It’s bananas out there! The demand in Durham Region is at an all-time high as we begin 2021 and many buyers are finding themselves in bidding wars for a home. Some homes are getting from 5 to 50 offers. Let’s break this down a minute. A property in Whitby recently had 44 offers. Only 1 party bought the home so there are 43 other serious buyers still looking to buy. And that’s the collateral damage from just 1 property! So before you start shopping, there are some things you need to do.
1. Get pre-approved for a mortgage. While you’re at it, ask your lender if it’s ok for you to make a firm offer, without a financing condition. That’s right. These winning offers are firm, with no conditions so lay the groundwork now to determine if you’re in that position or not. This will affect your entire home-buying strategy. Your agent will need this information.
2. Paperwork, paperwork, paperwork. Your lender is going to ask for proof of income and a letter of employment or T4. They may also request your most recent Notice of Assessment because they want to make sure your taxes are paid. Get it out of the way now.
3. Self-employed – expect double the paperwork. Proof of income, bank account statements, 2 to 3 years past tax returns and Notices of Assessment, Balance Sheets. The problem with self-employed is that many small businesses pay themselves much less than they actually make. That’s great for keeping tax liability low but comes back to haunt you when you go for a loan. You can’t declare low income and get big loans.
4. Ask and answer the following question: Why am I doing steps 1, 2 & 3 above before even looking at a home? Answer: to keep myself out of trouble and so I don’t waste my agent’s time. Ponder the following questions: How can I possibly look at homes in a given price range and even make an offer if I haven’t confirmed what a bank will give me?
5. If you’re paying cash, forget about steps 1 – 4 above.
6. Don’t rely on online mortgage calculators. You need affirmations from a real, live human being who has a hand in the money jar.
7. Make sure your deposit money is available quickly. Within 24 hours of an accepted offer, you’ll need to deliver your deposit money to the listing brokerage or your deal could be null and void. You can deliver it in the form of an electronic money transfer, a bank draft or a certified cheque. It is held in the brokerage’s trust account and applied to the purchase price on closing, thus becoming a part of your down payment. Note: If your money is in the stock market, move it out now and have it ready to go. You’ll also be protected from suffering a potential loss if the market goes down. (oh wait, that can’t happen, can it?)
8. If you’re selling a home, talk to your lender now about Bridge Financing and be ready to set that up. This is basically an advance from the Bank to cover the time period from when your sale closes to when your purchase closes. Most sale & purchase transactions do not occur on the same day like they used to. Just about every Bank offers this but don’t assume it’s automatic. The bank still needs to look at the numbers to approve it.
9. Find an Agent to represent you. An agent is the Tom Brady on your team. (sorry, it’s Superbowl weekend and I couldn’t help myself). An experienced agent is going to look out for your best interests. They will educate you on the home buying process, the market, search properties, set up showings, research homes you’re interested in, perform due diligence on your behalf, guide you on price and offer strategy and negotiate on your behalf. You need to TRUST your agent and have an honest and open relationship with them. If you don’t, or can’t, …find someone else you can trust. We can’t stress enough how important this is, as honest communication is key in this partnership.
10. Set realistic expectations. In bidding wars, the asking price is totally different from the selling price. The sale price could be anywhere from 5 or 10 thousand to 200 or 300 thousand over the list price. You may have to look at homes that are 100 thousand dollars below your approved budget. How flexible are you willing to be on size, finishes, amenities and location?
Buying in a heated market is tough. Emotions run high and you may lose a home or two you really wanted. It’s tough on your agent, too. For each property you bid on, they have hours upon hours of time invested in showings, research, prep, offer drafting, negotiating and if you lose, it’s all for nothing and you're starting over. Yes, your agent needs hugs, too. Post-covid, of course. Get your up-front work out of the way, stay vigilant and be patient and you will succeed. It’s a lot of work and will take your full focus and attention in a market where demand is outstripping supply but it’s definitely worth the effort.