Anecdotes and Advice from a First Time Home Buyer Part 6 – Week One With An Agent

by Mike Holman

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My friend Christine has kindly agreed to write a series of posts on her experiences with buying a home for the first time which will be posted occasionally. See Part 5 – The Search.

Of four houses that we were to view, two were unexpectedly taken off the market that day. In one case, a home owner’s spouse had died and she no longer wished to sell. The other house was inexplicably closed to further showings. I found out later that a buyer had offered to pay $80,000 over the asking price. Days on the market: four. The prospective buyer had submitted a “bully offer”, an offer which is submitted before the official offer day. Under this scenario, the seller had a very short time frame, perhaps only 24 hours to consider the offer. The listing agent usually informs the agents of clients who already seen the house, of their need to submit their bids immediately if they wish their offers to be considered against that of the “bully”. Because bully offers are often generous, with few if any conditions, they are often accepted by the homeowner who is happy to accept as much as s/he can for the house.

The first house that my husband and I were able to see with our agent was a three-bedroom semi. For $499,900, it was definitely a fixer-upper with dark rooms and a pervasive damp odour throughout the house. Although the wiring and roof had been recently updated, the house most certainly required an overhaul to be habitable.

House number two was one with which my husband and I fell in love. Ideally located for us location-wise, the house was immaculately renovated and even furnished in our style. Despite our attempts to overlook the current homeowners’ decorating style, we couldn’t help being influenced by the aesthetics. While it was well above our budget, the house was very reasonably priced for the neighbourhood and therein lay our dilemma. After an angst-filled day of crunching the numbers, we had to pass on the house. Our realtor had also been able to ascertain that two home inspections had already been booked, and thus there would be multiple offers on the offer date. As the house was already above our means, we would have been unable to compete. In the end, the gem of a property sold for $100,000 above the asking price and after only a week on the market.

The lesson we took from this exercise was to try to avoid emotional attachments and to judge a house more dispassionately. In the weeks ahead, hopefully something will turn up.

Read the next post in this series “A Close Call“.

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{ 11 comments… read them below or add one }

1 Traciatim

Patience is a virtue when it comes to home shopping. My S.O. and I looked at near 25 houses when we were shopping. I think our agent may have been getting tired of us by the end of it.

It turned out that one day my sister was down and the kids were away so we called the agent to go show my sister some houses that we kind of liked. One of them canceled on us last minute so we had some time and swung by a different one that we weren’t really looking at online. It just happened to be on the way home. That one was ‘the one’.

Also, I know you probably live in an overpriced area or something, 499K for a fixer upper? That would put you somewhere near a payment of $3,163.45 per month. For that to be 32% of your gross income you would need an income of 115K (give or take). Around where I live 499K would get you a cozy McMansion just recently built. Maybe you should consider coming eastward.

2 TheFinancialBlogger

When we bought my second house, we were able to avoid any kind of emotions during the selecting process. The trick we found to become more rational is to not talk to each other about properties we were looking at until the end of the day. Then, we had to write our impression supported by facts for each of them.

With this technique, you avoid to motivate each other to buy the house the very same day. Agents are terrible for that. Regardless the sales pitch about helping you finding the right house for your need, they are only in for a quick sale ;-) Therefore, they will always push you to make an offer the very same day!

3 Mr. Cheap

FB is totally right that agents want a quick sale (and they’ll happily push the buyer *or* seller to get it). You can’t really blame them, that’s the way they get paid.

It must be an awful process trying to find the “ideal home” to live in. When I was looking it was all about the numbers, so each property was pretty interchangeable with the next, I can imagine how heart-breaking it must be after a long search to find the property you’ve been looking for, then not to be able to afford it.

4 SavingDiva

Wow! I can’t imagine having to make such snap decisions about purchasing property! I have to sleep on a shoe purchase!

5 FourPillars

You definitely can’t trust your agent!

Mr. C – I don’t think too many home buyers can afford what they really want – it’s all about compromise. That said, a lot of first time home buyers make the mistake of “falling in love” with a house – if they don’t get it, it can be tough.

6 telly

Far too many emotions involved in a buying a house. For that reason (and many others), I just couldn’t imagine finding a way to justify 1/2 million on a “fixer upper”, I suppose if we were pulling in $300k / yr… :)

That being said, how many people actually buy a home using 32% of gross income as their target? I suppose with two solid pensions, but if you need to save for retirement, I find it hard to imagine how a family could make ends meet on this kind of budget.

7 FourPillars

Telly – I thought the rule was 32% of net income?

Mike

8 Gates VP

I’m going back a few posts and I found this gem from Christine:

My ideal home is downtown, has at least four bedrooms with as many bathrooms, and has an open, Hotel W aesthetic with immense closets. The dream is achievable, but not in Toronto and not on my budget.

And I think that says it all. Homes in Vancouver and Toronto carry the “International City Premium”. Which means that your house is marked up by 75-125%, just the way it is. At the very least, she knows what she wants in a home, but it’s also pretty clear that she can’t afford that.

I think that the missing key here is to “stretch the dream”. If you can’t reach your dream right away, you either have to find an alternate route or abandon the dream. That means you have a few options:
1. You can live forever in a house that’s “not quite” and “hope to upgrade”. This is really splitting the difference and settling for less, which is not inherently wrong.
2. You can intentionally buy small with plans on maximizing savings AND leveraging the accumulated principal to buy the dream home later.
3. You can rent and save aggressively. If you are dinks, then this is likely the easiest option. Rental apartments tend to be close to public transportation options and they tend to support the “walker’s lifestyle”.
4. Move somewhere else. Maybe not what you want to do, but owning a home in Toronto/Vancouver is not the same thing as just owning a home.

Truth is, I just moved to Edmonton, and the fianc & I are in a similar situation. We’d like to own our own place, but we know that we can’t afford what we want. The plan right now is #3. If we can find the right deal and decide that we want to stay somewhere, then we may “upgrade” to a “starter” home. But the big dream is a half-million dollar house, but we can wait 10 years to put aside 100k for that purpose.

We’re not going to get there without pushing our savings. Right now, renting is the best way to push our savings b/c it’s so much cheaper than any of the other options.

9 telly

Mike, according to CMHC:

“This calculation is based on two simple rules that lenders use to determine how much of a mortgage you can afford. The first rule is that your monthly housing costs should not exceed 32% of your gross monthly household income. Housing costs include monthly mortgage payments, taxes and heating expenses. If applicable, this sum should also include half of monthly condominium fees.

Secondly, your entire monthly debt load should not be any more than 40% of your gross monthly income. This includes housing costs, and other debts such as car payments, personal loans, and credit card payments.”

I find these numbers exceedingly high. If you’re pushed to 40% debt and say 25% income tax, that doesn’t leave much for retirement plans, other expenses (including the added expenses of owning a home), and some discretionary spending…after all, we all like to have a little fun.

Gates, I wonder what a $1/2 million house will cost you in 10 years? Or were you referring to 2017 dollars?

Your big dream has to be about more than the $ value of the home. Knowing what you “need” in a home and making a list of some “nice to haves” makes a lot more sense than just deciding on a budget for a home. This is where I get a little confused by the home buying process. In some cases, if you’re specific about a neighbourhood you want, you might not have much leeway with price ranges but I always find it odd that people determine their budget and then look for homes at or around that limit. In general, if you’re working with an agent and you tell them you are willing to spend say $300k, what do you think the likelihood is they’ll show you a house that’s listed for $200k? Pretty much nil, even if it has the # of bedrooms & bathrooms you want, etc.

10 FourPillars

Thanks Telly – had I known that I would have bought a more expensive house! haha.

I agree – those numbers are pushing the limit. I guess it’s ok for younger people who can’t otherwise buy a place to push the limits since they will probably be getting raises, promotions at work.

Gates – I’m not going to say whether you should buy or not or what to buy, but the idea of a “dream house” just doesn’t work for me anymore. A house is a house. It’s the people inside that are important.

Mike

11 telly

Amen Mike. :)

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