Smart, Educated Buyer
Reading & Study For The Serious Peterborough Home Buyer
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Not Being Prepared When Buying A Peterborough House Or Condo Can End Up Costing You Money Out Of Your Pocket And A Serious Waste Of Your Precious Time ! Just like in any profession, there are some do’s and don’ts in the real estate industry. There are also many pitfalls for the uneducated or unprepared that could cost a home buyer a lot of money and certainly waste a lot of time. There’s mortgage financing options to master, neighbourhoods to consider, the physical aspects of a house or condo to learn about and the home buying process to understand. Unfortunately many Realtors don’t understand some of these factors either so it’s important that you choose wisely when deciding which real estate agent to entrust your hundreds of thousands of dollars with! Peterborough’s Real Estate Team has over 60 years of combined real estate expertise in the real estate market. We work hard to make sure our clients become smart, educated buyers before starting the complicated, sometimes stressful home buying experience. In this Smart, Educated Buyer HOME‐Work booklet we’ve started right from the beginning and included important information about creating a budget for yourself and how to get a written FULL mortgage pre‐approval to see how much of a loan you’d qualify for. We’ve also talked about buyer agency laws and practices and included plain language explanations of sometimes complex house or condo purchase agreements Our goal is to give you all the knowledge and confidence you need to make a smart, educated home buying decision in the next 3‐18 months. Whatever timeframe fits your circumstances if fine with us! Enjoy the read and please call or email me with any questions. Your Real Estate Consultant & Advisor for Life Sales representative – Peterborough’s Real Estate Team @ RE/MAX Eastern Realty Inc Brokerage – 705‐743‐9111
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Making A Plan To Buy A Peterborough House Or Condo One of the first things to do is determine what you have to spend monthly for shelter costs. Go to www.Budget.PeterboroughHomesAndCottages.com and download the Budget Calculation Form. By filling in all of your monthly expenses, you’ll see exactly what you have to spend to pay for a roof of your own over your head. You may have to make some lifestyle changes, you may have to pay off some outstanding debts but if you’re truly committed to becoming a home owner, these are small sacrifices to make. Based on your current financial situation, and your current real estate knowledge level, you’ll next have to determine what the ideal date is that you’d like to be moved in to your new home. Take a look at the Home Buyer Timeline below and work out what you have to do along the way.
The next two actions you must take are to find out unequivocally how large a mortgage you currently qualify for and which real estate buyer agent is going to represent you in the purchase of your new Peterborough house or condominium. So let’s talk first about qualifying for a mortgage. There are many mortgage financing options and it’s always better to talk to a professional to learn what they are. Our Team has had many client recommendations for specific lenders. On the next page we’ve included a list of items you’ll need to assemble to get your full mortgage pre‐approval. Page 3 of 33
Mortgage Pre-Approval Document Verification Form Buyer’s Name(s)
Verification of Down Payment...
Copy of a bank statement(s)
Copy of an RRSP statement
Copy of a GIC
Gift letter (must say ‘a non‐repayable gift’)
Accepted Agreement of Purchase & Sale on a property
Employment / Income Verification
The most recent pay stub showing yr‐to‐date income
Most recent Revenue Canada ‘Notice of Assessment’ form
A very recent employment letter showing annual income, position & length of time on the job
Two years of financial statements (if self‐employed)
Two years of tax assessment forms (if self‐employed)
Please collect together the list of ‘required’ items and fax them to Peterborough’s Real Estate Team as soon as possible OR to the following name/fax number.
We’ll put them together with your Mortgage Pre‐Approval Quick Qualifier form and forward them to the lender offering the best financing options for your particular situation. The lender will then provide us with an unconditional mortgage pre‐approval letter which will state exactly how large a mortgage they are willing to grant you and a commitment on a particular interest rate for a specified period of time (90‐ 180 days). This will allow us to go out and start shopping for a home without having to worry about the financing being approved!
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Choosing A Professional Buyer Agent To Advise And Counsel You Though The Entire Home Buying Process REALTORS work within a legal idea called agency. An agent is legally obligated to look after the best interests of the person he or she is working for. That person becomes a “CLIENT” and the agent must be loyal to that person. A REALTOR may be your agent – if you have clearly established an agency relationship with the REALTOR. But often, you may assume such an obligation exists when it does not. REALTORS believe it is important that the people they work with understand when an agency relationship exists and when it does not – and to understand what it means. In real estate, there are three different forms of agency relationship.
Seller’s (or Listing) Agent A real estate company may be an agent of the seller. In this case, a seller can expect the REALTOR to represent his or her best interests. This is the traditional and most common agency relationship in real estate. Sellers contract with REALTORS to sell their homes by signing a “listing” agreement. This is the agreement that establishes the formal agency relationship between the real estate company and the seller. A seller’s agent is expected to tell the seller anything that might influence the seller’s decisions such as the decision to accept an offer to purchase. The REALTOR must also maintain the confidentiality of information discussed with the seller. And the REALTOR must tell the seller if the buyer is willing to offer a higher price. A buyer can expect competent service, knowing the seller’s agent is bound by ethics and law to be honest and thorough in representing the property for sale. Buyers can expect help identifying how much they can afford to spend on a home, they will be shown properties for sale and REALTORS will help buyers complete the forms for an Agreement of Purchase and Sale when buying a home. A buyer can also expect from a seller’s REALTOR disclosure of pertinent information about a property, assurance that nothing about the property will be misrepresented AND honest answers to all questions about the property. REALTORS working for a seller can offer buyers access to a vast storehouse of information about homes being sold in the community. They also can provide specific information about particular homes. Page 5 of 33
Buyers should know, however, that information shared casually or on purpose with a seller’s agent – such as how much they ultimately are willing to pay for a particular property – must be shared by the REALTOR with the seller.
Buyer’s Agent A real estate company may act as an Agent of the buyer. This concept has been around now in Canada since 1995 although it has been in practice in the USA for a few decades! In this case, it is the buyer who can expect the REALTOR to represent his or her best interests and the buyer becomes the Agent’s Client! REALTORS will fully disclose to buyers all the pertinent facts about a given property. A REALTOR working for a buyer will also keep information about the buyer confidential from the seller. A buyer’s agent will also do a comparable market analysis (CMA) for the purchaser to help determine what the fair market value is for a specific home that the buyer is interested in. Buyer agency is established through a written contract between the purchaser and the REALTOR. That Buyer Representation Agreement (BRA) will explain exactly what services the REALTOR will provide the buyer, who will pay for those services and what obligations the buyer will have. For instance, a typical buyer’s representation agreement will commit a purchaser to work exclusively with that REALTOR for a set period of time. A seller can expect from a professional buyer’s agent excellent representation during showings and negotiations with the buyer’s Agreement of Purchase and Sale.
Dual Agency Occasionally a real estate company will be the agent of both the seller and the purchaser. This is called “dual agency”. Under this arrangement, a REALTOR may be obligated to look after the interests of both the buyer and the seller. In a dual agency situation, a REALTOR owes full disclosure to both the buyer and the seller. Any confidential information must be shared with both parties. But the aim of the REALTOR remains the same… putting together a willing seller and a willing purchaser to complete a transaction. A typical example of this would be if a buyer calls on a sign or ad, is shown the property by the listing agent and then puts in his/her offer with that listing agent. This situation should be avoided at all costs – read more about the pitfalls of this type of dual agency situation below. Page 6 of 33
Strict dual agency most often occurs when a buyer agent’s client becomes interested in a listing where the seller is also being represented by the same company (ie. Both buyers and sellers were RE/MAX Eastern Realty Inc Brokerage clients). When this occurs our Team practices what we call ‘limited dual agency’ where whatever the seller has told the listing agent remains confidential and whatever you’ve told us, your buyer agent, ALSO remains confidential and we work just as diligently to get the best price and terms for our buyer client!
When More Than One REALTOR Is Involved Most commonly, a buyer will work with one REALTOR and the seller will work with another. The REALTOR working with the buyer under a BRA is representing the best interests of that buyer and has an agency relationship with the buyer. Most homes are sold through a system of co‐operation among REALTORS known as the Multiple Listing Service or MLS. Under the MLS system, a REALTOR working with a seller offers to co‐operate in the sale of that property with other REALTORS. Any co‐operating REALTOR then becomes a “sub‐agent” of the original “listing” REALTOR. That means all co‐operating REALTORS – even though they are working closely with a buyer ‐ are actually agents of the seller and must represent the interest of the seller UNLESS they have a signed Buyer Representation Agreement (BRA) with that buyer. Many buyers who did NOT sign a BRA thought that “their agent” was working on their behalf. The agent may have established an excellent working relationship (and sometimes even a friendship) with the buyer but the bottom line is that the agent was still legally representing the seller. Now it is possible for a buyer’s agent with a client under a BRA contract to co‐operate through MLS with a seller’s agent. A buyer’s agent REALTOR would simply have to identify himself to the listing REALTOR as a buyer’s agent in advance of any showings and offer negotiations, and receive written acknowledgement of the Buyer agency relationship (using a Confirmation of Representation form) from the Seller before presenting any offer on the buyer’s behalf.
How To Know Who’s Working For Whom? A REALTOR will be pleased to discuss with you his or her agency responsibilities. If you are confused about the type of agency relationship between you and a REALTOR, ask the REALTOR to explain it. Page 7 of 33
REALTORS work under a strict Code of Ethics. One provision of that Code requires REALTORS to seek written acknowledgement from buyers and sellers that they understand Agency relationships – the document is called “Working With A Realtor” and explains each type of agency. Once you are comfortable with the relationship you are forming with a REALTOR, you must sign a Working With A Realtor form AND a Buyer Representation Agreement form. When you do so, you will be choosing whether you want to continue under the old system of representation whereby the agent represents the seller always OR if you want a buyer agent to represent your best interests and work 100% on your behalf! Once you make the decision which way you would like to operate, the REALTOR will keep the forms that you’ve signed on file to show that he or she has discussed agency with you. You should keep a copy of the BRA agreement as a reminder of who the REALTOR is actually working for.
The BEST Part… Who Pays the Commission? Usually the seller’s agent earns a fee or commission from the seller of a property. This fee is agreed upon in the listing agreement, the same agreement that establishes the formal agency relationship between the REALTOR and the house or condo seller. A buyer can expect service from a seller’s agent (as described above) but that service will be paid for by the seller. The fee of a buyer’s agent must be negotiated between the purchaser and the REALTOR. In the simplest case a buyer’s REALTOR would be paid directly by the buyer. In the most common case (99.5% of the time) however, the commission for the buyer’s agent will be paid by the seller and will be deducted from the total sale price of the property ‐ the SAME as it always has been! Payment for a multiple agent must be agreed upon in the various contracts between the agent, seller and purchaser. Page 8 of 33
Honesty and Integrity Most real estate professionals in our province are members of the Ontario Real Estate Association (OREA), and only members or OREA can call themselves REALTORS. When you deal with a REALTOR, you can expect strict adherence to a Code of Ethics. And that code is very important because it assumes you’ll receive the highest level of service, honesty and integrity.
Agency Rules The Listing Agent MUST Follow The agency rules pertaining to who a listing agent represents and what their actions can be are quite strict. Here’s what they say… “If you represent the seller, you should ONLY prepare a comparable market analysis (CMA) for a buyer customer upon request. And, if you do prepare a CMA, you should NOT use it to provide advice that will assist the buyers in their price negotiations. To do so might give the buyers a negotiating edge and violate your DUTY to put the interests of the seller FIRST! Remember, if you are the listing agent, or a sub‐agent to the seller, your PRINCIPLE fiduciary duty is to the seller, even if you are also working with the buyer as a customer.”
These rules clearly show that the listing agent’s first LOYALTY is to the seller, NOT the buyer! Our Team is so serious about the issue of professional buyer representation that all of our members have stepped forward and taken additional training in the field. The premier training available is the Accredited Buyer Representative (ABR) designation. Read more about the benefits of working with an ABR certified buyer agent in the next few pages.
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An Agent’s Obligations To Their Client OR Customer To a Realtor, there are different obligations when we’re representing home buyers or sellers as Clients (under contract and we’re representing their best interests) or as Customers (no contract and very limited obligations). Read below the differences between Client representation vs being treated as a Customer. Realtor Obligations
Exercise care and skill Perform mandate Obey instructions Act in person Negotiate favourable terms Maintain confidentiality Disclose information
Do not misuse confidential information Do not make secret profit Disclose any conflicts Avoid conflicts of interest Maintain utmost loyalty Disclosure of the following... My representative capacity Agency relationship forms signed Deliver all agreements, offers and statements FINTRAC forms completed To account Remuneration provisions Not to induce, breach or make certain promises
Customers Exercise care and skill Ensure honesty
Disclosure of the following... My representative capacity Agency relationship forms signed Deliver all agreements, offers and statements FINTRAC forms completed To account Remuneration provisions Not to induce, breach or make certain promises
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Winning At Multiple Offers – Buyer & Seller Options Although they’re not common in Peterborough, they do happen. When we go to present an offer on our buyer’s behalf, our Team has developed several strategies to give our clients a better chance at success when faced with offers from other buyers being submitted at the same time. When we present our offer and start the negotiations, the seller now has several choices.
The seller can... •
Accept one offer and reject all the others.
Sign back one offer (make some changes to it and give it back to the buyer for consideration) and reject the others.
Reject all offers and send them back to all of the bidders for improvement.
Sign back one offer and hold on to the others pending a response from the buyer getting the sign‐back.
• Hold on to one or more offers while sending the others back to the buyers for improvement. • Hold on to copies of all the offers and send the other copies back to the buyers for improvement.
The Buyer Has Some Options Too... After the seller has considered the pros and cons of the various offers they've received, there are several scenarios that could be played out. As described above, once the seller has reviewed the all the buyers offers, they can either accept one buyer’s offer on first presentation, or sign back the buyer’s offer with a different price or change other terms of the offer. If the buyer does get a sign‐back from the seller, the buyer can then: Page 15 of 33
Accept the sign‐back
• Sign back the seller's sign‐back (but perhaps risk another offer coming in at the same time) •
Withdraw completely from the offer process
Tricks of the Trade Firm Offer / NO Conditions ‐ how do you ensure that nothing can go wrong when you present a firm offer? Offer Registration & Presentation Order ‐ what are the rules and how can we use them to our advantage? Bully offer ‐ what it is, how it works and how successful it is Preparing two offers ‐ advantages and when would you use this option Sharp Bid ‐ what it is, how the process works and pros and cons of using this method
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Forms And Contracts Like in any professional relationship, there are various contracts to determine who is representing whom and contracts to set out the details of the purchase of a Peterborough house or condominium. Real estate is no different. Since these are legal contracts, there is sometimes language that is confusing to buyers or sellers. In the case of contracts, the Peterborough Real Estate Board has taken the time to create ‘plain language’ explanations for these documents which help home buyers to understand what it is that they’re signing. As you’re getting prepared to sign any of these standard Peterborough Real Estate Board and Ontario Real Estate Association documents, your buyer agent will explain what the various clauses mean so you have a clear understanding of the obligations and commitments you’re agreeing to. A professional buyer agent is totally able to render these explanations but, if you feel you’d like to have a lawyer review them, that’s fine. Either send the documents over to him personally or have your buyer agent do so on your behalf. One important consideration though… if you’re going to do that, send them to your lawyer well ahead of time and get an answer or advice back right away. I guarantee most lawyers will not be available to us at 9 pm on an evening or on a weekend when we may be putting your offer together. Here’s a list of the Peterborough And Kawarathas Association Of Realtors (PKAR) forms and ‘plain language’ documents we’ve included for you to read through…
PKAR Working With A Realtor form PKAR Buyer Representation Agreement contract PKAR Agreement of Purchase and Sale PKAR Agreement of Purchase and Sale for a condo buyer
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PKAR Working With A Realtor form (1 page)
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PKAR Buyer Representation Agreement contract (4 pages)
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PKAR Agreement of Purchase and Sale (6 pages)
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PKAR Agreement of Purchase and Sale for a cottage buyer (2 pages) The Agreement is the same (see “house” above), there is a difference in the Schedule A – shown below
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Where Do You Go From Here? Depending where you are on the home buyer timeline graphic on page 3, our Team offers many services to ensure you become a smart, educated Peterborough home buyer. Here are some of those options… Attend a live home buyer workshop held in Peterborough bi‐monthly. Click on www.BuyerWorkshop.ca to register. If you can’t make it to the live class, watch our Home Buyer Workshop video series in the comfort of your home. Go to www.BuyerWorkshop.TV and sign up. Start getting listings customized to the neighbourhoods and price range that would interest you most. Sign up for our HOMEWatch Program at www.PeterboroughListingsByEmail.com Go on a Market Experience Tour ‐ Taking an actual tour of homes in your favourite neighbourhoods well before you’re actually ready to buy is perfect to help you create your home buying plan. Choose which tour is best for you at www.PeterboroughTourOfHomes.com Ask your buyer agent to give you the links to the forms to fill in your personal Wishlist, Financial Counselling, Ultimate Home Buying Scenario and your family Budget. These will help to set up your home search and help you better plan your ‘Smart
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