Preparing to Purchase Real Estate

If you're thinking about buying a property in the near future and would like to educate yourself on how best to go about that then you are in the right place!

The topics below will answer many common questions about what sorts of things you should know and do prior to buying a home.

• First Things First
• Mortgage Financing
• Find a Realtor
• Purchasing Costs
• Buying Condos
• Real Estate Foreclosures

First Things First

If you’re just tire kicking

If you are not ready to buy a home within the next 10 weeks, but plan to buy a home within the next year, you should begin familiarizing yourself with the Real Estate market. The best way to do this is to browse the realtor.ca website and attend open houses whenever it’s convenient. Try and visit several different districts with a good mix of styles and ages of homes. This will help you determine the features you like most, gain a good understanding of what market rates are and where you will concentrate your search when you begin searching in earnest.

If you’re serious

If you are ready to buy a home within the next 6 to 10 weeks, follow these steps to maximize the effectiveness of your search.

• Pre-Qualify If you are going to require financing of any sort or any amount, it will save you a world of frustration if you go through the motions now. Pre-Qualifying will enable you to determine exactly how much you can afford. You will usually also be guaranteed a set interest rate for a period of time. This can save you thousands if interest rates rise while you’re looking for your home. When you find the home of your dreams and there is someone else who also wants to buy it, you want to be in a position to act fast and with confidence. More information on financing is below.
• Choose a Realtor In addition to getting professional representation to help you through the logistical and legal process of buying a home, you will get access to up to the minute MLS information. The data on the public Internet version of the MLS can be up to 48 hours out of date, and as such the best deals are often missed without a Realtor. Best of all, the services of a Realtor are usually free when you’re buying (Real Estate commissions are usually paid by the seller). Some Real Estate companies even offer cash incentives for Buyers. More information on choosing a Realtor is below.

Mortgage Financing

Pre-Qualify

The first step in getting ready to purchase Real Estate should always be to determine what you can afford. This is done by pre-qualifying with a bank or mortgage broker.

Even if you know you will qualify for the amount of financing you’ll require, here's 3 good reasons you'll want to pre-qualify:

1. Your Realtor will likely want to confirm you can afford the homes you want to see before investing time and energy into the process.
2. Mortgage pre-qualification will usually “lock-in” an interest rate for a few months. This can save you big money if the rates unexpectedly rise before you write your offer.
3. Mortgage Brokers will typically offer better rates than banks and because they only get paid when they get you a mortgage, they tend to be more efficient than salaried bank employees. When you’re facing a tight deadline for your financing approval you want someone who is competent. Most Realtors will know one or two great mortgage brokers and can recommend someone.

Find a Realtor

Choosing the right Realtor is perhaps the most important step in the Real Estate buying process. Obviously you want a Realtor who is competent and experienced in the type of properties you are considering but you will also be spending a good deal of time driving around with and talking with your Realtor so you want the relationship to be a comfortable one.

When Choosing Realtor, Interview Multiple Realtors First

Whether you are researching online, emailing or interviewing in person, you should make some comparisons between at least 3 Realtors. The most bus bench ads in a neighborhood does not necessarily translate to the most experience. By talking to multiple Realtors, and asking the same questions to each, you'll easily be able to spot the differences in knowledge and experience and also get a good feel for those whom you'd be more comfortable working with.

Be wary of Realtors who employ high pressure "What's it going to take to get you to sign right now?" tactics. The best Realtors have confidence in their ability to stand out in any head-to-head comparison and will welcome the opportunity to let you compare. Pressure tactics indicate a Realtor looking after their own interests and make one wonder who's best interest will come first when negotiating offers to purchase.

Ask the Right Interview Questions

When you are interviewing prospective Realtors, it’s common for people to ask about years of experience, do they have references, etc.. but these questions are not as revealing as they could be. A Realtor may have 7 years experience but only part time and do only 1 or 2 transactions a year and anyone can give their close friend or relative as a good reference. Here are some suggestions for questions that may be more effective:

• What class of Real Estate license do you hold? In Alberta, there are 3 classes of license a Realtor can hold. The first is “Associate” and is what every brand new Realtor gets when they are first licensed. The other two are “Associate Broker” and “Broker” and to get any Broker-class of license requires completion of much more exhaustive training and testing. From an education perspective, both Broker and Associate Broker are the same. The difference between the two is that there can only be one Broker per company and they are the ones responsible for the company and all the Realtors who work there. Business cards will always have the Realtor’s class of license on it so if you forgot to ask, just look at their card.
  
• What courses have you completed? Realtors are mandated to take certain “update” courses every year or so to keep up with changing legislation but there are many additional optional courses available including those that lead to certifications and specializations. Extra education is always a plus. If you want proof just ask. Course histories are maintained by the Calgary Real Estate Board and can easily be exported and emailed to you.
  
• Do you have an ABR certification? The Accredited Buyer’s Representative certification is a great thing to see if you are a Real Estate buyer. The courses required to obtain that certification are designed to specifically to educate Realtors on how best to protect and represent the interests of buyers. There is a similar certification focused on Sellers called the SRS (Seller Representative Specialist).
• Are you a Certified Condo Specialist? If your purchase is likely to include condominiums, you should understand that condo transactions are far more complicated than a typical residential transaction and yet Realtors require no additional licensing or education to trade in this type of Real Estate. By looking for a Realtor with this certification and asking about their condominium experience you can ensure you're properly protected when considering this type of ownership. We have an entire page on this website dedicated to Condominiums if you would like further information.
• Do you offer any incentives? Some companies offer valuable buyer incentives, cash back or other deals to gain your business. While the skills and personality of the Realtor are most important, getting some perks never hurts. Check out our Buyer Incentives.

Purchasing Costs

When considering the costs involved to purchase, most people understand that they need to have some amount of down payment and that the balance of the purchase price (the mortgage) will incur some interest charges over the term of the loan. Beyond this however there are a few other costs that some folks may not realize. Here are some of the more common cost you could incur when purchasing Real Estate:

Lawyer fees

You will require the services of a lawyer when purchasing a house. Lawyer fees for buying are typically a bit higher than those for selling.

Mortgage Insurance fees

Collected from companies such as CMHC to help offset the risk to banks when lending to people with low down payments. The amount of this fee gets higher as the amount of down payment gets smaller. This fee is typically added to the mortgage principal although it can be paid up front if desired. These fees can be substantial, especially if you're doing a 5% down payment. CMHC is by far the most popular mortgage insurance company and their insurance rates can be found by visiting the CMHC website.

Home Inspection fees

Most buyers will want their offers to be conditional on a home inspection. The cost for this is typically on the buyers. Even if the seller provides a home inspection we recommend the buyer obtain their own so they can be confident in the findings. Your Realtor will likely have several qualified inspectors to recommend to you if required.

Other Inspection costs

During home inspections, issues may be found which necessitate more specialized inspectors to be hired. Also, most rural properties being purchased will require specialized inspections on well water and septic systems. Like home inspections, buyers are recommended to obtain their own inspections even if one is offered by the seller.

 

Adjustment costs

Depending on what day the home changes ownership, there are some adjustments made at closing for things like taxes, home association fees and the like. For example, in Calgary, people who pay their taxes yearly will pay at the end of June for the whole calendar year (6 months in arrears and 6 months in advance). If a buyer takes ownership in mid October, their taxes are already paid for the next 2 and 1/2 months so they will have to reimburse the sellers. Community Home Owner Association (HOA) fees are typically collected in January, so again, the buyer will need to reimburse the seller.

Commission

In most cases the fees you have agreed to pay your Realtor’s brokerage can be covered by the commission being offered by the seller’s Real Estate brokerage. If your Realtor agrees to a commission rate that is less than most sellers are offering (like we do) you can even get money back at possession day. If, however, the seller is offering less commission, or none then you may have to pay this cost yourself.

Buying Condos

Condominium purchasing is much more involved than a typical residential Real Estate transaction and if you intend to consider condominium properties you should ensure that understand the implications of condominium ownership and select a Realtor who is properly trained and experienced in handling these types of transactions.

We have a lot of information on this website dedicated to condominiums, however if you're considering buying a condo you'll want to read this page first.

Real Estate Foreclosures

Foreclosures are one of those things that lots of buyers tell us they’re interested in looking at until we explain what is involved and then none of them are interested anymore. Here’s why:

It is often assumed that a foreclosure can be picked up at a fraction of its actual value. In reality, that rarely happens. Courts have an obligation to mitigate the losses to the bank and the home owner and will often flat reject offers than are not reasonably close to the true value of the property.

Most Real Estate buyers who have made the decision to write an offer on a property expect to know the outcome relatively quickly so they can move on to another property if the offer is rejected. With foreclosures you may have to wait weeks to know if your offer is accepted or rejected.

Because the foreclosure is being sold by folks who do not know the history of the property, they are sold as-is without the normal warranties you would get on a normal purchase. If you subsequently discover the place was used as a grow op and the walls are full of mould, too bad, so sad, you will eat the cost of repairs yourself. When you buy a non-foreclosed property and discover an undisclosed problem like that you at least can sue for damages.

Offers to purchase non-foreclosed property are usually conditional on financing and home inspection. Offers to purchase a foreclosure are typically rejected if they have conditions. Sometimes you may get away with a financing condition if everything else is exceptionally good but if you want a home inspection you will typically have to get it done prior to writing the offer. Given that foreclosures do not come with warranties, inspections are even more important but most folks are not willing to spend $500-$1000 on a home inspection up front when their offer may not even be accepted.