Things Nobody Tells You When Buying Your First Home
The past four months have been a journey to say the least. I knew that buying a home wasn't going to be easy, but as long as you are prepared for it, it shouldn't be that bad, right? I thought as long as you have a deposit and a pre-approved mortgage, all you have to do is find the right home you want to buy.
Everyone's experience is going to be different. For myself, I had saved for a 20% deposit on a home and applied for a pre-approved mortgage. Given my good credit score (I had 790), cash in my bank account, and a stable job - I was able to get the pre-approved mortgage to start my search for a home
The real estate market is a tough but a realistic one. Most likely, others are looking for the same things that you are looking. I had already talked about my experience in my post "Buying My First Home...During a Pandemic," so go check out that post if you are curious about what I looked for in a home and all the other things that came with it.
While it may not seem like the best time to buy property, the next couple of months might actually be one of the best times if you have been looking - with low interest rates, possible decline in real estate prices, and ability to save and build equity (instead of renting). Today, I want to share with you on things that took me by surprise during my home buying experience, outside the typical spiel you might usually get.
Putting in an Offer that will actually win you the Home
So there is this game you need to play with the seller's side. It's almost like a fine sport - what offer will win me the home while still trying to get the best possible deal for myself? There is a combination of things you need to consider:
1) Price (under, asking, over)
Depending on where you live, the real estate market may or may not be competitive. Here in Vancouver, real estate is one of the most expensive in the world - so to say the least, it's very competitive as prices have been on the rise year after year.
That means, if you found a place that you like and are considering in putting in an offer - there may be others like you, resulting in a multiple offer situation. In this case, you would most often have success if you put in at least asking price or even over asking price, depending on how much you like the place, how much value you see in it, prices of comparable hones sold in the area with similar conditions, and of course, your budget.
2) Conditions (financing, inspection, documents)
While price might be one strong factor that may sway the seller, there are other things that come with your offer that also persuade the seller to accept your offer.
If you are gung-ho about the place and are in a financially strong position, you may put in a "no conditions" offer - meaning no financing nor inspection condition. I know this sounds extremely risky but to tell you the truth, this was very common back in the Vancouver real estate market in 2016/2017 where you needed a no conditions offer to compete against 10 other offers. It had since died down a bit (especially during Covid-19) and it's more common to put in a condition with financing and/or inspection - depending on the situation.
If it's still somewhat competitive, having an inspection condition may deter the seller from accepting your offer vs. others since it adds another layer to the deal (ie. getting inspected, possibly negotiating small issues, resulting in back and forth and delay in completing the offer). One may even believe that if you really like a place, what would be the point of paying for inspection (especially if it's a relatively new building). However, I do recommend getting an inspection (especially for older buildings) as it gives you a piece of mind about the place you are buying.
3) Other (completion date, possession date, fixtures that come with the home)
Depending on your situation and that of the seller, the completion/possession date may be an item for negotiation. In addition, make sure you are aware of the fixtures (ie. appliances, light fixtures, blinds/curtains, closet doors, etc) that come with the home when you purchase it, since you don't want to be in for a surprise if you were expecting a refrigerator and there isn't one on moving day. This is obviously an area for discussion with your realtor, but make sure you also read the offer you submit front to back (and back to front) so you understand every aspect of what legal obligation you are entering into.
Strata considerations
Most likely than not, buying an apartment and condo might be your first home purchase. There are also many different types of ownership in a property, such as freehold, freehold with strata, leasehold, undivided interest, etc. Make sure you consult with your realtor as well as do research on what type of ownership you want to take part in.
The one I'm going to talk about today is the most common - freehold with strata, which means I have personal property (ie. unit and land) but also common property (ie. amenities, common areas such as the lawn) shared with other unit holders. Such common property is is managed by a strata and is funded by a maintenance/strata fee you need to pay on a monthly basis. Strata fees may include some utilities, such as hot water and heat, so you won't need to worry about those costs separately.
As a property owner of a freehold strata, it would be ideal to be on top of the status of and changes going on to your building. There are monthly minutes and annual meetings in which an elected council get together to talk about the matters of the building such as repairs to be done, major updates required, and how best to use the strata fee. These discussion items should be summarized in a Annual General Meeting (AGM) and/or monthly minutes.
One of the things you need to review during your decision to purchase the property or not would be these minutes, which gives you an idea of the condition and issues of the building, which will impact future special levies you may need to pay. Special levies are additional payments on top of your strata fee, which have been agreed upon to be paid by all owners for major updates to be done the the building (ie. roof, plumbing, balcony, painting exterior of building, replace boiler, etc.).
In addition, your building may have a depreciation report, which is a analysis prepared by a third party who have taken a look at the building to give an estimate of the useful life of such common property. It's obviously a good thing if a lot of the updates and special levies had been paid by previous owners - the depreciation report will give you an idea of when such additional costs may occur in the future (ie. if the roof is 30 years old and the depreciation report claims the useful life is 30 years, then you can expect a special levy in the near future related to it).
Another document you should be familiar with should be the Bylaws, which are basically rules that all the parties involved related to the property need to abide by or be subject to penalties. For example, your building may limit the number of rentals it can allow, whether pets are allowed, whether there is a age restriction for people living within the building (ie. 19+ or seniors only), and the responsibilities of strata regarding common property, etc.
Costs to consider AFTER buying your home
After considering everything above, you have finally decided to buy your first property. But it's far from over yet! There are much more responsibilities waiting for you as a home owner, and costs that go along with it.
1) Taxes (Property Transfer Tax and Property Tax)
A cost you will be responsible for as the buyer will be Property Transfer Tax (PTT), which could you a couple of extra thousands of $$$ on top of your purchase price. There are some exemptions - here is BC, you are exempt from PTT if you are a first time home buyer and the purchase price is under $500,000 and phases out the benefit up to $525,000 (learn more about it here). Otherwise, you are paying 1% on first $200,000 and 2% on remainder up to $2M. That is $8,500 in PPT on a home that is $525,000!
Another tax you need to be weary of is property tax, which is paid annually. This amount will change year-to-year, since it is assessed on the value of your home. So if the value appreciates, so does your property tax.
2) Monthly costs (strata fees, home insurance, utilities)
If you had been renting so far, you may not had to worry about costs such as strata fees and home insurance, as it may all have been included in your rent. Though, as a home owner, you are responsible for these costs, as well as utilities not included in your strata fee such as electricity, hydro, internet/cable, etc.
3) Other (furniture, renovations, repairs, etc.)
This was one thing I wasn't prepare for, even though I knew in the back of my mind that I probably needed to spend some money after moving in. It's a little tough after spending all your money on a down payment, lawyer fees, and taxes.
So keep in mind, you are bound to spend some money on getting some extra furniture for your new place, some renovations/repairs you discovered you need to do when you first move-in, which can all easily cost couple of thousands of $$$.
All in all, make sure you think about the different aspects of buying a home (not just the down payment) and budget with some cushion so you are not in for a surprise when all these extra costs come out of nowhere. I highly recommend creating a budget and allocating costs to the various areas so you can get a final number as to how much you should have ready when buying your first home.
Prepare to become a Handyman (or Handywoman?)
Lastly, one thing I discovered as a home owner is that you need to know how to do basic repairs around the house. If you had previously only rented, you didn't need to worry about this since all you had to do was call your landlord. However, as a home owner, you have to foot the costs yourself every time you call someone to fix something - so the alternative is to fix it yourself.
Over the past couple of months, I learned how to install a curtain rod, fill in a hole in the wall, build furniture, build a DIY mesh screen for the windows, paint, replace door knobs, replace stripping on doors/windows, install a new thermostat, fix stiff balcony doors, etc. There are a lot of little things that you don't expect, and you just need to deal with it as it comes. I spent a small fortune at Home Depot, Rona, and Walmart. I have also collected quite a few tools, which had been amassed every time I had to fix something.
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Despite all the things you need to worry about at the get-go, being a home owner has been a rewarding experience. You learn a lot about your capabilities and you truly feel like you have entered the next stage in your life as an adult. It is also rewarding financially, as you are building equity and the net costs of owning are usually cheaper than renting. Best of all, it's a space you can truly call home as you can do whatever you like to it without anybody else telling you otherwise.