Buying a home is a serious investment that takes a lot of thought and careful planning. Does this mean that you have to use a REALTOR® to navigate the home buying process? No, but at the very least, you should understand what REALTORS® do and what value they bring to the table during a real estate transaction so you can determine if hiring one is the right fit for your personal situation.
How Does Buying A House Without A REALTOR® Work?
Buyers can always choose to represent themselves without a REALTOR®. In the province of Ontario, REALTORS® typically work with buyers in one of two ways – as clients or customers. If you want to buy a home without their assistance, you’ll take the route of being a customer by signing a Customer Service Agreement which states that the agent does NOT work solely with your best interests in mind and provides restricted services.
You can expect these services to include:
– Providing fairness, integrity and honesty to everyone
– Only disclosing material facts that they already know (or ought to know) as they aren’t required to take any further investigative action
– Having limited privacy obligations
– Being required to provide conscientious and competent service
What Does A Listing Agent Do When Negotiating The Sale Of A House?
Keep in mind that in this case, the listing agent works for the seller, so their loyalties and duties are to the seller only. As such, the listing agent should not give you any information that would be to the detriment of the seller as their job is to get the best price and contract terms for their client.
If you’re a customer, as you would be if you were representing yourself without a REALTOR®, the agent will put together the offer paperwork for you but will be limited in the kind of advice they can provide.
Do I Need A REALTOR® To Buy A House?
This may seem like a simple yes or no question, but the reality is that understanding what benefits a REALTOR® brings to the buyer during a home buying transaction, is the first step to determining if they’re going to add value for you. Let’s go over some pros and cons:
Pros Of Using A REALTOR®
There are many reasons you should consider using a REALTOR® when you’re looking to buy a home in Canada:
– They can help you find the perfect property because they’re familiar with your desired areas and have a vast amount of knowledge with regard to neighbourhoods and how to find locations that check off all the boxes on your must-have list.
– They can navigate all the paperwork with ease. You can rest assured that they won’t make any mistakes or leave out any integral information that could jeopardize the purchase agreement and potentially cost you the home. REALTORS® are trained extensively and held accountable for their errors, should any be made.
– REALTORS® can help you arrange all the necessary finances at the very start when it comes to finding a mortgage, all the way through the closing procedures and connecting with a lawyer to ensure everyone gets the money they need.
– REALTORS® have extensive knowledge of the complexities and minute details of the home buying process so they’re able to move through it quickly and efficiently.
Cons Of Using A REALTOR®
There are some cons associated with working with a REALTOR® that you may want to consider when making the choice to use one, or pursue the home purchase on your own:
– They may not be able to find you the house you’re looking for
– They may be reluctant to negotiate the price of the house, despite your desires
– They may try to push you toward a specific home you aren’t interested in
– They may not be compatible with you personality wise or communicate in ways that work best for you
– Depending on their tenure, they may not be as knowledgeable about the specific areas you’re looking to buy in
Do You Have To Pay A REALTOR® When Purchasing A House?
As a buyer, you won’t have to pay commissions whether you are representing yourself or not. Normally the selling agent gives a percentage of their commission to the agent who brought in the buyers.
It’s also important to note that if you’re representing yourself, you won’t be entitled to the commission that normally goes to the buyer’s agent. The listing agreement (which sets out the commissions to be paid and to whom) is between the seller and the listing brokerage – the buyer is not a party to the agreement. In most situations in Ontario, when a seller lists their property for sale, they agree to pay the listing brokerage a certain percentage of the sale price (for example, 5%), and then out of that total, the brokerage agrees to offer part of the commission to the cooperating real estate brokerage (the buyer’s representative). If you’re representing yourself and there isn’t another brokerage involved in the transaction, the listing brokerage keeps the full commission because commissions can only be paid to licensed real estate agents in Ontario.
Can A Real Estate Agent Represent Themselves?
Technically speaking, a licensed real estate agent can’t represent themselves in a purchase offer. Based on the responsibilities and duties of a real estate agent, it’s clear that they act as a representative of the broker only, not a representative of themselves.
Steps To Buying A House Without A REALTOR®
If you choose to purchase a home without the help of a REALTOR®, you can expect to encounter and navigate these steps as part of the process:
1. Get Mortgage Preapproval
When it comes to buying a home, privately or not, getting preapproved for a mortgage is an essential first step. Knowing how much you can comfortably afford will help you focus on the areas that have homes within your budget and remain realistic about your selections.
2. Finding A Home
Narrowing your focus is key when it comes to buying a home privately. If you’re not sure where to start, you should consider price, location and aesthetics. If you’ve been preapproved for a specific amount, that leaves you with choosing your local and desired aesthetics.
3. Assessing Home Value
If you’re not cautious, buying a home privately can create some serious issues and one of them is relating to the value. Falling in love with a home that checks off all of your boxes is an amazing feeling, but finding out you’ve overpaid by $50,000 unknowingly based on comparable homes in the area, is not. Look beyond the aesthetics and more closely at the big things like the roof, foundation and HVAC as these can cost you tens of thousands of dollars to replace. Not to mention the nightmare they can cause if the work on these projects was not to code or done without a permit. Without a REALTOR® by your side to assess the home’s value against comparable properties in the area, you’ll need to have a keen eye, know which questions to ask and ensure you do your due diligence every step of the way so you don’t wind up regretting your purchase down the road.
4. Signing Representation Agreements
In Ontario, there are two types of representation agreements: a customer service agreement and a buyer representation agreement. While you are most definitely owed fairness, honesty, and integrity with either of those options, only the buyer representation binds the listing agent to the fiduciary duty to protect your interests. Signing one of these documents at the start and thinking you’ll be protected if you don’t wind up going through with the purchase, is a big mistake. This is why it’s extremely important that you have a listing agent review the contracts with you in detail, taking the time to explain each and every one of the clauses contained in it. The last thing you want as a buyer is to wind up having to pay a previous agent who you unknowingly signed a contract to work with during a certain duration.
5. Reviewing Counteroffer
Hopefully your offer gets accepted on the first try and you’re one step closer to securing your dream home. If that’s not the case and you wind up receiving a counteroffer, you’ll have a specific amount of time to respond back to the seller either accepting the offer or countering back.
When buying a home without a REALTOR®, it’s likely you’ll be focusing heavily on the price, but it’s important to note that a counteroffer could be related to the terms of your agreement like whether or not a home inspection is required or if items like your furnace or hot water tank are included or required to rent. These changes may seem small, but they can have a huge impact on your bottom line and the end agreement so make sure to read the counteroffer carefully and look beyond the price. This step is monumental as it’s the point in which you are legally bound by the agreement of purchase and sale.
6. Confirmation Of Acceptance
Once all the terms are agreed to and both parties are happy, it’s time to sign the confirmation of acceptance documents. This can be done by either the buyer or the seller, depending on whether or not there were counteroffers. If the seller accepted the initial offer, they would be the ones to sign the document. If the seller countered/signed back your offer and you were happy with the changes, then you would be the one to sign the confirmation of acceptance.
7. The Conditional Period
Once the confirmation of acceptance is signed, the “conditional period” begins, which means any clauses you inserted into your offer as conditions have begun. Two of the most common clauses include financing and home inspection.
If you’ve already been preapproved then financing isn’t going to be a conditional issue. Once your offer is accepted, your lender will need a copy of the agreement of purchase and sale, as well as a copy of the MLS listing. A bank can take anywhere from 1 – 5 business days to give you the green light that your financing is approved and you can waive the condition. It’s important that you don’t waive it without getting express approval from the lender first as you never know what can come up.
When it comes to home inspection conditions, they usually require the same timeframe to be completed as the financing condition. Selecting the right home inspector is crucial to ensure your investment is sound. Don’t try to cut corners to save money by hiring someone that isn’t adequately experienced or nearly as thorough. You can expect to pay $400 – $500 for a good home inspector and that cost will be worth every penny in the long run.
The outcome of any conditions will determine how you move forward. Will you be waiving the conditions and confirming the offer? Or will you be walking away from the home? Do keep in mind that there is an in-between as you can create an “amendment” to your original offer, which would make some minor changes in order for you to confirm the purchase of the home. This often involves asking the sellers to address specific issues that were brought to light as part of the home inspection.
Closing On The Home
Once your conditions are fulfilled, you’ve officially purchased your new home! While this is the last step in the process, when buying a home without a REALTOR®, this portion of work falls entirely on you.
As a part of your Agreement of Purchase and Sale, you may have included a condition that allows for 1 – 2 extra visits of the home prior to closing. Try to book these as far in advance as you can so as to avoid any scheduling conflicts between you and the seller. It’s always wise to keep one of those visits for a few days before closing so you can see the exact state of the home before it passes into your possession and address anything that needs to be dealt with before you close the deal.
At this point you’ll also need to hire a real estate lawyer and you’ll want to meet with them a few days before closing as well. The lawyer’s job is to review the purchase documents and payment details so you know how much money is needed for this last leg of the deal (deposit, legal fees, mortgage insurance, etc.). Their job is to help you tie up any legal loose ends, ensure you understand all the documentation and get you the keys to your new home.
Buying a home without a REALTOR® is not an easy feat, but that doesn’t mean it’s impossible. If you’re considering taking this route as a buyer, the best thing you can do is to learn as much as you can about the process so you can be prepared to navigate things on your own. The more organized and confident you are with the process, the less stressful it’ll be to go it alone. If you’re looking to learn more about your mortgage or financing options, reach out to our team at Edison Financial.