In a market like the one we are currently in, it is not uncommon for buyers to consider buying a house privately and going directly to a seller or listing agent. As someone who believes in having an open market and for consumers to have as much choice as possible I wouldn’t say that buying a house privately is a bad thing, so don’t worry about this post as being one that is just to puff up the value of real estate agents:)
Regardless of what my personal opinions on the matter are, I know that there will always be consumers that feel they will get a better deal if they buy a home privately or directly with a listing agent. Because of that, I would like to prepare those who are looking to venture into buying a home privately.
The most common process for buying a home privately is a buyer will reach out directly to a listing agent and inquire about the home. They will then carry forward with viewing that particular home and if it checks all of their boxes, they will carry forward with submitting an offer.
It is in the space between viewing the home and submitting an offer where acting for yourself and buying a home privately has the most potential issues. I would like to prepare all buyers who are considering this route to follow the guidelines to buying a home privately, so that they do not end up making an error that can become a costly one.
Steps to Buying a Home Privately:
- Obtaining a Mortgage Pre-Approval and Establishing What You Can Afford
- View Homes and find one that Checks Off All Your “Must Haves”
- Assessing What Else is Actively Listed on The Market
- Assessing What the Local Market Sales Activity and establishing Market Value
- Signing a Representation Agreement With the Listing Agent
- Preparing and Submitting an Offer
- Reviewing a Counter-Offer or Sign Back
- Signing the Confirmation of Acceptance
- The Conditional Period
- From a Firm Deal to Closing
If you follow the steps above, you will be well equipped to buy a home privately. While it might seem simple in theory, there is a lot of work that goes into ensuring you are not only buying the right home, but you are getting value for what you are purchasing. There is a saying that goes “Some people will step over a dollar to pick up a dime” and I have personally seen far too many people try buying a home privately, only to end up encountering numerous problems, and in many cases, paying far more than the house is actually worth.
We will dive into each of the steps to buying a home privately and should you wish to read in more detail, each of the steps have a link to a more detailed explanation.
1. Obtaining a Mortgage Pre-Approval and Establishing What You Can Afford
This is the first and most important step in purchasing a home, especially if you are buying a home privately. Having a down payment prepared and a mortgage pre-approval in place will allow you to comfortably purchase a home without fear that you will not be able to afford it. By knowing what you can afford, you can focus on only the areas which have homes in your price range. To read more about the process of obtaining a mortgage pre-approval to establish what you can afford, click here.
2. View Homes and Find one that checks all of your “Must-Haves”
I often consider the process of buyers viewing homes similar to the experience of going to a restaurant and opening up a menu. There are a lot of great things on a menu that sounds appealing, but at the end of the day, you can only pick one! Now imagine if that was the meal you had to pick for the next 5-10 years? That’s buying a house:)
Narrowing your focus is a key element of buying a home privately because if you have to wide a search, you may end up regretting your purchase within a few years. Typically,, there are three criteria that you can use as the foundation for sifting, they are : Price, Location, Aesthetics of the Home. With a mortgage pre-approval in place, your price is fixed, leaving you to really choose between location and aesthetics. Do you want to live in your ideal area and buy a “not so renovated” home, or would you like to search a little further out and get a renovated home?
It’s not just as simple as picking the foundational items, as there are many other factors at play. Things like:
- Are schools important?
- Do you need a garage?
- How many bedrooms and bathrooms do you require?
- Do you need a finished basement?
The list goes on and on, but the fact remains, you must narrow down what you truly need out of a house before making the purchase. Unfortunately, when buying a home privately, most people only focus on the price of the home and fail to consider what it is they actually want. You can read a more thorough review of how to properly view homes and narrow down your must-haves by clicking here.
3. Assessing What Else is Actively Listed on The Market
It is in steps three and four that buying a home privately can create issues if you are not careful. It is one thing to absolutely fall in love with a home that checks off all your boxes, but it is another thing to pay $100,000 more for that home when a similar property down the street is listed for far less and requires only a few cosmetic upgrades.
There are things to consider aside from what looks appealing to your eye. The mechanical items of the home are often the most costly to replace, but also the least talked about when looking at homes. A great house that needs a new roof and furnace can end up costing you an additional $25,000. A renovation that was done without a permit or not up to code can also create nightmares for you down the line.
So, even if a home may seem like it’s “the one” you always want to ensure you are doing your due diligence in assessing what the other options are and if they might actually provide better value for you long term. There are a few key factors that can prepare you for assessing the active inventory on the market and you can get more information on them by clicking this link.
5. Assessing What the Local Sales Activity Is
This is genuinely where people who are buying a home privately are most likely to encounter an issue. If you could take away any value from just one of the steps I have, this one would be it. As you are going directly to a seller or a listing agent, you really only know what that home is listed for, and if it is in your budget,
An agent can tell you “this home provides more value than any of the other properties that have sold!” but how can you truly know that unless you see what has sold? Can you ensure yourself the listing agent is acting in your best interests and giving you all the information?
There are various websites out there like Zillow and House Sigma that provide sales information, which is where most consumers buying a home privately go to in order to educate themselves on value. While those sites may be convenient, you have to understand that pooled data is not the same as detailed data. For instance, would you treat a house that has a 50 ft. front yard the same as one with a 40 ft. front yard? Would you pay the same for a house that backs onto a school or busy street the same as you would one that doesn’t? Sites that pool data are great for generalizations, but they do little for you when it comes to narrowing down true market value.
If you are determined to buy a home privately, you really need to focus on this step in detail because it can be the difference between you getting good value or overpaying for your new home. Click here to read more on assessing sales activity and establishing the value of a home.
6. Signing a Representation Agreement With the Listing Agent
Contrary to what most people who are buying a home privately believe, Unless you are purchasing directly from a seller, you will have to sign a representation agreement with the listing agent.
There are two types of representation agreements (in Ontario), one is a customer service agreement and the other is a buyer representation agreement. While you are 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. It is 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.
While you might be signing one of these contracts with the belief that if you don’t end up purchasing that home, then the contract you signed is no longer valid. Well, think again! I have seen and heard of many buyers who unknowingly sign a contract that binds them to work with that agent for a fixed term, and then they go and put in an offer on another house with another listing agent, only to find out that the other agent is now seeking compensation for the commission because you had a contract with them! Honestly, this happens more often than you would think and it can be completely avoided by understanding the contracts you are signing. If you want to ensure you do not run into any horror stories when signing a representation agreement, click here so you can learn exactly what to watch out for.
7. Preparing and Submitting an Offer
After you have selected the right home, determined the value of that home, and are confident that you can see yourself living there for the long term, it is time to prepare and submit an offer. These documents will include a Confirmation of Co-Operation and Representation, which outlines who is representing who in the transaction, and also the Agreement of Purchase and Sale, which contains the actual offer and clauses.
When buying a house privately, you may only be aware of some of the more standard elements of an offer, such as the purchase price, deposit, and closing date. You may also know about some of the conditions like financing, or a home inspection, but there are a lot of minor details that can either work for or against you.
While preparing an offer on a home, you want to ensure that you understand what the wording in each of the clauses in the offer documents means. In most cases, clauses are pre-set and inserted into a “Schedule” to the Agreement of Purchase and Sale, and while good, they don’t all have the wording which ensures you are protected.
When it comes down to it, the wording of a clause is what protects you in the event there is an issue or a dispute. When buying a home privately you may think “Well, I have a home inspection clause and if I am not happy, I can walk away”. This is a common thought that is also held with many real estate agents as the wording in most standard clauses states “ at the buyer’s sole and absolute discretion” however, there is an essential element of a contract that requires you to act in good faith, so it isn’t as simple as one might think.
Understanding each one of the pre-printed clauses as well as the custom clauses you insert in a Schedule to the Agreement of Purchase and Sale is critical. To learn more about the pre-printed clauses, as well as how to customize clauses that will protect you when submitting an offer, click here.
8. Reviewing a Counter-Offer or Sign-Back
In a perfect world, your initial offer gets accepted on the first try. While I would hope that is the case, it is quite likely that you will receive a counter-offer from the seller. A counter-offer does not only relate to the price in the offer, an offer can be countered if the seller would like a change to any of the terms in your initial offer.
Once your offer is countered, you will have a specified amount of time in which to either accept the proposed changes or to counter back to the sellers again. A typical scenario might see a seller countering your offer by asking for $20,000 more, and then you countering back for only $10,000 more. However, as mentioned above, a counter-offer does not only relate to the purchase price.
When buying a home privately, you are almost always going to be focused on the purchase price as the primary point of consideration. While it is important, the attention to any and all changes in a counter-offer are important, and before you agree to those changes, you must be aware of what you are agreeing to.
The difference between an offer that includes a hot water tank, furnace, and air-conditioner vs. ones that are rented can mean an additional $150.00 per month in expenses. The little changes can definitely add up to a lot and if you want to best prepare yourself with how to review and understand a counter-offer, click here to read about how to do just that.
9. Signing the Confirmation of Acceptance
Once all of the terms of an offer have been agreed to, the confirmation of acceptance is signed. This can either be done by the buyer or the seller, depending on whether or not there are counter-offers. If a seller accepted your initial offer, they would be the ones to sign the confirmation of acceptance. 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.
Once signed, the “conditional period” would begin. This means that any clauses you inserted into your offer as conditions, would begin. So, if you had an offer conditional on financing for 5 banking days, those days would start the following morning of your offer being accepted.
While this step could have been included in the previous step, I wanted to emphasize the significance of what signing a confirmation of acceptance means, especially to someone buying a home privately. This is the point in which you are legally bound by the agreement of purchase and sale, so it is extremely important that prior to signing this (or submitting the offer) you are absolutely sure everything is to your satisfaction.
10. The Conditional Period
When your offer is accepted, you enter the conditional period. Depending on the terms in your clauses, you will have to complete these conditions within a specified time frame. While there can be many to consider, I will focus on the most common ones, financing and home inspection.
When buying a home privately, many buyers feel that the listing agent will do all of the leg work for them. In some instances, that may be the case, but more times than not, you will be the person quarterbacking this step.
If you had already done step one, then your financing condition should not pose any problem. After having your offer 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 days to give you the green light that your financing is approved and you can waive the condition. It is important that you do not waive this condition without getting express approval from the lender. Too often, buyers will waive a financing condition based on a lender or mortgage broker saying “There won’t be any problems” but without a guarantee, I wouldn’t take the chance.
A home inspection condition usually has the same timeframe to be completed as the financing condition. This is usually the make-or-break condition, as you will be getting a more thorough analysis of the condition of a home. Selecting the right home inspector is crucial. Too often, buyers will try and save a few dollars on a home inspector, not realizing that they are not adequately experienced to do a home inspection and are not nearly as thorough as other inspectors. Expect to pay between $400-$500 for a good home inspector, and trust me, you will be better off for it.
The outcome or results from your conditions will determine whether you move forward waiving the conditions and “firming up the offer” or if you will be walking away from the home. You can also potentially create an “amendment” to your original offer, which would make some minor changes in order for you to carry forward with the purchase. This is most often seen if there is an issue from the home inspection that you would like the sellers to address.
The conditional period is one of the most important elements of buying a home privately and there are many factors that contribute to what direction you should take. To get a thorough understanding of the conditional period and how to navigate through it effectively, click here.
11. From a Firm Deal to Closing.
Once you have fulfilled your conditions, you have successfully purchased your new home! This period might feel a little slow, but there is still plenty to do.
Unfortunately, when buying a home privately you are usually left to fend for yourself here. As a part of your Agreement of Purchase and Sale, you would have likely added a condition that allows for 1-2 further visits of the property prior to closing. I always recommend trying to book these as far in advance as possible to prevent any potential scheduling challenges between yourself and the seller.
I also strongly recommend using one visit for 2-3 days prior to closing. This will allow you to see the house very close to the closing date, and more importantly, notice if there are any issues or damage that have occurred since you purchased the home.
You will also have to select a lawyer and typically meet with them 2-4 days prior to the closing of the property. The lawyer will review the purchase documents with you, as well as the credits/debits and adjustments for the purchase. They will inform you of the cheque amount that will be required prior to your meeting and that cheque will be the amount that covers your remaining deposit (funds required on top of the mortgage from the bank) as well as legal fees, title insurance, mortgage insurance (if needed) as well as various other potential expenses.
Of course, there are plenty of additional things to be prepared for prior to the closing of your home, including transferring or setting up new accounts, and you can get a more thorough breakdown of everything you need to consider so you are best prepared for a closing date by clicking here.
That concludes my step-by-step guide to buying a home privately. If you feel that buying a home privately is your best option, my advice is to read this article….then read it again. As easy as it might seem to buy and sell houses from the outside looking in, there is a fair bit of consideration and steps involved. I have been trading real estate for over 12 years and even with the amount of knowledge I have and experiences I have encountered, I am still very much learning new ways to better serve my buyer clients. If you have any questions, feel free to drop a comment below on contact us directly.