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 its Wednesday it must be Mastermind. Thanks to all that showed up. In addition to the regulars I am happy to have some of the new agents attend as well. While they haven’t put time into the business to share their ‘war stories’, its good to know that they are taking advantage of others. So, if you missed todays meeting, you missed a good discussion on buyer’s remorse, getting your clients to open up about their financial situations and clients from out-of-town who are surprised by Toronto prices.
First up, the fabulous world of buyer’s remorse. I think it is safe to say that we have all had a case of it at least once in our lives. It can hit us over the purchase of a pair of pants or a home. Buyer’s remorse knows no bounds. One of the agents brought to the group a story of a young couple who visited an open house over the weekend. They walked in and fell in love with the property. They came back several hours later with their agent and eventually made a substantial offer which was accepted. The next day, a bad case of buyer’s remorse set in and the couple pulled out of the deal. We spent a good amount of time trying to come up with ways we can counter this pervasive malady. One agent suggested getting the couple back to look at the unit again. Sometimes picturing yourself in a home is all you need do stir up the right emotion. Another suggested showing them the comparable properties for sale (and sold), and another thought that educating them on the neighbourhood might do the trick. In the end there is nothing better than to have the buyers sleep on the decision. If there is a way out of a deal, a buyer will find one. That holds true for firm deals. Unless the market is really bad, your job, as an agent, is to negotiate a solution. Sometimes sellers take buyers to court and other times, they mutually release each other so that they can get on with their lives.
Occasionally you come across buyers who will not disclose any financial information about themselves. Fair enough, I suppose, as I am not willing to share my information with someone I just met. As agents however it puts us in a difficult position. The last thing we want to do is spend a lot of time with a client only to find out that they are not approved for the home you just spent days negotiating on. The solution to this dilemma is simple; get the client to a reputable mortgage professional that you trust. let the client know that you are not privy to their financial information but you will get a clear understanding on what their price threshold is from the broker. I would also like to mention that this is a good talking point when speaking to someone who is considering buying with a relative or friend. Sometimes we need a little separation between agent and client.
Finally, we talked a bit about working with clients that have come from other regions. Toronto prices can be a shock to some, so it is important to educate people on general values. It has happened to me before. A client lives in a 2000 sq ft loft in Montreal and pays $1500 per month. They are moving to Toronto and hope to find the same thing in Yorkville. Their expectations do not meet reality. Once again, the conversation goes right to qualifying clients properly. Your job will be infinitely easier if you pre-qualify potential clients first.
That’s all for today. Have a happy and successful week!