The Realtor.

Note: I first wrote this about eight months ago, just as I was getting ready to purchase.  I’ve left the post largely unedited to capture what was going through at the time.

The past couple of weeks have been so stressful, it’s been a nice break to blog about times I was more organized and thoughtful about everything.  Last week was all about making sure all my finances were in order, and this week was the final walkthrough, a visit to the lawyer, getting all my final arrangements made with the movers and utilities and all that fun stuff, and ensuring everything is ready for the move.  The move stuff is the most difficult part, believe it or not, in part because everything’s basically been in storage for a couple of years.  Trying to think ahead and plan out where things will go is tough when you have boxes and boxes of “mystery stuff.”

Anyway.  My former rational self.

Up to now in the search everything’s been pretty hypothetical – what would I want, what would it cost, etc.  After doing all that researching and thinking, I was ready to bring in a professional to help actually search.  This timing coincided, of course, with being financially ready to make a move.  In March, I began reaching out to a couple of realtors and was on-the-hunt by April.  By June, I’d found my house.

Before I get into what to look for in a realtor as a buyer, I think it’s important to point out why you should work with a realtor, as a buyer.  The reason comes back to why I called out to the Facebook Hive Mind – most people don’t have a lot of experience on their own in buying and selling real estate.  Even if you’ve bought a house or two, compare that to the amount of experience you have in other things – for most of us, with home buying, it’s not a lot.  A realtor deals with this all the time and helps guide you through stressful, emotional, and a financially critical process.  And – they do this with no direct cost to you as a buyer; the seller pays realtor fees, not the buyer.  Check out howrealtorshelp.ca for more on why you should hire a realtor.

I met up with my now-realtor, who was a contact I had from a personal referral – we chatted about what I was looking for, what their strategy would be, and it really didn’t take long to know that it would be a good working relationship.

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Maybe don’t hire someone like Lionel Hutz or Gil Gunderson…

There are a few things to talk about with a potential realtor – before making my decision formally, the things I wanted to know about were:

  • Details on past experience; how long have you been doing this, how well do you know the communities I’m interested in?
  • Details on the strategy and approach for both the search and for negotiations
  • Details on how we would stay in touch throughout the process (we mostly texted and phoned, I was always responded to essentially immediately, no matter what day or time)
  • Details on managing my expectations – including a discussion around the list-to-sale-price ratio

One other consideration was how does this work – contractually speaking.  Did I need to sign anything?  Several realtors I spoke to – including mine – did not require anything in writing to work together until it got time to work on a deal, and the term of that arrangement could be as short or as long as I liked – in other words, once I found a house I wanted to buy, we could do the paperwork such that we were only formally working on that deal.  If that deal didn’t work out, I wasn’t stuck.  Not all realtors work this way, however – and it’s important to understand what you are (or are not) signing up for.

Once I had made my decision about the realtor, it took no time at all before I was being e-mailed listings.  This is something that the realtor sets up with/for you through MLS.  Basically a bunch of search criteria that you discuss are set up and then when new listings match that criteria you get an e-mail – and so does your realtor.  The critical thing here, in competitive markets, is that by working with a realtor you’re getting access to information before it goes on the MLS website publicly.  So does everyone else working with a realtor who has the same sort of search criteria that would make that listing pop up, but it was definitely helpful getting that early heads up.

Once you find some listings you are interested in from these search criteria, you start going to look at the houses.  It’s so much different – and so much better – going with a realtor to a house than going to an Open House.  We started out by going to all kinds of things – several listings at a time – and then were a little more targeted in our viewings.  My realtor was great at pointing out things that I had no idea about – like efflorescence in the basement, signs of poor maintenance, and of course things that maybe didn’t look amazing right then but had potential and were worth thinking about.  The important thing for me was that I never felt pressured in any house – there was never a sense that I was being pitched on every house we went to; in fact sometimes I would look at a house and go “I love this!” and my realtor would remind me of little things like how difficult it was to get in and out of the driveway and other things that you might think in the heat of the moment aren’t THAT big of a deal but ultimately would probably grate on you.

At any rate – work with a realtor, and make sure it’s someone you’re comfortable with, someone who gets what you want and what you don’t, someone who is very responsive – and someone who can remind you of potential, seeing past what’s immediately obvious, when that’s called for; as well as someone who brings things back to reality when needed, too.

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Beware of HGTV

I’m closing in on the fun stuff – figuring out what you want from your new home.  I started watching a ton of HGTV to see what kind of decision making was being presented… and for more on that, I point you to McSweeney’s List of Features of I Demand in a Home After Watching HGTV’s House Hunters.

With that in mind as you begin your search, maybe don’t watch too much HGTV.  Except… I watched and still watch a ton of HGTV, and by the way if you know any Ottawa-area Bryan Baeumler-types who are on the market, holla at me, alright?

Anyway.  Figuring out what you want.

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Father of The Bride

Location, Location, Location

This is the one thing that absolutely cannot be changed about a house; you can fix or change or learn to live with a lot of things, but the neighbourhood is not one of them.  For me, I wanted to live downtown – but I knew that my budget would restrict me from that, so I opened my search to “as close to downtown as is reasonably affordable.”  Maybe I couldn’t stumble home from the pub, but I wanted to be a cheap Uber-ride away.

To Condo, or Not To Condo

The condo question.  There are a few things going on here.  First, on the financial side of things – while the initial cost may be substantially cheaper (or may not be in some cases), you really need to consider your condo fees as part of the equation in terms of ongoing monthly expenses; if, say, you just shifted those fees into your mortgage payment instead, you’re likely to find that you can afford a lot more house.  At the same time, the condo fees will include some of the maintenance on the home, so to really get an apples-to-apples comparison you need to estimate what it would cost for you to maintain the things that are part of the condo fee in a freehold.

Beyond finances, it’s a lifestyle question – based on the location, a condo might be the only realistic option.  As well, in terms of benefits, many of the perks of being a tenant apply – it’s someone else’s job to worry about all kinds of maintenance and fixes.  On the other hand, in a condo you may find you’re accountable financially for far more than you really and truly need.  You may be paying to maintain a pool, a gym, employ on-site staff, not to mention the additional property and assets – like, say, roads and sewers – that you may be paying for with your condo.  It adds up fast; and your condo fees certainly won’t cover everything – you’ll still have surprises, and you’ll still have things to maintain as a homeowner.  I found, in some instances, condos that had fees that were as much as my mortgage payment would have been!

Some condos are managed very well, and some very poorly.  I know people who live in really well-run condos, and they are very happy; I know people who live in not-so-well-run condos, and they are pissed.  One thing I’ve noticed is that many people I know who have purchased condos end up getting on their condo board ASAP to ensure that they have some more control over how the condo is run; maybe you’re not super comfortable just leaving a lot of things up to your neighbours.  Consider whether or not you’re going to be able to give up a certain level of autonomy in a condo – or are you going to forego all the benefits of the time you save by not mowing your lawn and shovelling your driveway because you’re now spending this time in board meetings?

It’s all about risk tolerance – am I more comfortable with the risk associated with allowing other people to have a vote on the maintenance and prioritization of things on my property, or am I more comfortable carrying the entire burden of maintenance and prioritization on my own?  For me, it was the latter – so I entirely excluded condos from my search.

The Building

This is an area where many people have a vision.  I did not at all.  The building itself wasn’t a big driving factor for me – if I could theoretically live in an apartment that was not a condo, I’d have been open to that; I was open to townhomes, semi-detached homes and detached single-family homes.  Bungalows, split-levels, and multi-storey homes.  I prioritized location over building type – because if I worried too much about building type, what I wanted was that house from Father of The Bride, and I wanted it in Centertown, fully upgraded with quartz counters, gas range, spa-like bathrooms, a wine cellar, a butler, and a cheap mortgage.  Alas.  Knowing that what I wanted were the wants of a crazy person, the wants of someone who’s been watching too much HGTV, I was entirely flexible.

What am I willing to take on?

The last things I considered were my deal breakers.  Not what did I want the house to have – number of rooms, number of baths, key features, etc. – but what could it absolutely not have?  What was the work that might be needed that I was not willing to do?  New roof? Heat source?  Basement troubles?  Looking in older, more established neighbourhoods meant looking at older homes.  The budget was going to dictate how much of that older home may or may not have been upgraded since it was originally built.

I decided that I was willing to take on cosmetic issues – so what if I didn’t like some finishes and fixtures – but what it absolutely could not require was major electrical work, or foundation work of any kind.  Unsurprisingly, of course, many of the homes I saw required either substantial electric or foundation work.  Knowing up front what my deal breakers were helped me not to get too attached as I was looking at houses that might have seemed really great, but required more work than I would have the capacity – the finances or the knowledge – to take on.

In the next few posts, I’ll talk about actually conducting the search, some of the crazy and some of the awesome things I saw, and tapping into one of the best resources ever – FACEBOOK HIVE MIND!

The Money.

You’ve made the decision.  You want to buy a house.  Through your initial estimates of your finances, you conclude that you have approximately zero dollars for this.

Hopefully, dear reader, you are a smarter person than I am and you have some savings set aside, because you imagined that someday this might be your goal, so you could be prepared for that.  If not, you’ve now gotta figure out a way to find that money – maybe you need to ditch some discretionary expenses, or maybe you need to take on a roommate, or maybe you need to move back in with your family – who will let you live with them rent free so that you can get back the hell out of their house as soon as you can.  That’s what I did.  It was drastic, it was not an easy decision, but it was absolutely the right one.  Thanks, mom.

But how much do you need to save?  When you have the coin for a house, how much house can you afford?  My thought process around finances went something like this:

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How much can I borrow?

What is the bank willing to lend me?  I started figuring this out by googling mortgage affordability calculators and trying a few of them to see what they said.  A few you might want to consider:

You’ll need to enter your gross income, a downpayment amount, any debt information you have, an estimate of what your property tax might be, and an estimate of what your heating costs might be, in addition to a mortgage rate and an amortization period.

After trying these calculators, you’ll have a rough idea of what a lender might be willing to give you.  But, as they say, the banks will loan you just enough rope to hang yourself.

How much can I afford?

How much does “what a lender is willing to give me” line up with “how much should I actually consider borrowing”? To figure that out, you’ll need to figure out what your debt service ratios are.

First, there’s your Gross Debt Service ratio – your monthly housing costs (including mortgage principal and interest, property taxes and heating) should not be in excess of 32% of your gross monthly income.

Then, there’s your Total Debt Service ratio – your entire debt load (so, the above things plus any other debt you might be carrying, like credit cards, student loans, your car, etc.) should not be in excess of 40% of your gross monthly income.

You can learn more about calculating your GDS and TDS on the CMHC website.

Now you know how much you can borrow and how much you can afford to borrow, according to what “they” say.

But how much am I comfortable borrowing?

Me? I wanted to be more conservative.  These calculations above are all about where you max out – they really don’t consider what your spending habits are like on other things (discretionary expenses like, oh, I dunno – food, entertainment, Apple products, handbags… ok, so maybe some of those are just my problem).  My point is that they’re not necessarily calculations as to what you should do; they’re not necessarily what you’re comfortable doing, not what makes the most sense for you based on other things like ‘if you take on your max affordability, are you actually pretty terrible at sticking to your budget, and will you run out of money for wine?’ I don’t want that happening to you, and I absolutely cannot have that happen to me.

So now that you know your maxed-out ceiling, you should sit down and write out a budget.  You should include paying off your debts, as well as your spending habits on food, entertainment, medical expenses, travel, gifts, etc.  You should think about cash savings for short term goals and emergencies, and how you’re going to approach longer-term savings and investing.  When I did this, I started whittling down my desired mortgage payment.

For help with budgeting, check out this list of Best Budgeting Apps – I’ve tried YNAB and Spendee, but always find myself just creating my own spreadsheet in the end.

Let’s just get to looking at houses already, amirite??

Okay.  So now you have a pretty solid idea about your money situation.  At this point, I started looking at what houses in my affordable range looked like – and you know what? I wasn’t exactly thrilled.  So I had to take some time to think about what I really wanted (more on that in the next post) and reconcile that with what I could actually afford and be comfortable with.  I now had an idea of the kind of downpayment I was going to be shooting for – I had a goal.

With that goal in mind, I set up a plan – save a certain amount, every month – and I had to remind myself that I needed to actually put in the effort to stick to that plan and reach that goal, while also not beating myself up about it if I didn’t rigidly stick to that plan – off I went.

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Dream House

Well, I’ve done it.  I’ve gone off and become a real grown-ass person. I’ve bought a house.

I remember when I first started renting, I had all these grand ideas about how – well – renting was going to be so much cheaper than home ownership could possibly be, so clearly I’d have lots of flexibility to do all these wonderful and amazing things.  Why would I want to be tied down with a house, when I could be all cool and commitment-free in my apartment?

Then, you know what happened?  I didn’t wind up having heaps of money to live just exactly how I wanted, and there were still all kinds of annoying adult-y things I had to worry about in my apartment, and how come I’m giving some other chump all my frigging money with no end in sight?

So, a few years ago, a number of people (my folks included) suggested that I consider moving back home so that I could save enough coin to buy a house and stop renting.  I came to the realization that, for me, owning was actually going to make more sense; so that’s what I did.

Now that I am a couple of weeks away from actually getting the keys, at last, I thought that I would do what I like to do when I’m embarking on something new, I’m gonna blog about it.  In the coming weeks and months, I plan on blogging about the whole home-buying process, from decision through to purchase, and then hopefully will continue writing about my adventures in home ownership.80s Barbie Dream House

Livin’ the dream.

 

First thing’s first, though, and that is you’ve gotta make the decision to jump in.  There are a few things I considered, and I recommend you think about these things too.

Where do I see myself in five years?

Ask yourself about your intentions for the next five years – are they pretty stable, or is there a lot of uncertainty about where you’ll be?  Maybe you don’t have it all figured out, but this is really a straightforward question about geography.  Think you’re still going to live in the same city in the next five years? Or are you someone who moves around a lot?

If you’re likely to stay put, home ownership might be something that makes sense for you.  If you’re likely to move, then maybe now isn’t the right time to buy, even if it is something you want to do.  Real estate transactions cost a lot of money, they are very time consuming, and can be emotionally draining, so for most people we’re going to try to limit the number of those transactions.

What do I want?

Home ownership is time consuming, or so I’m told.  I’ll soon find out.  But I know that as much as there were adult-y pain-in-the-arse things about renting, all those things that you don’t have to do in your apartment become yours to do in your home; unless of course you go the condo route, in which case only many of the pain-in-the-arse things become yours to do.

On the other hand, maybe you’re someone who wants a big ol’ garden in your yard, or maybe you want to renovate a place and make it really ‘yours.’  When you own a property, you can pretty much do with it as you please.  As a tenant, you’ll find yourself very limited.  Take some time to think about what it is that you’ll be giving up, and weigh those things against the things that you’ll be gaining.

But seriously though, what’s my money situation?

Reality check.  Even if all things were equal – let’s say your monthly living expenses in a rental property were exactly the same as your monthly living expenses as a homeowner – there’s still the small matter of a downpayment.

The average home price in Ottawa is somewhere around $400,000 now.  Consider as well that if you’re putting anything less than 20% down on your home, you’re going to have to pay for CMHC Insurance.  Then you’ll have to close the deal, which involves all kinds of not-insignificant expenses, like land transfer tax, a home inspection, legal fees and other disbursements just to name a few.  The cost of the transaction can be anywhere from 1.5-4% of the price of the home.  And even once you figure out how to cross these hurdles, chances are your house is going to be more expensive than your rental; don’t assume that your rent will translate into a mortgage payment, because you’ll probably be paying for more utilities than you do in a rental, generally over a greater square footage, not to mention the costs associated with maintaining the house and of course your property taxes.  Are you really going to be able to come up with that kinda scratch every single month for the next 25 years, while also allowing yourself such luxuries as, oh, I dunno, eating food?

 

What about me?  Well, first, I see myself living in Ottawa for the foreseeable future.  Much as I had wanted to move to Toronto in my early 20s, it just didn’t work out that way and by the time my mid-to-late 20s rolled around it wasn’t something I wanted so badly.  I feel pretty settled in Ottawa, and the city – which, for the record, I’ve now lived in for over 20 years – has really grown on me in a way it hadn’t when I had just finished university (whoa, ten years ago).  So that was my first checkmark in my “not crazy to consider home ownership” column.

Then I thought about what I wanted.  Turns out, it was the stability and security of home ownership.  Sure, it is going to be more expensive than renting, but the place will be mine; and, more importantly, not every penny that I spend on putting a roof over my head is going to go into someone else’s pockets.  Some of it is going to be building equity and putting me in a better position in terms of long-term financial stability.  When I first started thinking about buying, I wasn’t saving a penny – I was renting, and living paycheque to paycheque.  Even if my income didn’t change, and if I assumed I’d have some way to get a downpayment together, once I was in, some of the money would be staying with me in terms of equity in my home.  I wanted to do something smart for my future.

Finally, shit got real.  Fact was, I had no money to buy a house.  Fortunately, my parents were encouraging me to move back home so that I could save, a position I’m very fortunate to have been in.  So, I said so-long to my beloved apartment – in it’s cool spot, in a great building with neat amenities, and from which I could walk to work – and I said hello to the ‘burbs, started spending lots of time in my car, and began squirrelling away every cent I could.  That was in April of 2013, and just over two years later I bought my very first place.

Stay tuned, and I’ll tell you a little more about it.