The Home Buying Process: A Basic Overview

While every financially significant investment poses risks, the Canadian real estate market offers more opportunities than ever before. Whether you are an experienced real estate investor with a sophisticated and diverse portfolio, or a first-time homebuyer contemplating the purchase of your first home, it is important to educate yourself on the latest economic and real estate market trends, the basics of the home buying process and to understand the unique local market trends impacting your neighbourhoods of interest. It is also essential that you select a skilled an experienced real estate advisor to help you navigate the process.

Sotheby’s International Realty and our affiliates provide homebuyers with expert advice, accurate market and property information, prompt access to coveted properties and the highest level of service and discretion. We offer skilled and authoritative assessment of real estate opportunities, as well as exclusive access to some of the best properties on the market —many of
which may never be available to the public.

This Home Buyers’ Guide provides a general overview of basic essentials you need to understand in order to navigate today’s real estate market. To receive full-service support and real estate advice tailored to your needs, schedule a personalised and complimentary consultation.

Finding and purchasing a home involves the general steps outlined in the following section; however, most homebuyers and real estate investors have unique financial, property and personal requirements that demand advice from a real estate advisor with specialised expertise. These include instances when you wish to purchase a:

  • Home that is dependent on the sale of another property
  • Vacation home
  • Canadian property from overseas
  • Property located outside of Canada
  • Secondary or multiple investment property
  • First home

Step 1: Secure Financing

Before starting your home search, it’s important to evaluate your financial situation, confirm your budget, familiarise yourself with mortgage options and secure pre-approval from your lender. This will help you conduct your search with confidence and negotiate your desired home successfully.

As a general guideline, total monthly housing costs for your primary home, including mortgage payments, taxes, maintenance fees, insurance, interest charges and utilities, should not exceed 32% of your gross monthly household income.

Many financial advisors also suggest that total monthly debt, including mortgage payments, credit card and car payments, should not exceed 40 per cent of your gross monthly income. Those purchasing a real estate investment property should consult their real estate and financial advisor to understand tax and financial implications of their purchase.

In the Canadian market, if your down payment amount is less than 20 per cent of the total purchase price, you will need to purchase mortgage loan insurance that guarantees the debt against default. In most cases this will be added to the mortgage loan.

In markets where there is high demand and a low volume of the type of home you wish to purchase, written pre-approval is essential and will give you the competitive edge in securing your desired home. For example, in a scenario where a seller receives two similar offers, one accompanied by a letter that confirms financing pre-approval, and another other without supporting documents, the former offer is frequently considered first.

Step 2: Define Your Goals, Needs and Budget

Prior to meeting with your real estate advisor, it is important to clarify your budget, personal property preferences and any anticipated life stage and lifestyle requirements that may impact the purchase of your home.

Most people aim to find a home and neighbourhood that will meet their needs for the next five to ten years. Your real estate advisor can help you assess how your lifestyle and life stage needs may impact the property or neighbourhood that is right for you.

Step 3: Selecting A Partner In Your Property Journey

A realtor represents your interests when purchasing a home, one of the most significant financial investments you can make. For this reason, it is essential to select an advisor with in-depth knowledge of your local real estate market and specialised experience in the property types you are
interested in.

Our associates offer in-depth knowledge of your local real estate market, from advice on the homes and developments with the best potential return-on-investment, to insight into the properties and neighbourhoods that best match your life stage and lifestyle.

In some areas, many homes are sold within hours and days of being listed on MLS. Other properties are marketed exclusively and privately within the Sotheby’s International Realty network without ever being made available to the public. Our connection to over 23,000 associates worldwide gives you direct and priority access to real estate opportunities that would otherwise
be difficult to view.

With a network of 1,000 offices in 71 countries and territories, Sotheby’s
International Realty provides unparalleled access to the global real estate market. We have the experience and contacts to facilitate international real estate transactions and to assist clients who wish to buy real estate from anywhere.

We assist clients in the purchase of real estate in more than a dozen real estate categories: single-family homes, condos, townhomes and multiplexes, as well as properties that demand specialised knowledge such as waterfront real estate, luxury real estate, golf properties, ski resort properties, rural real estate, vineyards and islands.

We commit to providing you with confidential, knowledgeable and responsive service. We guarantee discretion, monitor and promptly deliver listings that meet your criteria, facilitate viewings and property tours according to your individual needs and schedule, and facilitate the negotiation and purchase of your home professionally.

Step 4: Conduct Your Home Search

Once your realtor has an understanding of your budget and property preferences, you can expect them to provide you with updates as soon as a property :that meets your desirable home criteria is available. Your real estate agent will schedule walk-throughs of properties matching your preferences and needs.

It can be challenging to determine the fair market value of a home and to assess whether it is “good value” for its listed price or for your budget. Variables that impact the value of a home or property include its location, neighbourhood, community plan, proximity to amenities, lot attributes, views, property size, interior and structural condition, construction type, age, unique features, and the state of the local real estate market.

Your Sotheby’s International Realty associate will assist you in assessing the pros and cons of the home(s) you are interested in, and provide insight on recent comparable property sales so you have the information you need to place an offer and negotiate effectively.

Step 5: Submit Your Offer

It is important that you sit down with your agent or lawyer to prepare your offer. Real estate laws vary widely from region to region, and it is essential that you protect your legal interests and account for any specific contractual contingencies that are unique to your area and desired property.

In Canada, an offer commits you to legal and contractual obligations as soon as the other party has accepted it. Prior to submitting an offer, ensure you are clear on the legal obligations you are undertaking, should the offer be accepted.

Prior to writing your offer, your Sotheby’s International Realty associate can provide you with information on recent area sales, local market information and background on whether there are competitive bids, which will help you determine your initial offer as well as your target price for this specific home.

With some investigation, your realtor may also be able to assess your seller’s background and objectives for selling, which may assist you in crafting a competitive offer.

The details of an offer typically include: your legal name and that of the vendor, the legal civic address of the property, the price you are offering to pay, inclusions (items in or around the home that you think are included in the sale should be specifically stated in your offer, such as appliances, lighting fixtures or window coverings), amount of your deposit, dates you take legal and physical possession of the home, legal “subjects” or “conditions” upon which the contract becomes final (such as satisfactory home inspection report or financing approval), and the date the offer expires. Your offer is a legally binding document and should be prepared by a real estate professional or lawyer.

Your realtor can advise you as to whether a professional inspection should be conducted prior to or after submitting your offer. This will depend on the property age and type, and whether competitive bids are anticipated. Ensure that any time frames indicated in your contract are realistic, particularly if your offer is still subject to securing a mortgage loan, a situation we advise against by ensuring you secure pre-approval in advance. Increases in market activity as well as increased vigilance by lenders may mean that mortgage approval requires more time.

Step 6: Negotiate Successfully

After submitting an offer, you should be prepared to negotiate, not just on the initial price, but on all key factors impacting the sale of the home including deposit, inclusions, dates for completion and possession, and deadlines for subject removals. Ensure you know your budget and requirements prior to submitting your offer so you don’t commit to additional costs in the heat of the process.

In high-demand, low-inventory areas, you may find yourself bidding against other buyers. Some sellers in high-demand niche markets may also intentionally list their home at a low price hoping to stimulate multiple offers. This does not necessarily mean that the price will be bid up significantly over the asking price, but it does mean that due diligence is required on your part and the part of your real estate agent to ensure the offer you submit is strategic, competitive and reflective of what are
ultimately willing to pay for the property.

Whether you are anticipating competition or not, you should be pre-approved for your mortgage prior to your home search and well in advance of writing an offer. In a multiple offer situation, this will impact your ability to negotiate successfully, particularly if others making an offer are already pre-approved. It also lets you know the maximum you can afford in what may be a stressful situation.

Once both parties come to an agreement, negotiations conclude and you move on to the next steps in the buying process. You will have a set period of time in which to satisfy the legal conditions (“subjects”) agreed to in your contract, such as completing a satisfactory home inspection report or
securing financing. Only after your subjects/conditions are removed do you have a legally binding document.

Step 7: Close the Deal

The closing or completion day is the day you take legal possession or your new property. As this day nears, your realtor and lender will monitor the
progress of your transaction to ensure there are no last minute issues that need to be dealt with.

On completion day itself, legal property ownership is transferred to your name. The mortgage amount is provided to your lawyer or notary by your lender and you will receive a Statement of Adjustments with costs payable, including: balance owing, legal fees, property transfer taxes and other completion costs. Your lawyer or notary will pay the seller, complete necessary documents and register your home at the Land Titles Office in
your name.

On your closing day, your lender provides the mortgage money to your lawyer/notary, you provide the down payment (minus your deposit) to your lawyer/notary as well as remaining closing costs. Your lawyer/notary pays the vendor, registers the home in your name and provides you the deed to your new home.

Article originally appeared in Sotheby's International Realty Canada

Photo credit: Sotheby's International Realty Canada