I had to laugh. A few months ago I bought a property in the country. Knowing the Toronto market like I do, I was prepared to shell out $50,000 as a deposit with my offer. Before I wrote the cheque I thought I would just ask the listing agent what an appropriate deposit would be. His response…$5K should do it! The experience highlighted the differences between our two markets. One, a fast paced, come hell or high water environment where a big deposit means business, and the other, gentle simplicity where trust is the underlying currency.
The reason I bring this up is that many years ago, at the start of my real estate career, deposits were never really that high. It was always impressed upon me, when I was starting out, that the deposit should at least cover the commission but that guideline was seldom adhered to. Today, the deposit amount plays an intricate role in the purchase of a house. A big deposit, in the form of a bank draft will beat out a small deposit written on an uncertified personal cheque every time. In fact, nothing says ‘I’m serious’ like a deposit of 10% of the property value when offering. With big money on the line, buyers need to know the implications….on the off chance that something goes wrong. Clearly its a lot of money to leave on the table.
What I am inferring here is that the buyer interview just got a whole lot more important. We are long past taking a buyer’s word that they are approved to buy a house. A responsible Realtor needs to do a deep dive during that initial buyer meeting and be prepared to ask some often difficult questions. Buyers have to know that their deposit might be at stake given the fact that there are so many places where things can go south. It’s not just buyer’s remorse anymore, we are seeing deals fall apart because banks are changing financing terms on the fly.
So what can you do to help Betty Buyer? Ask more questions and offer more advice. It’s no longer good enough to ask if she has talked to a bank. Get Betty to provide a letter of commitment from the bank OR get her to talk to YOUR guy. Talk to Betty about the perils of not closing. Explain what happens if the house doesn’t appraise out. Ask if there are sources for her to find more capital (like the bank of Mom and Dad). Talk about closing costs and various taxes she will need to pay. Its time to take the buyer interview to the extreme vetting stage! For some agents it will be a difficult conversation. For others it will be instinctive. But at the end of the day it is not just about all saving you grief and heartache when the deal goes south, its about going the extra mile for your buyer client. As the listing agent, there is extra onus on you to ensure that the buyer is QUALIFIED to buy the home. This means asking the buyer agent questions about their buyer; how long have they been associated? Have they done offers before? What steps did the buyer agent take to ensure the buyer has money to close? I am reminded of a deal I did many years ago that went sideways after an accepted offer. I asked the buyer agent what they new about their buyer and was shocked to hear that they met them at an open house, and didn’t have time to properly qualify them. Hey, not all deals will go according to plan but if you ask the right questions first you eliminate problems down the road.
Mark McLean is the Broker/Manager at the Bosley Real Estate Queen St W office, the Immediate Past President the Toronto Real Estate Board and a director at the Ontario Real estate Association. The opinions expressed here do not reflect the opinions of TREB, OREA or Bosley RE.
If this is Wednesday, it must be Mastermind. One of my favourite days of the week. What I like most is when everyone talks at once. While it is a bit chaotic it is great to see that everyone wants to add their two cents into the conversation. It’s a clear indication that everyone is interested and paying attention .
Today, we were happy to have Joe Sammut from Mortgage Architects http://www.mortgagegate.ca/index.htm come in to talk a little about the mortgage market. Some agents had expressed some concern that buyers were getting into financial jams before closings because properties were not appraising out. Joe was quick to point out that he was not seeing this trend however he focused the discussion on a couple af main points;
- Yes, bank appraisers are being more conservative and some secondary lenders ( non big five banks ) are using “fire sale appraisers”.
- Whether you are buying or simply refinancing, it is important to remember that appraisers don’t appraise over value. That is, don’t ever expect that $500k appraise at $550k.
- Paying over the asking price will pretty much guarantee more than a quick drive by appraisal.
- For the most part, the lender looks at three key lending criteria; occupation, down payment and credit.
- There is some tightening for self-employed people, offshore investors and new immigrants.
So the question of the day was; how do we ease the stress of financing? Not surprisingly the work starts with us on the front lines. It is important to have an honest conversation with your buyer from the beginning. Don’t be afraid to ask the big questions;
- If there is a shortfall between the appraised value and purchase price, do you have the means to make up the difference?
- If the interest rate goes up, will the mortgage payment still be manageable?
- Are you aware of the closing costs involved with this purchase?
- Do you have enough money available to do minor repairs or improvements?
The take away here is that communication is the key to a successful real estate transaction. You are working with a buyer to find them a home that they can afford. If the client is unwilling to provide you their mortgage details at least stay in contact with their mortgage broker to make sure you don’t sell them something they can’t afford. It is important to either have a strong understanding of the mortgage market or have a good broker who is an available member of your team. Perhaps that’s why they say that behind every great real estate agent is a great mortgage broker.
Naturally I hope to hear from you if you have anything to add to this post. Have a great week!