Ultimate Zero Value Buying Guide
Some free stock photo of a cookie-cutter house
Unlike most guides, we are not going to be telling you that buying a house is a good or bad idea. Housing as a whole has underperformed the TSX, and authors like Alex Avery recommend renting if optimal returns are your goal. On the other hand, over the last 20 years housing in Ontario has undeniably been a good investment, especially when leverage is considered. Regardless, if you already made it here then you want to get to the nuts and bolts of the deed.
Figure out what you want and what you can afford
Only you know what you actually desire, and in what neighbourhood. All the stats like crime and schools you can just use a search engine for. Want to know how long the commute to work will be? Use Google maps. Want to know how long it will be in the winter? Change the date for your query. A ZVR customer needs no hand-holding. As far as financing a purchase, few people are capable of coming up with 100% cash, so qualifying for a bank loan is one the of the first things you will need to do. There is nothing stopping you inquiring and negotiating rates at multiple banks at once. In the vast majority of cases there is only one type of rate that makes sense to get: variable. That helps to make comparison shopping easier. There are however some lenders like MCAP that only go through mortgage brokers.
In the current lending environment it is best to first see if a bank with discounted rates and more flexible conditions like HSBC or Tangerine will qualify you for a mortgage. If you have loyalty to any bank, it is greatly misplaced. The big banks though can be negotiated with down to the rates of the cheaper ones, but almost never for better rates. What big banks do offer though is more flexibility as far as which deals they will qualify. Do not be deceived by advertised low rates which are actually for high-ratio mortgages (high ratio means downpayment less than 20%). The rate might seem good, but if you put less than 20% you must pay for mortgage insurance, which is quite expensive.
The CMHC provides some handy calculators for debt service ratios to estimate whether you would qualify for a loan. In addition, you need to understand the rules about minimum down payments set by the government. It is 5% of the first 500k, 10% on amounts between 500k and 1M, and 20% on greater amounts. For example, that means that if you want to buy a home with a high-ratio mortgage for 1.3M, the minimum downpayment on it is 135k. The funds for a downpayment cannot be borrowed.
One thing we cannot stress enough is that before you begin the hunt you need to know exactly how much a bank is willing to lend you. Get it directly from the horse’s mouth.Find a lawyer to represent you
Get an experienced lawyer you trust. It baffles us that people get a lawyer as an after-though instead of it being one of the first steps. Whether you like it or not, to buy real estate you must use a lawyer anyway. ZVR recommended lawyers are experts in contract and real estate law, and yes, we are obviously trying to butter our own bread here. The last place you should start at is with a salesperson. You may as well be consulting about home purchases with a plumber (no offense to any plumbers, contract law just isn’t their wheelhouse). Not to mention that doing so is extremely expensive.
A free stock photo of a lawyer to break up the monotony of text without adding any useful information to the article
3. Research the market
Don’t just look at what homes are listed at, since often enough sellers list considerably below the market value in order to attract a bidding war. Instead look at sold data as it compares to list data over the last 7, 30, 90 and 360 days. Despite TREB having in the past jealously guarded this information, there are now a plethora of websites that publish this data. Some examples are rew.ca, housesigma.ca, and bungol.ca. You can use a search engine to find more. Some have automated rough home value estimators like zoocasa.com. Don’t forget to look at new construction homes too, as they may be competitively priced but outside the MLS. When you buy a home, one very important condition is financing and appraisal. A bank would normally send an appraiser to determine its value, and generally will not lend more than 80% of the value for a standard mortgage. A shrewd ZVR buyer does this research and knows what they want to bid.
Researching the market is more than just understanding prices, it is also about understanding risks. For example, you need to know if the home you are buying might be on a flood plane. Some homes may not even be insurable because of this, making it impossible to finance through a bank.
4. Find a home you like
Most of the time it is as easy as calling the number on the listing and booking a viewing. However, you must first understand that there are two versions of every listing on the MLS: what you see, and the full internal listing that only agents can see. The full listing contains “broker notes”, which are notes kept away from public view, and even away from their own clients. Sometimes (around 10% of listings) these notes state that the buyer agent’s commission will be reduced if the seller’s agent has to do their job and show the home. ZVR will provide you the full internal listings for every property you want to visit. If the listing brokerage does not reduce commissions, you can just call and book a time.
a. Request the full broker listing from ZVR by using our online form. This also enables you to auto-generate offers using our automatic offer generator
b. If there is no commission reduction, book a viewing yourself. Tell the cartelito on the other side that you are unrepresented. This is true, as no real estate agent is representing you until the moment you send in an offer. For some reason these salespeople don’t see a lawyer as representation.
c. If there is a commission reduction, you can book a ZVR licensed agent as escort by emailing showings@zerovaluerealty.ca.
Some listing agents refuse to show the property to someone who did not hire one of their informal cartel members. This is against their own rules, but reporting them to RECO will not help you get a viewing. Worry not, for here too ZVR will provide you a licensed real estate agent paid per visit to accompany you while they do nothing of value.
5. Submit an offer
At ZVR we have a unique automatic offer generator. It uses the standard OREA contracts to submit offers: OREA 100, 101, 320 and 801. You will also be given such a blank fillable form in your starter pack, along with a sample of a completed purchase agreement. We highly recommend lawyer reviews for unconditional offers, as they are experts in contract law. Unless you are entirely comfortable with the consequences, never submit an unconditional offer, for it is extremely risky to do so. If the house has any defects you are still bound to purchase it, and if you back out of the contract you will be in breach. Some people mistakenly think that the worst that can happen is that you will lose the deposit. That is not the case at all. Instead, you will be liable in this case for all damages you caused to the seller, which can exceed the deposit. This is why we recommend a legal expert to conduct this step. If you are comfortable and experienced, you may submit offers conditional on financing or inspection yourself, with only an agent signature and review. However, if you want the ZVR rebate you must either have the lawyer review the contract before lifting conditions, or inform the lawyer you intend to accept any potential consequences.
6. Inspection and final negotiation
Use an expert to find the physical defects of a property. A licensed inspector is useful as a vessel of insurance, but for experienced buyers not always necessary. It is entirely possible to have a general contractor accompany an experienced buyer and estimate the costs of renovations. This is where you can use the lawyer to confirm measurements and title, which is especially important when purchasing condos. The final negotiation and the lifting of conditions are done by the lawyer. You will be consulting with them to determine any final changes.
7. Closing
The lawyer will handle everything required for closing. That includes a title search to ensure the seller has a good and valid title, registering a mortgage if any, and transferring the funds to the seller’s lawyer.
