Has it been decades since you’ve bought and sold a house, and you’re not sure what buying will look like in the current real estate market? Or maybe you are a first-time buyer and nervous about what to expect and what you need to do to make the largest financial purchase of your life. Not to worry, I’ve got you covered.
In this blog, I will cover how to make an offer on a house and the key conditions and clauses you need to protect yourself. I will also explain what happens once you have an accepted offer. Understanding this upfront will prepare you for your purchase and reduce stress.
Be Prepared Before Making an Offer
Mortgage Pre-approval
Start by speaking with your lender to get pre-approved for a mortgage. This could be a mortgage specialist at your bank or a mortgage broker. Know your numbers before making any offer.
Deposit
How much deposit do you need, and when is it due? In Toronto, expect 5% of the purchase price, and it’s typically due within 24 hours of an accepted offer. How much is the land transfer tax? Closing costs: what are they, and how much will they cost?
Offer Strategy
As part of your strategy, you should review recent sales with your realtor. This will educate you on what to expect from the market. Not just price, but you will see how many days a property takes to sell.
How long are typical closing dates? What percent of the asking price are properties selling for? Are offer dates taking place, offers anytime, or are the sellers considering “Bully” or preemptive offers? Is the property a rental property?
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Conditions In Your Offer
In a Balanced or Buyer’s Market
In these markets, you can usually dictate the conditions in your offer. Common conditions might include: the sale of your current home, a home inspection, and financing (to start). There may be others depending on location, age, and condition of the home.
In a Seller’s Market
It is not unusual for houses to go into competition in a seller’s market, forcing people to forego conditions. I usually advise my clients to only go firm when they have done all their due diligence up front. There’s no turning back if your offer gets accepted. Make sure the offer includes language that protects you
Submitting the Offer
You can expect to sign the offer by email. Most agents use e-signature software. If you don’t have an email, don’t worry, you can still sign in person.
Consider writing a personal letter to the seller. Let them know how much you appreciate their home and how you intend to create memories just as they did. Try to make an emotional connection with them. Some sentimental sellers want to hand-pick the buyer, and price isn’t always the most important factor.
One of my all-time favourite real estate stories is my seller who took $50K less to ensure their home went to a nice family that would cherish it, rather than sell it to a builder who would tear it down. The letter made the difference!
Avoid These Mistakes When Making an Offer
Not Doing Due Diligence
- Home Inspection-Always perform a home inspection, even in multiple-offer situations. If the property is being marketed with an offer date and you want to make an offer, do a home inspection before submitting it.
- Financing-Between your agent and your mortgage professional, you need to know how the house will appraise before you go firm on financing, and you want a written pre-approval. You want to make sure you have enough of a cushion to cover your mortgage if the house doesn’t appraise at your purchase price. Never move forward on the assumption that everything will be the best-case scenario.
Being Emotional
Don’t be a “right fighter”. Listen to all the information, stay calm and make informed decisions based on facts and data, not emotions. We rarely make good decisions when we are highly emotional.
A good realtor can help you appraise the facts and the pros and cons, and a good realtor won’t be afraid to point out when you may be making an emotional decision. I have talked people out of buying houses.
Listening to “The Uncle”
We all have friends and family who are real estate “experts”. These people mean well and are trying to protect your best interests, but they are almost never as well-informed as you are because you are working with a realtor.
Unless, like your realtor, they are trading in real estate every day in today’s market, they aren’t up to date on the facts. As I said above, you should base your decisions on facts. Additionally, these people don’t place the same value on the same things that you do. You are the one who has to write the cheque and live there, after all.
Insulting the Seller
This is where you need to listen to your realtor. A good realtor doesn’t want you to overpay, and sometimes listings are overpriced. Your realtor can tell you when this is the case. Some people like to make “lowball” offers to “test the market,” regardless of the property’s price. This can be a fine line. If a house is priced well, sellers generally know this, and I’ve seen sellers refuse to sell to a buyer on principle, even when, after a low ball, they came up to a more reasonable amount.
They may view you as not trustworthy and not negotiating in good faith. Additionally, critiquing the home or the way the seller is living in it can cost you a deal. Always assume you are being recorded while touring a house.
I represented a seller once on a deal. A young couple made an offer on their house. The uncle told them to lowball, and, against their realtor’s advice, they listened. The seller, insulted, rejected the lowball offer outright with no counter.
By the time the buyers circled back on the house with a better offer (the next day), they competed and ended up paying 20k more than the seller would have accepted the day before. Had they made a reasonable offer, they would have gotten a better buy and all the conditions they wanted. The uncle was persona non grata after this incident.
Rental Properties
Rental properties can be tempting for buyers as they are often competitively priced (and should be). If you are considering buying a property that is currently tenanted, you need to plan for the worst-case scenario: it could take up to a year to evict, even if you plan to move in.
Additionally, you may need to include custom clauses to provide additional protections, and I usually recommend hiring an experienced paralegal to help you navigate the Landlord Tenant Board. These properties can be great options for buyers with time and flexibility, but are a no-go for most of my clients. Buyers almost always underestimate the stress and bureaucracy involved in evicting a tenant.
Looking for more advice on buying a house? Read these blogs next!
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- What Does it Cost to Buy a House in Scarborough?
Offer Accepted, Now What?
In the moment, you will be excited for your next chapter. However, time is of the essence in a conditional sale, meaning you must satisfy the conditions within a specific timeframe.
Move Quickly!
You will typically have up to 5 business days to satisfy your conditions. It is very important to act right away to secure your home inspector and speak to your lender. Try to have the appraisal done during the conditional period.
You cannot control other people’s schedules, and time will run out before you know it. Inspectors and lenders may be busy. You do not want to be in a last-minute panic because the deal might fall apart if you can’t satisfy the conditions on time. I have had to negotiate extensions; it isn’t fun, and it is never guaranteed.
To Renegotiate Or Not To Renegotiate?
I only recommend renegotiating if there is a major issue that is a surprise. You can request an adjustment of the sale price, ask the seller to fix it, opt out of the deal and sign a mutual release, or accept the house as is if the seller isn’t willing to address the issue. All houses will have minor maintenance items; I don’t recommend renegotiating on those, just ask the seller to take care of them.
Once the conditions are satisfied, you will sign a waiver and remove them within the allotted time period. Now you have a firm sale and have bought the house.
Thinking about buying a home, and you’re not sure where to start? Let’s have a conversation so you feel confident every step of the way towards your next chapter.
Buying a home? I can help! Give me a call at 647.283.2127 or email stuart@stuartnodell.com to get in touch.
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