Buying a home is a complicated business. And, given the money involved, it’s not a transaction you want to regret.
While DIY listing sites like ComFree or The Property Guys do provide sellers with lots of information and tools, most first-time buyers aren’t comfortable with the actual process of negotiations and need considerable help.
Here are some of the players involved in the average real estate transaction and what they can offer you – as well as what to watch for.
The Mortgage Broker
Because interest rates have been so low and most sellers want to deal with buyers who’ve been pre-approved for a loan, some homebuyers are too quick to secure a mortgage without fully exploring their options.
That’s where mortgage brokers, many of whom start out as lenders with larger financial institutions, come in. Brokers are great resources because they really do try to secure the lowest possible rate and help you with all of the paperwork.
They can generally offer more options than any single lender, which gives you access to cut-rate pricing, and may mean easier approval if you’re self-employed or have a poor credit history.
Because mortgage brokers are paid by the lender, there’s no additional fee for you – but therein lies the potential problem. Lenders pay financial incentives to those who send them a certain amount of volume, which could tempt a short-sighted broker into recommending a less attractive mortgage.
Ask about this up front. Look for a thorough analysis detailing any potential downsides to the mortgage and why the rate is the most competitive, given your personal circumstances.
Also read: How Mortgage Brokers Work>
As a buyer, your connection with your realtor is just like any other financial relationship; it’s important that you mesh well, particularly if this is your first house purchase. Ask for referrals and search out someone with a proven track record.
In today’s world, buyers are doing more work and are more educated than ever before, so it makes sense that some might need less help when finding a property. But actually negotiating over its price is a different matter. Only you can decide if you can really go it alone.
Most successful agents can set a price on a home as soon as they walk through the door. If they have a lot of experience in a market, they know how well a neighbourhood is likely to hold its value as well. But, even though the buy side agent often has it easier, no one works for free.
In a typical real estate transaction, the seller pays a 5 per cent commission, with 2.5 per cent going to the listing agent, and 2.5 per cent going to the buying agent. Remember, that 2.5 per cent commission is part of the purchase price, so, in the end, the buying agent cut comes out of your pocket.
If you weren’t using an agent, you could theoretically expect a 2.5 per cent discount on the purchase price – but you’d need to have the time and ability to negotiate all that.
Often, home buyers don’t bring in a lawyer until a deal is almost done. But there’s merit in getting some guidance earlier here – particularly if you’re buying a newly-built home or condo directly from the builder. This is your opportunity to learn about what you’re agreeing to and avoid getting roped in to something you should avoid.
On a resale home, your lawyer will ensure the property is clear of liens, charges or clean-up orders then do a title search, register the deed and handle the transfer of funds.
Make sure you’re dealing someone who is a licensed, full-time professional who understands the municipal laws and regulations, offers reasonable fees and can explain things to you in plain language.
The good news is that your lawyer’s fees aren’t dependent on the price of your purchase. While some lawyers offer fixed price packages, professional fees can generally range from $1,000 to $1,500, plus the costs of title insurance, land transfer tax, and other out-of-pocket expenses.
The Home Inspector
No matter what, you should never buy a home without having it inspected – even if you’re purchasing directly from a builder.
While not everyone can find a Mike Holmes, steer clear of home inspectors who’re recommended by a realtor since they’re more likely to refer you to a pro who won’t jinx the sale. Ask potential inspectors for their credentials and detailed references.
Largely a self-regulated industry, avoid home inspectors who simply use a checklist approach and seem reluctant to get their hands dirty.
Be sure to follow the inspector around. If nothing else, it’s a good chance to learn something about all the systems that make a house tick.
The whole home inspection should take about three or four hours, result in a written report reviewing every major system within a day or two, and cost about $400 to $500.
The Insurance Broker
Buying homeowner’s insurance involves a lot more than simply telling an insurance company how much you paid for your house, and then walking away.
Anxious to get things right from the outset, insurers may insist on seeing a more detailed site plan, particularly for higher-end homes, and might send out appraisers for a first-hand look at the property.
This gives your broker or agent the basis for determining the best insurance coverage for you so that you’re not over insured, which is waste of money, or under insured, which is foolish in the extreme.
When it comes to determining coverage (expect to pay around $100 a month for the average suburban home), make sure you have your agent or broker go through your policy limitations in detail with you. They vary from insurance company to insurance company in terms of actual value of the house, the types of property and also whether the limitations apply to all types of losses, or just to certain types.
Want to learn more? Check out our handy infographic>
Are you planning on making your very first home purchase? Be sure to check out our ultimate First Time Home Buyer’s Guide – everything you need to know, from house hunting to moving day.