Essential Questions Every Home Buyer Needs to Ask

[00:00:00] Welcome to The Canadian Real Estate Investor, where hosts Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio. Are you feeling overwhelmed by the real estate market? You're probably not alone. Sentiment is down and fear and doubt are up. And it is no surprise because in the last few years we have seen ultra low interest rates, then rapidly rising interest rates. We've seen a global pandemic.

[00:00:29] We've seen inflation and a market full of bidding wars and then a market that, I don't know, just went flat. Prices dropped. Who even knows? Like how do you describe this thing? It's been a roller coaster. Today's complex housing landscape is leaving both buyers and sellers and investors grappling with a lot of tough questions from figuring out is now the perfect time to list your home or to understanding what makes a seller reject an offer.

[00:00:56] However, the uncertainty can be paralyzing and has left many of you and many people across the country sitting on those proverbial sidelines that we've been hearing about for so long. Today, we're going to dive deep into the most common questions that keep homeowners and potential buyers up at night. Whether you're worried about saving for that down payment or wondering if you can navigate buying and selling simultaneously, don't worry. We've got you covered in this episode.

[00:01:25] You can do them both at the same time. You just need a realtor who… Don't worry. We'll get there. We'll get there. We'll break down these essential and most common questions, also known as the FAC. Is that what you call it? FAC? Frequently Asked Questions. FAQ? I just say FAQs, but yeah. Hey, listen, we've invented a lot of acronyms. We constantly invent acronyms here and I'll take FAC as well. Maddie Matheson's character from The Bears. Is that the FACs? The brothers? Is that right? Anyway, I digress. That's his tradition.

[00:01:55] The most common questions, we'll call them, from both buyers and sellers and give you knowledge you need to make confident decisions in today's real estate market. Welcome back to the Canadian Real Estate Investor Podcast, Canada's number one real estate podcast. My name is Nick Hill and I am a mortgage broker with owlmortgage.ca. And I'm Daniel Foch, a real estate broker and chief real estate officer at valerie.ca, Canada's first AI real estate brokerage.

[00:02:23] And Dan, together you and I have done a few cool things over the years. The amazing listeners to this show might enjoy getting involved when outside of just listening to the podcast. Yeah, exactly. We throw awesome events. Most of them are free and happen on the second Tuesday of every month in over 25 cities across Canada. And our meetup.com group has almost 10,000 members attending those meetups.

[00:02:53] Honestly, 10K, it was a goal that – it felt like a lofty goal, but we're so close. Dude, our 2024 goal was 5K. I know. And we're almost at 10. We missed it and then somehow we're at 10, almost. I know. It's just amazing. I think it's like 9,200. Anyways, listen, we just got back from Edmonton last week. We already officially inflated that a little bit because we just had a huge group from Montreal that had like 2,000 members as well. So there's that.

[00:03:21] Well, there you go. That helps, yeah. And look, we travel across the country and we attend these meetups ourselves. We just got back from Edmonton where we hosted an awesome meetup. We are flying to Halifax in May to host another amazing meetup with our coast there. We fly all over the country and we throw these free meetups, but we also throw more structured paid events like the recent one we've done on missing metal, multiplexing, and then our most recent super successful one that I had a ton of fun at, Navigating Capital.

[00:03:51] And then of course, we have a course. Is that a good rhyme? No. Which is an awesome community of real estate investors. I would say it's becoming more of a community than a course to be honest. I know for those of you who are in real estate and listening, we can see which videos you guys watch. When people pay for courses, I guess they don't watch a ton of the videos. I think what – like we've always been of this mentality with like the guru world and stuff like that. I think people are really paying for accountability, community connections.

[00:04:19] I mean, I just mentioned – I'm still in this Miami lobby, by the way, if you're a lobby bar recording, by the way. Yeah, yeah. I guess we should probably mention that again. So, I'm down here at this Grant Cardone event and I realized like that, you know, they're not even really trying to sell people on, you know, the idea of like it being like education. Like I think the basics of real estate look like you can get everything you need to know on this show, right? But it's the real estate investors from across the country and we have one-on-one coaching.

[00:04:44] It's sold out right now, but everybody who's in the kind of first layer of members in real estate was all these one-on-one folks. And then they said to us, hey, we want more members in this. Just don't give them one-on-ones. Make this a group thing. And so, we made these group calls. So, now we have two calls a week minimum with both of us plus experts on a monthly basis as well as discounts to our events, discounts in a lot of cases free events, plus a bunch of other perks like, you know, being able to beta test technology, etc. I mean, honestly, we've really tried to make this a super compelling thing.

[00:05:14] We've also tried to de-risk it because it's now available on the group coaching setting on a monthly basis and a free trial. Yeah. And honestly, we're not giving it away, but like what a steal. $100 a month. Cancel any time. You get a free trial to start things out. Tell me where else you're going to find that kind of value. Dan, we just signed up three new members today. They're all super stoked about it. And so am I. Yeah. So, if you're interested in that, check out realist.ca. And then speaking of value, let's get into the episode, Nick.

[00:05:43] What are the most common real estate questions we're going to cover today? Okay. So, let's start with the most common questions from buyers. The first one being, what is the initial step in purchasing a home? Well, it's usually saving for a down payment. This is the crucial first step as lenders are going to require a down payment, which is, of course, a percentage of the home's purchase price.

[00:06:06] You need to evaluate your income, your debts, your expenses to determine how much you can realistically afford for a mortgage and your eventual home ownership, whether this is your primary residence or an investment property. Getting pre-approved for a mortgage is the first step. This involves, of course, applying for a mortgage through a pre-approval application process with either a lender. That could be your familiar bank that you have a checking account at.

[00:06:32] Or you could be smarter and talk to someone such as myself or any of the amazing mortgage brokers across the country. And they will help you get an idea of how much you can actually borrow, which then helps you set a realistic budget and narrows down your home search. So, after you get that pre-approval done, what's the best next step, Dan? Yeah. Before I get to that, I'm going to mention that there's a lot on the topic of gurus because we were just talking about gurus and ourselves going into that world.

[00:07:02] And I'd say our goal is actually really to eliminate a lot of competitors in that world. I hate to be the guy to be like, oh, yeah, we want to blow it up. But there are a lot of bad actors in the real estate space, especially the real estate guru space. And when you mentioned saving for a down payment, I think saying the first step is saving for a down payment and not, hey, no, the first step is actually spending 10 grand on our course and then you can use other people's money.

[00:07:25] I think that that's like a really important distinction because we're just going to be honest with you that the other people's money that you're going to use on your first deal is the banks. That is another person's money. You get to use like 80% loan to value. 80% of your first deal is going to come from the bank. That's a sufficient amount. If you can't come up with a 20% or maybe 10% and you do it with your friends and family or whatever, you got a partner in the deal. Then honestly, I think that that barrier to entry exists for a reason. You probably shouldn't be doing a deal.

[00:07:51] One of the prerequisites to being able to invest and being able to invest other people's money is being good with money. And the easiest way to communicate that you're good with money is having money. So I would say that like expect to fund your own deal at least 20% of it. The bank will fund the rest. That's your other people's money. Everything else, all the other OPM fundraising, blah, blah, blah. I'm going to say it's like 90% BS. Anyway, next piece is finding a real estate agent.

[00:08:18] This can often be the first step for many people as well, especially if you're like in a cheaper market where you think you can come up with the cash very quickly. But that real estate agent will tell you to kind of go back to step one typically if you don't have the money and get a pre-approval by either talking to a mortgage broker like Nick as an example or a bank. Most people just like to approach the bank that they work with. If you're a creditworthy borrower, banks are often just approaching you and offering you mortgages and credit products anyway.

[00:08:42] But a real estate agent can guide you through the home buying process, help you find properties that meet your needs and negotiate offers. And I think that like, you know, your job as a real estate investor, if you really want to go be that OPM person or whatever, you want to fundraise or you need to find a good deal. You need to find a deal that's bankable, that a bank will lend on. And then usually if a bank will lend on it, it shouldn't be that hard to find equity for it. Either you're on your own. If it's a really good deal, you should go and figure out a way to scrape together all the money if it's an excellent deal.

[00:09:10] And you need to know how to decipher that, which we're going to get to. Or you can kind of go, hey, mom, dad, buddy who I went to university with, found this sick deal. You want to jump into it with me, right? Yeah, I love it. So, I mean, it's pretty obvious. Okay, so approach a lender or a broker to figure out your finances and then approach a real estate agent. And guess what? Those are the first two members of your power team. Okay, so let's keep this trade moving here, Dan.

[00:09:34] Next most common question are, what are my options if my offer is turned down? Well, you're really left with two choices after having a offer rejected. You can make another offer, potentially getting into a bidding war with other potential buyers, or you can do the simple thing and decide to walk away. And sometimes, actually in a lot of cases, I find that to be the right move. Now, before you make that call, you might be wondering why a seller would even decline your proposal in the first place.

[00:10:04] Now, Dan is an agent that has made dozens, if not hundreds of offers for both our own fund, as well as on behalf of your clients. Why would a offer be rejected? I think, you know, even with your strongest offer, a seller may still decline it. We're seeing this a lot in the market right now where sellers think that prices haven't changed since 2022 or 2021, and buyers disagree. The main reasons why sellers typically reject purchase offers is, you know,

[00:10:34] your offer came in lower than that of competing buyers or lower than the seller's expectations. Maybe the seller just has unrealistic expectations or unrealistic ideas about what their home is worth. Maybe they're, you know, they're using bad comps, they're using bad data, old data, because the market's gone down, or they're getting, you know, unrealistic expectations from their professional that they're working with. The seller might prefer buyers who have specific financing requirements, maybe a big deposit or down payment of a, or sorry, deposit of a certain size or no financing condition as an example.

[00:11:04] So maybe the terms weren't right. So you've really only got a handful of levers, right? Price, we went through. Terms, we've went through. Maybe the closing timeframes might not be aligned with the buyer and the seller. So maybe you didn't, they wanted a specific closing date because they have to occupy or they need the money to put into another investment, you know, if you're buying off of an investor. And if you can't meet that closing date, then they can't accommodate your offer. Maybe you requested too many repairs or too many things of them, too much due diligence and things that they don't, that they felt were unreasonable.

[00:11:32] Or the seller has some other elusive motivation that the buyer can't figure out, which seems to be kind of one of those really weird ones that, that tends to happen more often than you would think. But regardless of the reason, review your original offer with your professional or on your own and determine whether you should revise your terms. Or just, you can ask for feedback in a lot of cases or just ask for a sign back. So if the seller rejects your offer, be like, look, please just don't like reject this. Sign it back. Show me what, show me on paper. So we're not just negotiating anecdotally.

[00:12:00] Show me on paper what you want me to do. Yeah. Yeah. I love that sound advice. Okay. We've chatted about the next one a few times on the podcast before, Dan. But it seems that people are still curious because, again, this was one of the most common asked questions. So we're going to cover it again, but we're going to do it. We're going to make this one a bit quicker. How does my real estate agent get paid when buying a house?

[00:12:26] Now, Dan, obviously, you're going to be the one to answer this because you are a real estate agent. Yeah. So you said house. So I'll start with that. And then it does vary a little bit when you get into more commercial assets because sometimes the buyer might want to have the fee paid on their side for tax planning purposes. Like they are paying the consulting fee to the buyer agent. But for the most part, I'd say in the majority of cases, real estate agent commissions for both the buyer's and the seller's agents come from the sale proceeds.

[00:12:52] So, I mean, typically, you think of it in quotation marks as the seller's paying it, but truly, the buyer's paying it in the price. And then the seller distributes it to the seller's agent. And then the seller's agent distributes the other half to the buyer's agent. And these commissions are typically predetermined through an agreement between the seller and their agent and the seller's brokerage. Buyers can not typically negotiate with these commissions.

[00:13:21] And usually, there's kind of rules between who can ask which agent to make reductions in their fees. But although they are loosing a little bit with what happened in the US with the NAR lawsuit, but also with Tressa in Ontario and the copycat lawsuit that's happening in Canada, which we're going to continue covering as there's updates to it. But at closing, the commission does not appear on the buyer's statement of adjustments since the buyers don't pay it directly.

[00:13:46] Instead, the total commission is shown on the seller's statement of adjustments and is deducted from their sale proceeds. The seller covers real estate commission for both agents in the majority of arrangements with fees to their agents when they list their home for sale. So, you'll often hear that you don't pay when you're the buyer. But it's not that you don't pay. It's just that you don't really see it, right? You don't feel it the same way that the seller does. So, when the home sells, these fees are simply taken out of the money the seller gets from the sale from the buyer.

[00:14:16] So, I always argue that the buyer is technically the one paying it or maybe the buyer is the one literally paying it, but the seller is the one technically paying it. Commissions range from province to province basis, but can be anywhere from like 2% to 7%. I would say your standard is kind of like, I don't know, like that 4% to maybe 3% to 5% total. And it would slide down based on the value of these deals going up. Like when you get into some of these bigger commercial deals, it's like, you know, they're making like, I don't know, 1%, whatever, 2%, right?

[00:14:46] Yeah. Yeah. No, some really good points. And again, obviously, you know, with the commercial stuff, if you're selling something for $10 million or $100 million, you know, 1% is still quite a big amount. Now, speaking of big amounts, the next question we have here is how much of a down payment do I need to buy a home? Dan, you did a great job answering that last one because you're a real estate agent. I am going to try to do a great job answering this one because I'm a mortgage agent. So, let's talk about down payments.

[00:15:13] That is an upfront payment when buying a home. Now, typically, that ranges from 5% to 20% of the purchase price. The rest is financed through your mortgage. A larger down payment means borrowing less, which reduces those monthly payments and, of course, your total interest cost because, remember, your payment is going to be split very unequally for the first couple years between interest and principal.

[00:15:42] So, let's look at some examples here. For purchase price of your home for $500,000 or less, 5% of the purchase price, $500,000 to $1.5 million. 5% of the first $500,000 of the purchase price. 10% for the portion of the purchase price above that $500,000. And we look at $1.5 million or more, we need 20% of the purchase price. Now, remember that these are the bare minimums required to qualify for a mortgage.

[00:16:07] However, anything below 20% is a high ratio of mortgage and requires mortgage default insurance. And this protects the lender in case you, the borrower, defaults on those payments. Your mortgage loan insurance can be also paid either upfront or added to your mortgage payments.

[00:16:26] Now, let's also clarify that when you're buying an investment property, a non-owner occupied investment property, whether it is in the city or the town or the province that you live in, or whether it's outside of the province, you're going to be putting 20% or more down. And we've even seen some lenders for certain properties move that scale up to only 75% or even 70% of that loan to value. Yeah. Anything you want to add on that?

[00:16:54] Or should we just jump on the next question? Yeah. I think we've covered a lot of this stuff in full episodes. So let's keep it moving because we've got a bunch of other questions to answer here. Okay. Next one is how long does it take to buy a home or investment property? And according to the Canadian Real Estate Association, the average time it takes to purchase a property in Canada is about four months. This includes the time it takes to find a home, negotiate, and close the deal. However, the timeline can vary significantly depending on the housing market and location.

[00:17:23] Now, of course, just like many of these answers, this is totally subjective to the buyer and the property and many other variables and conditions. But this is the kind of typical process and time associated with each step. Pre-approval, get pre-approved for a mortgage to know your budget. That takes a few days for standard cases. Then you're going to want to go into your home search process. So search for homes within your budget. This usually takes three to six months depending on market conditions.

[00:17:51] Then the next step is to offer and then negotiate. Making an offer and negotiating with the seller, that can take anywhere from a few days to one to two weeks to reach an agreement. I would say both the home search and the offer negotiations, like how long that takes is really a function of your expectations. If you feel like the market is priced totally fine and are going to go in and buy stuff at asking price, then you're probably going to do it a little bit more quickly.

[00:18:18] If you're really looking for a good deal or looking for something very specific or trying to lowball everyone, yeah, the home search is probably going to take you a little bit longer to find the right property that's going to check your very extensive criteria. And then the negotiations are going to take you probably just as long to convince the seller that you're right about your price expectations. It's not to say that it's impossible. It is harder. But it often ends up being a trade-off between the amount of work that you're willing to put in and the benefit that you get out of the deal, right?

[00:18:44] So some people might say, I don't want to spend 10 hours a week looking at properties for six months straight because my time is worth more than that. And if I save 25 grand on that deal, I probably only really got paid whatever, 100 bucks an hour for my time or whatever. And so you got to think about it that way as well. It's very easy for real estate investing to become a lucrative job. We talk about that a lot in the course on realist.ca.

[00:19:08] It's like you don't want to have those golden handcuffs of hiring yourself or creating a really, really lucrative side hustle for yourself, right? So anyway, not to digress, the home inspection and financing piece would be the next one. Usually, if you end up getting an offer that's conditional, you would have a financing condition. So let's call it your due diligence period. And best part of your due diligence, you have typically you can take the property to the bank and go get financing. And then you can also do a home inspection where you're going to get a structural inspection.

[00:19:38] And often you have a three to five day period to do that home inspection and financing. And that's for like a kind of your smaller run of the mill, let's say like less than four units. You start going above four units, you're in that kind of commercial property territory. That's for kind of your resi-mercial. We were just making the joke off before about the resi-mercial stuff. But you're kind of five plus units. You're getting into more – a lot of banks are going to want to see what's called the BCR building condition report. So it's a more formal inspection. It's more expensive.

[00:20:07] Then you're going to often need an appraisal to get your financing financed. So your due diligence period can often double, triple, if not get pushed out to like 30 or 60 days if you're starting to do like zoning reviews, phase ones, right? Environmental reviews, soil studies, engineering, et cetera. That would be kind of more in your commercial side. So that's kind of like five units plus on the res side plus like your industrial, retail, office, et cetera, blah, blah, blah. Yeah, no, no. Very, very good points to add that kind of stuff in, right?

[00:20:35] I mean, obviously it changes drastically if you're just buying a house in the suburbs versus if you're buying a 200,000 square foot industrial or land to develop or anything like that. But the next and final piece is closing, right? You've agreed, you've set on a price, everything's come back, the appraisal, the inspection, you finalize the financing, you sign the documents, you pay the closing cost, you get the keys.

[00:21:01] That usually, again, depending on the complexity of the deal, can take anywhere from one to several weeks after the financing is approved. Yeah, absolutely. I guess the next piece is do we need a realtor to buy a new build property? It technically is outside of the requirements of most jurisdictions to use a realtor when buying a new build in Canada. You can kind of just go to the sales office and buy it directly from the builder. Although in a lot of cases, you're hearing it's highly recommended.

[00:21:32] Some people might argue the opposite because the whole pre-con debacle that's going on right now, I think, was the result of a lot of these kind of like high pressure sales environments from realtors. So that on its own could be a potential issue. But I would say for the most part, I think you do want a real estate professional. I think what a lot of people are missing in this issue that they have with pre-con and realtors is the realtor has a fiduciary duty.

[00:21:58] If they didn't represent your best interest for whatever reason and you can prove that, then there's a legal exposure that they would have, right? And that's really why they're often recommended. They are supposed to represent your best interest. They are supposed to negotiate effectively. They are supposed to ensure a smooth transaction, especially when the builder sales agents are often prioritizing the builder schools, right? So a lot of people are in a lot of trouble right now because they bought pre-con or new build product that they didn't really understand. And some of that is the agent's fault.

[00:22:27] And I don't think I have to belabor the discussion of my opinion on the real estate industry and how much it needs to change in that regard. But in the right environment, and this is really where it comes down to choosing the right professionals, right network, etc. An agent should be the one helping you to make that decision, not a bad decision. Yeah, completely agree. You know, greed was and still is a powerful drug. And I think you got a hold of that side of the business for a little bit. But let's move on.

[00:22:56] The next question we've got here is what are closing costs? This one makes a lot of sense. I feel like anything involving financing should be one of the common questions here because it can really make or break a deal. And we're talking big bucks here when we talk about real estate, right? This isn't buying a penny stock or trading, you know, a couple stocks back and forth. You're buying a house to either live in or a house as an investment.

[00:23:21] And people should be well aware about what they are about to spend money on. And of course, you know, the quote unquote hidden or even more of the unexpected costs associated. So, Dan, start me off with some of the typical closing costs. Closing costs are the administrative and legal fees associated with the purchase of a property. So, typically, they're paid at the time of closing when the property ownership transfers to the buyer. These costs are separate from your down payment and your mortgage. So, you will need cash for them.

[00:23:50] The bank isn't going to pay for them and it's not going to come out of your down payment. It would be add on top of the down payment or the cash that you need to come up with for your down payment. So, make sure that you make that distinction because a lot of people on closing day are surprised that they have a shortfall. It's crucial to budget for closing costs because they can be a pretty significant expense. So, you know, you've got land transfer taxes as an example which is often as big as the commission that you're paying. So, you know, give me some of these kind of like more common ones.

[00:24:18] Start me off with I would say the most common and probably the most predictable one. For sure. Yeah. And you'll see this on basically every transaction. Even if it's one of those off markets or even if you're doing a VTP or whatever structure you put together, you're going to have some legal fees. These are costs for a lawyer to review the purchase agreement, conduct things like title searches and then handle the transfer of ownership. This isn't stuff that you can do by yourself. You need a lawyer. So, be prepared to pay legal fees. Yeah.

[00:24:46] I would say, I don't know, like top end probably would be like $2,000 for like kind of normal transaction. If you start having like lease transfers that you need to do that, you know, like where they're transferring a bunch of leases and the paperwork gets a bit more nuanced, it can kind of escalate up from there. But like I think $2,000 is probably a fair budget for kind of like both sides of the transaction. In a lot of cases, that would include title insurance, which is – I think we'll include that in the list.

[00:25:08] But title insurance is something that you often need – lenders will require you to have it to protect you and them on closing in case like the last buyer left a grading permit open or did something wrong, right? Land transfer tax would be the other one that I was kind of alluding to there. Provincial tax levied on the purchase of property calculated as a percentage of the purchase price. It varies on a province by province basis. I won't get into it too thoroughly. Just Google land transfer tax calculator X province.

[00:25:33] I think Wawa.ca, W-O-W-A.ca has some pretty good land transfer tax calculators province by province. We have some on Valerie.ca as well. But yeah, yeah. Yeah, no, totally. And both great resources to go check out for not just land transfer tax calculators but many more things. The next one you got to be aware of is property adjustments, reimbursements of prepaid property taxes, utilities and other charges by the seller

[00:26:00] that the buyer in some cases would need to cover. Now, these are a bit more obscure or nuanced but Dan, you and I have both come across these many times whether buying for ourselves or on behalf of clients. Yeah, the easiest way to understand this one because I've always found it like kind of hard – it's hard to explain properly. But I had an example where we bought a property that makes it really easy to explain. So, like in a lot of cases, you know, it's hard to think of like, oh, this person prepaid X amount of property tax or whatever, right?

[00:26:29] Because a lot of people are ahead on those bills based on the interim payments or like water bill or whatever. Like there's always these little nuanced things that get calculated. The easiest way to think about it from my perspective is we bought a property that was heated by oil and on closing, you know, the buyers had filled the oil tank and they didn't know when the property was going to sell and when it was going to close, right? So, they didn't try and like time the exact amount of oil that they needed left. They just filled the tank. And when we closed, there was about like 50% of the tank.

[00:26:57] And I remember the lawyer literally sending somebody to go take a picture of the oil tank so they could calculate how much of the oil we were buying, you know, how much of the oil was left in the tank that we were basically buying that remaining oil off of the person in the closing adjustment. So, that's a really good like easy example to think about on that like how those prepaid things get adjusted. It's a reimbursement, right? The next one would be like survey fees. So, you have cost for land survey to determine property boundaries.

[00:27:25] Usually, you're getting in title insurance is kind of there for this purpose so that if there's any issues that arise, you know, you're not super vulnerable or not as vulnerable. Title insurance would be the next one. Protects against potential title defects or issues like liens, encumbrances. Trying to think of other examples. Encroachments, right? Certain things that came up that you didn't really know about or couldn't have reasonably known about. The next one would be appraisal fees. We mentioned this.

[00:27:52] But typically, I mean, even on your resi deals, you're typically paying, even if they're doing a desktop, you're typically paying what? Like 500 bucks for an appraisal fee? 500 deal like 1,000 bucks? And on your commercial deal, it's kind of like up to maybe two grand? Yeah. Maybe even more? Yeah. We just had a $500 one coming today for a nice cheap property. Yeah. There you go. Yeah. So, 500 is kind of your run of the mill for normal stuff. Last one is home inspection fees again. Costs for professional inspection. Normal home inspection is going to be like 500 deal like 1,000 bucks.

[00:28:20] Anything like kind of more specific, you know, you're going to go up from that. And then I'd say like your bigger building condition reports, you're going, you know, kind of 2K plus. Yeah. Yeah. Great. Okay. So, next question, Dan. Who pays for the closing costs? Are these split? Whose responsibility is this? Because it looks like they're starting to add up a little bit. Yeah. So, in most cases, the buyer is responsible for paying for the closing costs. However, in some situations, the seller might agree to cover some of the buyer's closing costs

[00:28:49] or a lender might agree to pay for the appraisal as an example. They'll waive the appraisal fee or, you know, they'll kind of – or you'll get like realtors or – realtors or lenders sometimes will chip in like kind of like little freebies here and there to make people feel better about the deal, you know? Yeah, of course. And I think – I know we've done this and I've done this before, especially for repeat type investor clients where, you know, you want – you're trying to actively help them build a portfolio and if it's so close to getting the deal done, you know, we usually don't have a problem helping out.

[00:29:19] Now, the next question kind of within this umbrella of closing costs is how much do I budget? Now, a general rule of thumb is to budget at least 1.5% of the purchase place for closing costs. However, some experts in the industry suggest budgeting closer to, you know, the three, even up to 4% of the purchase price. Again, obviously, it depends on what you're buying, complexity of the deal, especially if you are also selling a home.

[00:29:49] The more, the better in my opinion, you know, the last thing you want to do is come up short or spend every single dollar you have and then be house poor when you move in. You know, Dan, it makes me think of those Instagram reels popping around for a little bit where this was when the market was super hot and it was like, you know, people had bought their house and they were – it was completely empty. And they were just, you know, lying on the floor or sitting on the floor or sleeping on the carpet because they had spent all their money on the house.

[00:30:17] So, you got to have at least a couple points of the purchase price stashed away to cover all this stuff. And honestly, the more the better because you got money left over. Great. Yeah, I would agree. I think, you know, always budget like on the upper bound of that because again, if you – like if you're really, really stretching yourself financially to get a deal done, it might just not be the best idea, right? We're seeing a lot of people really getting blown to bits by the market right now because they were running the margins too tight.

[00:30:43] Increase the margin a little bit, have a bit of padding, maybe you got a little bit of cash left over to add value to your deal or, you know, you're closer to getting to the next deal or you've got a little bit of float should, you know, some capex or opex expenditure arise between, you know, like – unforeseen things can happen, right? I always like to encourage people to have a little bit of padding in their deals. So, next question is what is a buyer's market versus a seller's market? And we've seen both in the past few years. It's pretty simple.

[00:31:11] A seller's market happens when there's a shortage of housing or more potential buyers than homes, which means that the seller – the market favors sellers. Sellers can kind of set the prices. They have the negotiating power. Prices are usually going up in this type of market. In a buyer's market, on the other hand, occurs when there's a surplus in housing or more homes for sale than buyers, which I would say in most parts of Canada, that's kind of the market that we're in right now. A balanced market happens when there is a similar number of homes for sale as there are buyers. And there's 2 different ways for measuring this. So, there's the sales to new listings ratio.

[00:31:39] So, kind of a balanced market would be sales to new listings ratio at around 50%. So, that would be balanced. Seller's market would be if that goes up. So, you know, up from 50 is approaching a seller's market. It kind of 60% plus would be seller's market, which means that like great 60% of the – if 100 new homes got listed in April and 60 of them sold, then 60% – that's a 60% sales to new listings ratio.

[00:32:05] And then 40% would mean that you're kind of more in a buyer's market, which means the supply is starting to accumulate, which means that prices can kind of start moving down. You're getting a downward price discovery. Buyers are getting more control. So, that's way number one of thinking about it. Way number two of thinking about it is months of inventory, right? So, usually we're seeing, you know, however much months of inventory is left. And kind of the rule of thumb is below four months of inventory would be like a seller's market or second – sorry, kind of below three months of inventory would be a seller's market.

[00:32:34] Three to five would be your balance market and then five plus would be your seller's market or six plus often is used as a seller's market. I would say that months of inventory one is kind of getting stale because the way the market moves so quickly now, like inventory gets absorbed so much more quickly. The flow of information is so much more fast. Transactions are more fast-paced. So, I don't feel like that's as reliable of a metric as it was, you know, the two decades or three decades – past three decades where that metric kind of was created. I think that one needs a little bit of a relooking.

[00:33:04] So, I'll often use the sales to new listings ratio to determine that. Yeah, and you've heard us bring that up if you're a long-time listener in the show. You've heard us bring the sales to new listing ratio up multiple times, especially when we cover the Korea stats. Now, let's keep going here, Dan. The next question is what is a property's market value? Well, it's pretty simple. It's a snapshot of what your home is worth today in relation to current market conditions and what other similar properties are selling for.

[00:33:31] This value, of course, can change over time and we have been watching values change in real time quite quickly in some cases for the past couple months. Now, you've got to consider factors like location, property size, current condition, recent sales of comparable properties. This is where you hear that term comps come in, right? Neighborhood, desirability, location of amenities, size, age, condition, type of property. If you're buying an investment property, what is the cap rate? What is the potential upside?

[00:34:01] What are the ad values? And then variables like market conditions, economic factors, interest rates, what type of market we are in, right? Supply and demand. How much repair does the property need and can that be used as a negotiation tactic? And then there's random things like your special amenities if we're talking strictly end-user residential stuff. You know, amenities like pools or in a subdivision, a finished basement.

[00:34:30] And then another one that is kind of historically had a larger impact is seasonality and timing of that market. So spring is usually hotter than winter to get a deal going and close. Now, it's important to remember that sellers will always think that their houses were top dollar and buyers will always be looking for a deal. So this is where that negotiation and relying on your real estate professional really come into play. Yeah, for sure.

[00:34:59] I was going to make the joke about how I don't know any good realtors because I am one. But I can't even make that joke anymore because I'm a co-owner in a real estate brokerage and I actually know tons of really good realtors at my brokerage that work with me. And then also, most of our meetup posts, I think, across the country are also realtors, right? I'd say either realtors or mortgage brokers. So if you need them, go back to the top of the episode. One of the things we're really talking about is building that network, the community that we've been trying to build.

[00:35:28] And Nick and I were reminiscing about how it's been such a grind in a horrible real estate market lately to try and do this. But we're so proud and excited for the progress that we've made and how easy it's going to be to really maximize this for our listeners when we're in a bull market. So call up one of our meetup posts. Ask me and Nick. Just send us a message. Join our realist community. Ask me because we have brokers all over the province of Ontario and our referral network all over the country. But it's not that hard.

[00:35:58] And it's not that hard to find a good realtor. It's just don't go and find Cousin Jimmy or Bob's Your Uncle's Realty Services or whatever, right? There's quite literally no need to overpay for a property. And if you and your realtor are experienced and trying your best to be good market participants and investors and you've done your homework and determined that you're willing to pay for the property and that it's a fair price, stick to that number.

[00:36:21] And speaking of numbers, the next question is what are the financing options available to me as a buyer? Why don't you take this one, Nick, since you are the resident finance bro with your Patagucci vests and all that stuff? Yes. Yes. Yes. Thank you for pointing that out. As I sit here in my – what is it? What are people wearing now? The quarter zips or the full zip vest? I'm not that kind of guy. I get made fun of enough for wearing a t-shirt and a suit combination.

[00:36:49] But on a serious note, listen, that's totally subjective. Your current financial situation, how much debt you have and what kind of property you're looking to buy are all major contributing factors. Financing changes a lot if you are trying to buy a single family home versus a cottage versus a rental property versus a commercial or a mixed use property.

[00:37:10] Financing also changes if you're buying in a corporation or buying with a cosigner or if you're self-employed or a business owner versus being, you know, a teacher or a doctor or a nurse or something like that, right? Overall, your financing will come from one place. That's a lender. Now, that could be one of the big banks that we're all familiar with or that could be a monoline lender, which is an institution that specializes in mortgage. It could be a credit union or it could be private money. The best thing to do here is engage a professional.

[00:37:40] Of course, in my opinion, a broker is always the best place to start because they can start to run the numbers for you and look at different strategies and have access to all of those different types of lenders I just mentioned. And, you know, our job as mortgage brokers, I'm speaking for me and all the other mortgage brokers, the ones that listen to the show and the ones that don't, our job is to work on your behalf to get you the best deal.

[00:38:04] Yeah, I think the one thing I like about a broker is like they're not going to try and take your deal and fit it into one specific product that that bank offers. They're going to look at all the products that are available in the market and see which product best fits your deal rather than like a small scope of products that one individual bank can offer. I mean, if the deal is really simple, it's often best to just, you know, take it to your bank. But we're in a market where there's no such thing as a simple deal, right? So anyway, on to the next question here. What are the pros and cons of buying versus renting? Look, we've done full episodes on this.

[00:38:33] I think we've done multiple episodes on this. If you just search buy versus rent in our episode catalog, you'll see, you know, like we've kind of updated it for, I think we did one for 23, 24, 25, 22. Are we around then? Yeah, I think so. So we've done probably three of them and it's varied on a year by year basis, right? We don't go into a lot of detail here. I own my properties. So like my primary residence where I live. So I'll talk about the pros and cons of owning and Nick, you rent so you can talk about the pros and cons of renting.

[00:38:59] So for buying a home, pros, you build equity by paying your mortgage, right? Or you save money probably by paying your mortgage. And the con to that is it costs you a lot of money to save that money, right? Like you're paying a big interest rate on a huge loan. You know, you're paying 5% on hundreds of thousands of dollars and it's on an amortization schedule. So often, you know, you're paying less principal. In today's market, you're paying less principal each month than you are interest. And so yeah, you're saving money and most Canadians need to save money. But it's at what cost? It's often a big cost, right?

[00:39:29] Most Canadians do need that savings vehicle. I would call... You know, there was times in the past where I was better at saving money. And so I wouldn't say this as much. But right now, it's not one of those times. You know, I've got a young family. I'm running multiple businesses. We're traveling all over the country. It's very hard to save money. And so my mortgage actually is very efficient for that job for me right now, right? And I'm not focused enough on trying to invest. Like in, you know, I have my properties trying to add value to those.

[00:39:55] But like, you know, I don't want to be a capital allocator as my primary job right now. And so I know every time I make that payment into my mortgage, it's being invested for me in that primary residence. Those are kind of like some of the key pros, right? It's stable housing without the risk of rent increases or rent evictions or whatever it is. You have the freedom to renovate, to add value, to personalize it or more freedom in that regard. You get the tax benefit, you know, there's no capital gains tax on your primary residence.

[00:40:23] Plus you get, you know, you can do kind of, you can play around a little bit with mortgage at your mortgage and your, you know, kind of cash damming and the way that you use your debt or Smith maneuvers, stuff like that, where we're going to actually do a couple of sessions on that with the guys from, we just did an episode with them, the Canadian Wealth Secrets guys. They're going to come on as our tax experts, our resident tax experts in the realist.ca course, which is really cool. We're going to be really excited for them to kind of be our new resident tax experts. So the cons, high initial costs, so down payment, closing costs, again, the sunk cost of interest,

[00:40:53] sunk cost of management, maintenance, all of these things that, you know, you have to fix the problem. Repairs, maintenance, you know, you put toilet breaks, you're fixing it. You can't just pick up the phone and be like, hey, Mr. Landlord, my toilet, I took a huge dump again, my toilet broke. Can you come and swap that out for me? You know, it's, you're the one getting the call from, you know, from your cohabitant saying, hey, Dan, you freaking broke another toilet, man. You got to get home and fix this thing before that whole plumbing in the house blows up. Just kidding.

[00:41:23] Or just neither of those instances have actually happened, but I just tried to give everybody a chuckle. I can't wait for the comments on that one. But, you know, I mean, look, these are real things, right? So you got less flexibility to relocate. You're just kind of stuck in it for like a mortgage term. The switching costs would be a big one, right? Like in order to exit your property, your real estate, your primary residence, you have to hire a realtor. You have to pay a lawyer. You have to pay, you paid land transfer tax on the way in.

[00:41:49] So, you know, just to sell the property, you're paying 5%, 6% plus moving costs. Now, all of a sudden, it really needs to make a good return to make sense, right? Plus, you have ongoing property taxes, which you wouldn't pay if you were the tenant. Exactly. Exactly. Now, speaking as a tenant and also someone with tenants, but speaking as a tenant from my personal experience, let's talk about the pros first. Lower upfront costs, right? To move into a house, an apartment, a condo, no matter what, it's usually just two months worth of rent.

[00:42:19] And I don't care if your rent is $2,500 or $5,000 or even $10,000. It's usually a hell of a lot less than a down payment. So that's the first one, lower upfront costs. The second is it's easier to relocate. You can likely get out of that rental in as easy or as little as 30 to 60 days as long as you give your landlord notice. And if your landlord wants you out, well, you can probably get out of there the next day. No maintenance responsibilities. As Dan said, so beautifully put.

[00:42:46] But I'm not fixing toilets and I don't obviously don't have the same issues as you, Dan, but you know, there's no responsibility for me to go and fix anything. And my monthly payments are predictable, right? Unless I get a rent increase, which I have to be well notified for my renting, my rental payments stay the same every month. Whereas mortgage payments, if you're on a variable, you know, we've seen hundreds of

[00:43:13] thousands of Canadians, unfortunately go through a massive payment shock. Now it's not all great on the renting side. Either there are some drawbacks, let's call them the cons. Okay. I'm not building equity, right? The classic thing is I'm paying someone else's mortgage. Well, there is an element of truth to that, right? And that's why I rent where I want to live. And I invest where I think I have a great investment thesis. In some cases, we've also seen renters that have been subject to rent increases in some provinces, right?

[00:43:43] This differs from province to province where rental increases can be exponential and people aren't willing, aren't able to pay those. I also have limited control over the property. If I don't like my bathroom, I can't just go and remodel it. I can't in some cases go and even paint walls or do things without getting the landlord's permission. And of course, there's always the risk of eviction. If the lease is either violated or if that landlord plans to move in or sell the property.

[00:44:12] So with all that being said, let's move on. Now for a long time, this was kind of a standard thing. Then in the midst of COVID, it disappeared for a little while. And I remember talking about this live with you, Dan, on the podcast when it disappeared and we had a kind of alarm bells going off. Thank God they're back now. Okay. This next question is, what is a home inspection and why do I need one? So a home inspection is a visual and keyword being visual.

[00:44:39] They're not going to start like tearing drywall off and inspecting things. So there's only so much they can really determine. But a visual examination of a property's condition conducted by a qualified professional to identify potential problems that could affect the home safety, structural integrity and overall condition. And the easiest way that I like to think about this for people is, you know, if you're an investor and you're not always just going through it to try and determine whether or not you're going to be in or out of the deal or whether or not you're going to go back to

[00:45:05] the person and try and negotiate 5k off or 10k off because, you know, you identified these problems that came up in the inspection. In a lot of cases, you as an experienced real estate investor or your realtor as an experienced realtor should have identified, you know, like you should be able to say, oh, the roof's, you know, the roof looks a little rough. You're probably gonna have to do that in the next 5 to 10 years. Oh, the furnace is this much, you know, it's just checking the gas tag. The furnace is probably this age, you might have to replace that in the next 10 years. The way that I often look at this is these are line items that you're adding to your pro

[00:45:34] forma, which is when you model out your deal for the next like, you know, 5 to 10 years, you're saying, oh, in year 5 or 10, or what would my pro forma look like if I had to spend 10 grand on a roof in year 5? What would my pro forma look like if I had to spend 3 grand replacing an AC and furnace in year 5, whatever. And now all of a sudden, like this to me is really... Because once you start adding in all those, like we just had one of our students, I know they're gonna be listening to this episode. They were looking at a deal that looked great on paper, like so good on paper.

[00:46:02] Fiveplex, you know, I think about a 750 or 800K. You know, price per door was great. Cap rate was great, etc. Get the home inspection report. It's like for, you know, you nickel and dime all of these things together. And it's like, you know, 350, 400K that you're gonna have to spend on the property blows the whole deal up, right? It's like add that to your purchase price and your cap rate goes from like a 9 to a 5, right? Or you even pro format out and assume you're spending that, you know, you're only spending whatever 10K a year over the next 30 years and it still blows your deal up, right?

[00:46:31] So this is the point of doing these things. And the standard home inspection typically covers the exterior conditions. So the costs associated with roof, siding, foundation. Foundation is a big one. That's where you're gonna run into the huge stuff, right? Like big issues that would be kind of full deal breakers. Structural integrity, appliance functionality and age, heating, HVAC, AC, furnace, plumbing, electrical, roof and attic, ceilings, walls, foundation, basement, crawl space, interior and exterior drainage. Did I miss anything?

[00:46:59] No, I think you did a very inspecting job of what a home inspector does. And, you know, you'll get a big report with all this stuff afterwards. And, you know, the home inspectors are out there doing really diligent work. So why don't we call it there, Dan? Because that concludes the most common questions from buyers. But of course, there's another side to the equation.

[00:47:28] There's a whole other, like people that we haven't spoken about. And those are the sellers. You're giving me a to be continued right now. I like it. We don't usually do these to be continued, but this was a robust episode. And I don't want to... This was an accident. And I don't want to be... I don't want to forget about the other half of the market because I think sellers play a very important role right now. So stay tuned for the second part of this episode, which is going to be all about the most common questions from sellers.

[00:47:56] We're going to talk about what's the best time to sell my home. How long will it take to sell your home? How does a real estate agent assess a home's value? What is a conditional sale? What do I need to qualify for my mortgage? Can I buy and sell my home at the same time? And we'll throw a few more in there. So hope you got a ton of value out of part one of today's episode. And we will see you on part two. Thank you, as always, so much for listening.

[00:48:23] The content of this podcast is for educational and informational purposes only. It is not intended as financial, legal, or investment advice. Always consult a qualified professional for advice tailored to your unique circumstances. The views expressed are those of the hosts and guests and do not necessarily reflect the opinions of affiliated organizations. Daniel Foch is a real estate broker licensed with Valerie Real Estate Inc. Website is Valerie.ca, V-A-L-E-R-Y.ca.

[00:48:50] And a member of the Canadian Real Estate Association, the Ontario Real Estate Association, and the Toronto Real Estate Board. Nick Hill is a mortgage agent and partner at OWL. Mortgage license number 10317. Agent license M21004037.