Never Overpay For a Home Again: First Time Buyer Guide
- caitlinleetolley
- Dec 29, 2024
- 4 min read
What does it mean to overpay for a home? "Overpaying" means paying more than fair market value on a property. This makes it difficult for a buyer to build equity over time. In order to avoid this scenario, you need to do a deep dive on a property and really run the numbers with your Real Estate Agent. The following will explain where to focus, and what to consider BEFORE you make an offer on your dream home, to ensure you never overpay on a property.
Things to consider before you make an offer:
Market Dynamics:
When looking at comparable homes, what month did they sell in? Keep in mind, the market fluctuates, seasonality is also a determining factor, and sometimes in the span of two weeks we can see prices rise or drop dramatically.
Its important to know what was happening in the market when the comp. home sold, but also to be wary of the 'emotional home purchase.' This is the home on a particular street that every neighbor brings up in conversation, because it sold way over market value to an emotional buyer who didn't care about price and wanted that house no matter what. (We will return to this point later)
Direct Competition:
Know what is available to purchase on the market now. If your going to leverage the home down the street that is asking for $20,000 less than the home you want, its best to have walked through that other property to best understand where this particular seller is coming from with their price.
Months of Inventory:
This is a simple calculation,
MOI=# of properties available for sale/# of properties sold in a month
Example: If there are 50 homes available for sale, and 10 homes sold, the MOI=5
Its extremely important to know what type of a market you are in,
3 or less you are in a strong sellers market.
4-6 means a balanced market.
6+ indicates a buyers market, this is ideal for you, with lots of homes to choose from and a slower market means you can take your time.
Average days on market, DOM:
Its important to know this number, when viewing a home you are interested in purchasing because this will tell you if the home was priced correctly or not. If the home has been sitting on the market longer than the average days on market for that area, you might wonder why? Is something wrong with the property? Are the sellers getting desperate? Most times a home is simply overpriced, and therefore, your offer would be lower than asking.
List price vs, Sale price ratio:
What are sellers getting for their homes in your area?
Other Things to Consider:
Population Growth: Direct influence on housing demand.
Interest Rates *These have been going down steadily in the past 6 months, which will likely drive up demand.
Unemployment Rate: Can people afford to buy right now?
Freehold Checklist:
*These things all need to be considered when trying to value a home:
Location: You can always change a house, but you can't change the location.
School District: In Toronto, this makes a big difference when valuing a home.
Property Type: Detached, Semi Det, Attached, Row...
How many Storeys?
Lot Size: Width, Depth. (In Toronto, Watch for setbacks)
Age of Home
Taxes
Bedrooms (Above grade vs. below)
Bathrooms (Above grade, full vs half...)
Above Grade Square Feet (*Does not include basement)
Basement (Finished, ceiling height, can it be rented? Is the current basement apartment considered a legal 'second dwelling unit?')
Parking For city: front pad, alley, garage, mutual(Shared)
Value of city parking: Approx. $75,000+
Backyard: Usable, fenced, privacy...
Heating and Cooling: Forced Air (Most common), wall units, ducts...
Interior:
Layout: Is it functional?
Flooring: hardwood, laminate, carpet?
Skylights? Beware of leaks!
Ceiling Height
Mechanical/Exterior:
*You need to have a home inspected, but this list will help.
Electrical: 100 vs. 200 Amp. (Avg. cost up upgrade a panel=$1,400-$3,000)
Plumbing: Kitec plumbing signs: Colour: bright orange and blue, white residue, brand markings, electrical panel warning sticker. *Existence of Kitec must be disclosed to buyers.
Windows: Age, condition, energy efficient? Average lifespan=15-30 years.
Water Tank: Age, Rented vs, owned.
Sewage: City vs, septic
Private Road? Things to consider: Snow clearing, maintenance, access?
Roof: Age, material, asphalt vs. metal.
Foundation: Is it sound? Water issues present?
Exterior materials: Brick, vinyl, stucco.
Condo Checklist:
Location
Floor: Every floor up typically means a more expensive unit.
View: Safe? Waterfront?
Layout
Square feet: Price per square foot, keep in mind long entryway hallways, they add to square footage, but are not really usable.
Parking: valuable.
Locker: Owned vs. rented.
Age of Building: Newer=lower maintenance payments, but smaller sq. footage, Older= Higher maintenance fees, but bigger units typically. High amount of amenities in newer buildings can run fees up, be realistic about your lifestyle.
Management: How is this building run? Reputable?
Owner vs, rented ratio? IMO, Aim for 60-70% owner occupied. Why? Owners have pride of ownership vs. rented units, building will have more wear and tear with higher amount of rented units.
Upgrades? Done with Permission? If not, new owner may pay the price.
Reserve Fund: Special assessments coming up? Reviewing this document with a lawyer is critical.
There is one thing that will overcome everything on this list, and it's what I want you to avoid at all costs, and that is being an emotional buyer. An emotional buyer is going to get the house they want regardless of price. These type of buyers are rare, and they tend to overpay for the home. This buyer has motivation that may be so personal or unique that its impossible to compete with them. Maybe their parents live across the street and offer childcare, or they are on a strict timeline and need a house right now.
The truth is, you cant compete with someone else's motivations, so stick to your plan, and keep this list handy for when it comes time to put an offer in on your dream home.
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