When buying a house, there’s always the risk of making a mistake that could cost you a lot of money. That’s why we’ve prepared a list of some common mistakes to avoid:
1. Buying a House for the Short Term
It has become so expensive to move in Ontario that we try to educate our clients to think more long term about their home. Generally a first time buyer will stay in their first house for 5 to 6 years. It is at around this time that personal situations change and people need more space. The cost to move today has become exorbitant. Land transfer tax to buy a new home, commission and HST to sell your current home, moving costs and the cost of new furnishings could range from $50,000 to $100,000 or more.
We make our clients aware of this and encourage them to spend a little more, as long as their financial situation allows it, if it buys them more years in a first home. Consider buying a house with a finished basement or a small fourth bedroom which could buy a few more years saving you an enormous amount of money in the long run. The following is one of many examples of clients who took our advice and benefited enormously:
In 1996 I worked with first time buyer clients whose budget was about $260,000. An exhaustive search led them to conclude this price range was not going to buy them the house they dreamed of and were seriously considering continuing to rent. I suggested we look in a slightly higher price range and they found the perfect house for $287,000 – about 10% more than they wanted to spend. In today’s dollars that is equivalent to having a budget of $800,000 and buying one for $880,000 instead. That’s a stretch for many first time home buyers. I encouraged them to take the plunge even if it meant they had to make a few financial sacrifices because I felt this house would ultimately suit them for longer than 5 to 6 years, which is a normal timeframe for entry level homes in central Toronto neighbourhoods today.
What a great move they made. They took my advice and stretched their budget. For the past 16 years they raised three children in this home and, although they have renovated, have never added floor space. The cost benefit of not having to move to a bigger house within this time period has saved them hundreds of thousands of dollars.
We have done this time and time again because ultimately we are long term thinkers and we always have your best interest at heart.
2. Not Considering Factors that Will Affect the Future Resale Value
There are many factors that will affect the future resale value of your home. Some of these factors are unforeseen but many are apparent and should be considered. We will always provide you with our expert opinion to protect your investment.
LOCATION LOCATION LOCATION. This will always be the most important factor determining the value of your home. Try to avoid buying a house next to a gas station, near hydro lines, next to a subway station, next to an apartment complex etc.
If you are buying a condo in a high rise building make sure that if you are paying for a view you inquire about future developments that may potentially obstruct that view. That’s surely to negatively affect the value of your home.
Try not to fall in love with the most expensive house on the street. We will show you comparable homes (comps) that sold in the neighborhood and you should notice a pretty significant price difference. The “dream” home is undoubtedly selling for a price range far in excess of comparable homes. From a resale perspective, this is a bad idea.
The first problem with doing this is the appreciation of the value of the home. The appreciation on the best home in a neighborhood is always going to be dragged down by the homes around it.
The second problem is that since you own the most expensive house on the street, your appreciation potential is already limited. This becomes a bigger problem if you want to remodel or add on to the home. Taking such action would typically add to the value of a home. With the most expensive home, not only will it not add value, it may cut into your equity.
We will keep your best interest in mind and always advise you on what could potentially affect the future value of your home.
3. Making a Low Offer or a Conditional Offer When There are Many Offers on the Same House
When there are many buyers interested in the same house, it likely will sell for a price that is much higher than the list price. The rules for multiple offer presentation requires the listing agent inform all interested buyer agents of the number of offers on any given listing. The agent in turn keeps their buyer informed. The buyer who is determined to procure this house will up the ante every time their agent informs them of more and more interested parties. So why would you instruct your agent to present an offer on your behalf when the chances of you procuring this house are very slim, at best?
In competition you are not likely to procure a house well below the list price or with a condition in your offer. The more offers that are registered for a property, the more the committed buyer will increase their offer. What you are actually doing then by submitting a low offer is encouraging the buyer who really wants the house to increase their offer price. In fact, what you will have accomplished is to increase the overall value of homes in the area you are looking in.
In every dealing with our clients we are always guided by “Our Guarantee” which, in this case, is to “tell it like it is” whether the news is good or bad.
4. Being Too Picky
As a first time home buyer you probably have a lot of items on your wish list but, unless you have unlimited funds, you may have to compromise on some things or you may find yourself renting for much longer. These compromises might include accepting outdated decor, foregoing that extra bathroom or even making repairs to the home yourself. Of course, there’s always the option of continuing to rent while accumulating enough to be able to afford everything on your list. But bear in mind that if you decide to hold off on buying now, and the market continues to go up, you may find yourself behind the proverbial eight ball because you will have to pay that much more for your house down the road. Being too picky can end up costing you a great deal of money.
5. Being Swept Away
Sellers can use “tricks of the trade” to enhance the look of a house in order to generate higher offers than they otherwise would get. Staging, minor upgrades or cosmetic fixes will pretty up a house and make it look great. From the seller’s point of view, a cheap investment of $3,000 may end up costing you an extra $30,000 because the house shows so well. A better strategy for first time buyers on a budget is to look for a house you can add value to by finishing a basement, renovating a kitchen or bathroom or as simple as tearing down the hideous wallpaper and painting.
We are very proactive and, frankly, quite opinionated when it comes to our field of expertise – real estate. We are not afraid to “tell it like it is” if it means you will avoid making one of these mistakes. Our goal is to “always act in your best interest” and to ensure we guide you to act wisely, to be level headed and to think long term. Ultimately this will save you a great deal of money and minimize the chances of disappointment.