Written by guest blogger Frederick Chan (Mortgage Agent – Lic# 12070, Mortgage Alliance Performance Group)
…I hope not! Unless I’m on the selling side of course! Check out this article in the Star about the Toronto Real Estate Council debating ways in which they can curb these crazy bidding wars on houses. I think the key is that when buying a house you need to do so with your head, not your heart. Buyers are getting way too emotional when purchasing and it can come back to bite you!
If you buy a house for $400K and the bank values it at $380K, YOU HAVE TO PAY THE DIFFERENCE! How does that work? Let’s say you were planning on putting 5% down on $400K and the bank or insurer values the property at $380K. You could finance the house at 95% of $380K, requiring a down payment of $19K + the $20K difference between the purchase price and the appraised value. For most people with only 5% down, this is a big issue!
Here are some things to look out for if you’re buying a house in this crazy market:
– Regardless of whether you are pre-approved, the house is not. If the lender or insurer value the house lower than your purchase price, you’ll have to live with that value. So if you are putting down the minimum 5%, make sure you have a financing condition, so you can get out of the deal if this happens.
– Lenders don’t like properties that say “renovators dream” or “sold in as-is condition” very much. It implies there is something wrong with the property. Make sure you have an exit strategy for these types of places in case the bank has an issue.
– Banks understand the strategy of sellers pricing low to initiate a bidding war, but you can bet they will scrutinize the application a little bit more if the selling price is $200K over the asking price!
– Make sure to send me (or your lender) a copy of the MLS listing prior to putting in an offer so we can have a look. Especially if you are planning on putting in a “firm” offer.