satisfy before you remove them.
Example- your offer may say: subject to Home Inspection (within 10 days of an accepted offer) and financing condition (within 14 days of accepted offer).
Terms- are not specified by time, but are still the responsibility of the buyer or seller (whoever the terms refer to) to satisfy.
An example would be getting the steam shower door fixed as a term for the seller to do for the new home owners. Even if the seller can not get a contractor in for 3 months- they still have the obligation to do fix the door and pay for it.
2. Know Your Location, Thoroughly
You've heard the phrase location, location, location in real estate a 100 times. So you know location is important, here is how you can determine if the location is good or poor.
-Close to public transportation (within 500-800m is ideal), schools, universities, downtown
- Not on a busy road or street (avoid loud noises due to traffic, that also means planes)
- Not too close to commercial properties, bars, pubs, gas stations, or even right across from junior or senior high schools (too many problems, kids parking in front of your houses)
- New communities may seem like a great choice with attractive prices, but they are also the first to get hit when the market corrects (take a drive through any new community, like Silverado and see how many new homes are for sale and never even lived in).
Too many speculators in these new communities will severely affect the value of your house, so buying with a long term mentality is critical (and don't be afraid to bargain hard with the sellers or the builders).
If you are new to the area it is critical you know where you are buying.
Some clients hated living in Royal Oak (the last community in Calgary I lived before moving to Cougar Ridge). The family of 3 that bought my home, moved from Rocky Ridge (right next to Royal Oak) for the exact same reason- move closer to work downtown, didn't want the crime associated with inner city, and where close to amenities like great schools and shopping in West Hills.
When you narrow down your choice locations- walk the neighborhoods, talk with people you meet, visit community organizations, schools, places of worship, etc.
Try and visualize you and your family living there- make sure you feel good about because you'll be living there for a while.
3. Getting Pre-Approved For Your Loan the Right way
This is where most buyers put the cart before the horse. They get excited about buying a home and start looking around. Before you know it they have hooked up with a real estate agent and are seriously considering different properties.
Then they finally ask the question:
Can we afford this? Unfortunately the answer is often no and they have to start all over again.
Of course, when you start looking at lower priced homes your enthusiasm is dampened because you had your heart set on a more expensive home.
Getting pre-approval not only helps you know what you can afford but it puts you in a stronger negotiating position as well. When the seller and their agent know that your loan is done and just waiting for you to find a property they will be much more interested in your offer and will give your offer more weight against competing offers.
Getting pre-approved is fast, easy and normally free. Most mortgage professionals (I recommend mortgage brokers) can obtain written pre-approval for you at no cost and no obligation, and it can all be done quite easily over-the-phone.
It entails a completed credit application, and a certificate from the lender which guarantees you a mortgage up to a specific level when you find the home you’re looking for.
Make sure you are dealing with a professional who specializes in residential mortgages. The mortgage industry is extremely complicated with literally hundreds of options and choices. Using an expert can make the difference between getting into the home of your choice or having to rent forever.
If you don’t have a mortgage broker, I would be happy to give you references. In my mind, financing is one of the most important factors- so use an expert. Personally I prefer brokers to bankers, they are more flexible and more accommodating.
4. Are You Taking Your Credit For Granted?
Unfortunately you may be reading this report too late to have kept from making this mistake but it is never too late to start improving your credit rating.
In the last few years the way lending decisions are made has become much more automated. And the way the decisions are made has changed dramatically. For the most part decisions are made based on certain guidelines that are plugged into a computer. There are certain things you need to do to please the computer:
-Current credit balances keeping your credit cards less then 90% maxed out is critical,
-Amount of current available credit (includes all credit cards and lines of credit),
-Late payments (How many, How late, How recent, Type of Account)
-Recent inquiries about your credit (how many and by whom) Avoid shopping around to numerous banks, the more inquires you have the more a bank thinks you have been declined before, and thus will penalize you.
If you are planning on getting a mortgage loan make sure you are making all of your current payments on time and avoid any unnecessary inquiries into your credit. In other words, don’t go out shopping for a car or new furniture and have sales people all over town running credit checks on you.
If you want to have the highest scores possible and therefore qualify for the best rates available it is best to be patient and wait until your loan is done before you go do things that will affect your scores.
5. Not Having a Prioritized List of What You Want vs. Need
Many new home buyers will often get swept up in the excitement of becoming homeowners then after it’s too late they find out that the home they just purchased does not suit their needs. Before even beginning the process clearly define your wants and needs. Put the list in writing and prioritize it in order of importance. Measure each property you look at to determine how well it matches your list.
Here is a list of some items to take into consideration:
-Size of home: Number of Bedrooms, Baths, Etc. -Style: Are stairs or a basement ok? Etc.
-Type: Single Family, Duplex, Condo, PUD -Condition: Does is have to be near perfect or are you willing to do some repairs in order to get a better price?
-Location (as we already discussed): Type of neighborhood, Proximity to work, schools, etc. -Special Features: Garage, Wheelchair access, Air Conditioning, Etc.
6. Why an RPR (Real Property Report) is Critical
It’s no fun to get to closing and find out that there is a problem with the Title to the property. These problems could appear in the form of undisclosed owners, tax liens, mechanics liens, easements, leases or other encumbrances.
One of the first things that should be done as soon as you come to an agreement on the purchase of a property is to order a preliminary title report from a title company.
Your real estate agent will normally handle this. Make sure you receive a copy and review it.
If there are any parts of the report that you don’t understand, ask your agent or an employee of the title company to explain. If there are issues that need to be taken care of make sure that they are completed before closing and that the property has a clean Title and a RPR.
Title Insurance is anther way to safe guard deficiencies with Title and RPR's, but should be used in addition to an RPR- not a replacement.
It is up to the Seller to provide the RPR, so make sure they provide it, with a compliance stamp from the City. The RPR is old or outdated, when there is anything new on the land- fences, decks, garages, and sheds are examples of new fixtures to the land that may require a new RPR.
7. How to Gett a Thorough Property Inspection?
Another valuable tool for avoiding unexpected problems is a professional inspection done by a licensed home inspection company. Your offer should also be subject to your approval of just such an inspection.
A professional inspector will objectively inspect the home inside and out and should be able to give you a report of any item that needs to be fixed with the approximate cost.
No home (even a fairly new home) is perfect. You should not be alarmed when the inspector suggests minor repairs or maintenance issues. This is quite normal. Avoiding the large repairs or expenses (such as termites, radon, mold, lead paint or asbestos) is when the inspection will more than pay for itself.
Contact me at (403) 214-1884 and leave me a message, asking for a list of 3 great Calgary home inspectors.
8. How You Should be Negotiating (on Price or Terms?)
Obviously your ability (or your Realtor’s ability) to negotiate the best price on a property will vary depending on your current market’s conditions.
A buyer’s market (Calgary has shifted into this in most communities) means that there is more supply then demand and therefore buyers have the upper hand.
A seller’s market is just the reverse. Market conditions are always changing, the last eight months in Calgary has shifted out of a sellers market into the preliminary stages of buyers market.
Regardless of the market, however, you can usually negotiate a better price if you will follow the steps previously stated. These steps will give you the information and positioning necessary to approach the negotiation process fully prepared.
You (or your Realtor) should also be careful when offering a certain price and terms for the property not to give any indication that you will go higher. This is the time when a poker face is extremely useful and keeping your excitement in check is critical.
Just remember that every dollar you save on price will save you 2 ½ to 3 times that amount in mortgage payments.
9. Why Do You Negotiate For Extras?
This is another opportunity that is often lost during the negotiation process. That is the opportunity to save money on items you will need to buy if you don’t have them (such as a refrigerator, lawn mower, or a toaster) or to get goodies you would not normally buy (such as a hot tub or sauna).
Many of these items can be had simply for the asking.
Many home sellers don’t want to take the time and effort to have to move the larger items and often they are looking for an excuse to buy something new.
Whether they are or not, it can’t hurt to ask. These types of items make good bargaining chips and the worst they can do is say no.
10. How to Follow Up On Contract Stipulations
When negotiating the purchase of a property there will often be items (such as repairs, etc.) that the seller agrees to take care of prior to closing.
It is a mistake to simply assume these have been taken care of and not check on them prior to closing.
Make sure to do a final walk-through of the property well before the closing date. Bring along a list of all the items that were agreed to and check them off as you go. It’s not a bad idea during the negotiation process to agree to an amount to be held in escrow at closing if the items are not taken care of.
This will give the Seller motivation to make sure they are completed and will help you avoid delays in closing if they are not.
If you are using a Realtor, make sure he stays on top of the seller. Realtors make very good money, so don't be shy asking them to work for it.
11. What will Hidden Expenses Cost You?
It’s no fun to get to the closing table and find out that the costs of completing the transaction are higher then you thought. If inspectors ($300-500), surveyors (new RPR's start at $650), closing lawyers (starting at $700), etc. have agreed to be paid at closing make sure you know what their charges will be and get it in writing.
The same is true of your lender. Your lender should be able to provide in writing a detailed estimate of all expenses to expect in originating your new loan.
Be sure and bring these items to closing and compare them. No lender can be exact down to the penny in estimating these costs but a good lender should be pretty close.
On average the cost of buying a new house will run you $2,000 and up. What you should know, is that many of the costs will be hidden in the closing documents and probably tacked onto the mortgage.
If you are getting a CHMC insured mortgage, the costs will run much higher. If you are putting down 5%, you could expect the CMHC fees to be around 2.75% of the total loan you are requesting. This fee will be added onto your mortgage.
12. Don't Rush Your Closing
Nobody likes surprises when it comes time to close. Moving is one of the most stressful times in peoples lives so both the Seller and you as the Buyer are going to be more emotionally “uptight” then normal.
The best way to minimize the stress is to expect some bumps along the way and give yourself time to deal with these challenges as they appear.
Make sure to set reasonable time frames for items to be accomplished then hold to your schedule as much as possible. If you are closing close to a holiday- take that into account.
If your lawyer is going away on holidays or your Mortgage broker is sick for few days, can really screw up a closing and add a ton of stress.
Ask your lender to have all the documents available for review a day prior to closing. Check them out carefully to make sure the costs on the settlement statement are in line with what you expected and that the terms of the loan (i.e. interest rate, fixed or variable, term, prepayment penalties, etc.) are what you agreed to.
This way if you do find a discrepancy you will be able to deal with it without feeling under the gun and there will be time to fix it before it becomes a problem.
So, what can You do next?
Well, I know that is a lot for you to take in so I am happy to spend some time with you and answer any questions you have about the process of buying your new home.
You are welcome to call my office at 1.800.931.7497 EXT 333 (24 hours a day, please leave message) and I'll get back to you the same day.
I look forward to talking with you,
Shane Melanson
1800-931-7497 24 hours, for FREE recorded message
1st Avenue NECalgary, AB
T2E 9C6
P.S. I only work with 2 buyers at a time. This is not a pressure tactic to get you to call me. I think it is important that you know you'll be working with me 1 on 1.
Calgary home buying
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