I’ve been asked why there have been no new postings. You would think that with Covid there would be nothing but time to write.  Writing takes more than time. It also needs inspiration. Real Estate has kept me busy, and I have been spending more time monitoring (Buying and Selling) stocks. Like everything in life the more time you spend on something, the better it goes. (It might take longer than we hope though.)

This has been a year of learning. It is my first year as a Real Estate agent. Like most things, the course did a very mediocre job of preparing you for real life. They spend considerable time on stuff you really don’t do.  They spend almost no time on the stuff you really need to know. So, once you get out there, it is a steep learning curve.

I have had the pleasure of working with exceptional agents all year. I doubt very much that Buyers and Sellers have any idea of how much effort agents put into making deals happen, behind the scenes. There is a great deal of negotiations, and paperwork.  The experiences we have had in over 40 years of buying and selling properties have proven invaluable.  We are able to head off many issues because we know what can come up, and several ways to solve them. That doesn’t mean there are not new issues to learn from.

Right now, in my area, it is the strongest SELLERS market in over 20 years. The pressure on Buyers is tremendous.  This is causing multiple offers on properties. (the highest number I have heard is 27 offers) It is tough choosing between 2 offers much less 27. This leads to offers well over the asking price. Nice for the Seller not so nice for the Buyer.  There is usually another, silent, player in the mix.  That is the Financial Institution issuing the mortgage.  (Cash offers, those with no financing clause, are normally the strongest offers by the way.)

Just because selling prices are on the rise, the banks are not ready to risk money on inflated values. There is a ratio that banks use, called Loan to Value. That can be anywhere from lending a maximum of 95% or less of the value.  So how is value established?  Either by the purchase price or by an appraisal.  WHICH EVER IS LOWEST!!

That can mean that you might not get a mortgage for the amount you need, based on the ratio. This is especially hard on first time buyers who only have 5% down payment. Let us look at an example.

The house listed for $450,000. It took an offer of $475,000 to get it.  At $450,000, 5% down payment is $22,500.  At $475,000, that 5% is $23,750.  At the higher price, you need an extra $1250.00 to keep the same 95% loan to 5% down ratio.  That is issue #1.

Canadian banks are not allowed to take risks.  Just because the accepted offer price is $475,000 does not mean the bank and the appraiser will value the property at that price.  Before the mortgage is finalized, most Banks will send out an appraiser.  Say they appraise the house at $400,000. The most the bank will lend is 95% of the appraisal (since it is the lowest price). The most that the bank will lend you based on that appraised value is $380,000. So, you would have to come up with $95,000 as your down payment. This is becoming more of an issue for Buyers.

Reality does not care about emotions.  It does not care that you just have to have that house.  Lenders take a long term view of money. Real Estate does drop on occasion. Even a 5% drop in prices has a major impact on the Loan to Value ratio. Here are some steps you can take to maximize your success.

  1. Go to a mortgage broker FIRST! (they have more resources than a bank) and go over what you can really afford. THEN STICK TO IT!!
  2. Have patience. There are good deals out there, even today. You just have to wait for them. (Is your agent looking on your behalf??)
  3. Be flexible. If the house is in a good neighborhood, is solid, and has the number of rooms you need, and is livable, make a reasonable offer.
  4. DO NOT JUDGE A PROPERTY BASED ON LANDSCAPING, PAINT COLORS, OR TYPE OF FLOORING. All these are easy to change as time goes on. If you do this, chances are you will have way less competition for that property.
  5. Work with an experienced agent. Buying and selling property for someone else, is not the same as buying and selling for yourself. There is no replacement for personal experience.
  6. Listen to your agent. If the agent seems unenthusiastic about the property, it is not because they are negative. They may just be looking out for your best interest. It is easier for them to be objective, since they don’t have the same emotional involvement that the buyer has.

Investing in Real Estate is one of the best ways to getting to Financial Independence.  Like every form of investing, it requires a good team. If your buying a house, you need at least, a good Mortgage Broker, a good Real Estate Agent, and a good Lawyer.  If you go into Income Producing Real Estate, add a good Accountant. If you are not handy, a good Contractor or Renovator is the next member of the team.