TIPS FOR FIRST-TIME HOMEBUYERS

Buying your first home is such a wrenching experience, especially if you're newly-married or starting a family.

Job 1

The biggest challenge is finding the right real estate agent. This is very difficult. Experienced agents tend to sell more expensive properties and deal with repeat buyers. That means you're stuck with beginners, less successful agents or agents who put volume ahead of service.

1991

We first bought in 1991 during a hot Toronto real estate market. We had difficulty finding a real estate agent who would bother with us. Eventually, we met George (not his real name) at an open house. He committed to finding us a place if we were serious about buying. We were. He understood our needs (safe neighbourhood, spacious, near public transit, near schools, good resale value) and budget (not much but all we had). He concluded our best opportunities were condos near the west-most Kipling subway stop.

George understood our needs well. We bought the first place he showed us --- but not just then. We didn't realize it was right for us until we looked at several other places.

Oops

We were also fooled. George seemed successful but the summer was hot and George's air conditioner didn't work. That we could accept. This is where the trouble started. He took us to a mortgage broker who offered a convoluted blended rate from no-name lenders on terms he was unwilling to explain. Plus the broker wanted to charge us hundreds of dollars for processing. All we had to do was sign here, here, here. And here. Even if we didn’t understand what we were signing.

Since we were confused, we asked questions. Foolish us. Rather than explain, the mortgage broker started shouting at us --- yes, shouting --- for wasting his time. He told us to sign. We declined.
George took us for coffee and berated us. Weren't we serious? Mortgages aren't complicated but George didn't understand what the mortgage broker was doing either. As best I could tell, he was blending a fixed rate mortgage with a pricey second mortgage with rates that increased after six months.

George hadn't understood the mechanics and was also miffed when I explained my interpretation. He arranged cheaper conventional financing through an out-of-town Canada Trust branch. The rate was 13.5% for a six month open mortgage, which was a good rate at the time.

Tough Parts

Buying a house is a time of emotions. It's often difficult to afford what you want (or your parents own). You'll have lots of questions and face self-doubt.

You're dealing with two commissioned salespeople, yours and the seller's. The agents have their own goals. A fascinating section in Freakonomics (original edition) shows how their interests take precedence over getting a better deal for you. Agents encourage clients to buy/sell quickly, rather than wait for a better price. However, agents left their own properties on the market for longer and sold for higher prices.

Forewarned

You're not helpless. Use the Internet to do your own research. You're probably looking for a neighborhood where

• where you feel safe
• property values are growing
• your house isn't the most expensive one

Ask other homeowners, ideally experienced ones.

Compromise

Be willing to compromise. We picked smaller places in better neighborhoods with good schools. You may have other priorities.

Don't stretch too much. Unexpected expenses are likely. Our furnace broke down during the first cold spell when our son was just two weeks old. Luckily, our mortgage came with free home protection insurance that covered most of the replacement costs. That was a welcome surprise.

The Advisor

Selecting the right advisor is essential but difficult. We found their most important skill is negotiation and this is hard to assess.

What they drive is a measure of their success. They might have a nicer car than they warrant but be wary of someone who drives a cheaper car. That may be all they can afford.

Congratulations!
You're making your biggest financial decision (besides marriage and raising children). Be sure that you and your spouse are in harmony.

Links

• Noxious Chinese drywall and beyond
• The unexpected costs of home ownership
• The pitfalls of mortgage life insurance
• A short quiz about your financial foibles
• The cost of getting advice from your banker
• Is the best advice free or for-fee?
• The word advisors imply but dare not say
• Is your car built to last?
• image courtesy of laurentiu porumbel (Romania)

Podcast 163

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PS Home inspections don't catch everything.