Toronto Ultimate Home Buyer Guide
For First Time Homebuyers and Newcomers
Congratulations, you are about to take your first step to homeownership in the Greater Toronto Area!
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Important Background Knowledge for Buying a Home in Toronto
Buying a home in Toronto may be different from what you are accustomed to. Before embarking on the homeownership journey, it is crucial to understand some key facts about the real estate market in the Greater Toronto Area. These facts can help you manage your expectations and make informed decisions during the home-buying process. Here are a few important points to keep in mind:
- In Toronto, every buyer and seller is typically represented by a real estate agent exclusively, whose duty is to safeguard their respective clients' best interests. These agents act as advocates for their clients, much like prosecutors and lawyers in court.
- In the Greater Toronto Area, and throughout most of Canada, all property listings are made accessible to the public through a centralized database known as the Multiple Listing System (MLS). For instance, when buying a home in Toronto, Toronto Region Real Estate Board’s MLS is the shared database that contains almost all of the properties available for sale in the market. This means that buyers do not require multiple real estate agents to access all public listings, nor do sellers need multiple listing agents to increase exposure for their properties on the market.
- Toronto's real estate transactions database is highly transparent and open. All publicly listed real estate transactions on the MLS are available to the public. Not only that, registered Toronto real estate agents can even see all transaction histories of all properties, including sale price, latest property status, and sold date. This accessibility allows professional real estate agents to conduct detailed comparable market analysis of each property, making sure their clients can get their dream home without overpaying!
Common Question: Is hiring a real estate agent necessary in the Greater Toronto Area? What are the risks of not hiring one?
1. How to Choose a Real Estate Agent in the Greater Toronto Area
When buying a home in Toronto, it's essential to select a professional real estate agent who will genuinely serve your needs. We recommend reading our "Picking a Buyer Real Estate Agent - Who Can Find You the Right Properties, Responsive, Competent." guide at xxx (link) to help you find an expert Toronto real estate agent.
2. Contact a mortgage specialist to get a loan pre-approval
Unless the buyer’s plan is to purchase the home entirely in cash, the other main first step in buying a home in Toronto is to determine the amount of mortgage obtainable. A mortgage pre-approval can be obtained by contacting a mortgage specialist. To streamline the process, it is advisable homebuyers should simultaneously engage the services of a reputable real estate agent with experience in the home buying process. Such real estate agents can recommend trustworthy mortgage specialists from major lending institutions, saving homebuyers valuable time and effort that would have otherwise been expended in an individual search for lenders.
To the selected lending institutions, the homebuyer is required to provide their truthful financial information as part of the mortgage pre-approval application process. Homebuyers should receive a confirmation or a feedback from on the mortgage pre-approval and the pre-approved amount of the mortgage. This amount represents the homebuyer’s maximum budget available for buying a home in Toronto. This will also help homebuyers narrow down their search, as what property type and neighborhood a homebuyer can buy heavily depends on their budget.
Overall, when looking to buy a home in Toronto, before viewing a property, getting a mortgage pre-approval will be helpful for the following reasons:
a) By obtaining a mortgage pre-approval, the buyer will have a clear upper limit for their property search, resulting in a more focused and efficient search process.
b) It is advisable to reach out to multiple banks and lending institutions when seeking a mortgage loan. While interest rates are important, other factors such as the loan amount and individual needs should also be considered in choosing the most suitable loan option.
c) When making an offer for a property with an estimated price below the pre-approved amount, there is no need to include a financial condition. This strategy can make the offer more competitive and increase the chances of securing the desired property in the highly competitive Toronto real estate market.
3. How to Find Homes for Sale in the Greater Toronto Area
When it comes to buying a home in Toronto, the most important part for homebuyers is finding and securing a home they love. A great real estate agent can save homebuyers time and hassle by quickly and accurately identifying and recommending suitable properties, including some hidden gems that may not be visible to the general public. This is where the difference between a great real estate agent and an average one becomes apparent.
In a market where all property listings are centralized in the MLS database of the Toronto Region Real Estate Board, recommending good properties does not depend on how many listings an agent has, but rather on their ability to filter out properties that best match the client's needs from the MLS database. During the home buying process, buyers should share as much information as possible with their agent, including their expectations for the property and budget. Experienced agents can accurately understand and digest buyers' needs, combine them with their knowledge of the Toronto market, and provide professional buying strategy recommendations. They can then convert this strategy into search criteria, resulting in high-quality search results. Buyers can receive information on suitable properties on the day they are listed.
One advantage of buying a home in Toronto over smaller cities is the abundance of market data, resulting from the market's high transaction volume. Both buyers and sellers have a wealth of information to reference, and thorough research can help them avoid making costly mistakes. For example, when a buyer's expectations and budget do not align, understanding the market information is valuable. In this situation, buyers should have an honest and open discussion with their agent. An effective approach is for the buyer's agent to show recent market transaction prices for similar properties that match the buyer's budget. Fact-based communication can help buyers quickly understand the market, adjust their budget, or modify their expectations for the property, allowing them to move on to the next stage of the home buying process smoothly.
At the same time, "big agents" with high transaction volume are usually Toronto real estate experts. In addition to MLS and shared listings with other agents, they can provide extra channels for hidden listings, such as bank-owned homes, foreclosed homes, and exclusive listings. These properties are not visible to the general public but are often highly valuable. Big agents or real estate teams with teams and resources usually arrange for a dedicated person to help clients search for hidden listings to ensure they don't miss out on any good properties.
With the services of a real estate agent, buyers can accurately and timely view all properties that meet their search criteria. This is especially important when buying a home in Toronto, which has the largest real estate transaction volume in North America. Unlike buying a home in a smaller city, where the number of properties is limited and the screening process is not complicated, searching for a home in Toronto can be like finding a needle in a haystack if buyers rely solely on their own searches on websites and social media. Instead, having a professional buyer's agent to help filter properties can save buyers time and effort. Buyers only need to continue screening and selecting the properties they want to see from the accurate and concise list they receive every day. This approach is much better than the traditional "blind selection" method used by some average agents, where the agent randomly selects a few properties and arranges for a viewing. The biggest advantage of this approach is that the buyer remains in control of the process, saving time and increasing the likelihood of finding their dream home in Toronto.
4. Best Practices During Property Showing
For the most efficient and effective property selection process, it's important to have a strategic approach to property showings. It's recommended to view around 4 properties per showing session. This allows for enough properties to be compared, but not so many that the details become overwhelming. Buyers should select 4-6 properties to view, with the flexibility to add 2 more as backup options in case some of the initial properties have already been sold or taken off the market.
In Toronto, properties tend to have short days on market, lasting around 2-3 weeks on average. Therefore, it's important to select interested properties as close to the showing date as possible to increase the chances of being able to view all desired options, or see them as soon as possible in a hot seller’s market.
It's common to encounter properties priced for bidding when buying a home in Toronto. Listing prices of these properties can be misleading, as the final selling price may end up being significantly higher. The low listing price is often used to attract more buyers and offers, but the final selling price will eventually reflect the true market value.
In this transparent market, finding great deals can be challenging for buyers. To make the most of each showing, a knowledgeable real estate agent will inform the buyer of which properties require bidding and the respective dates, then go ahead estimate the rough market value of the property to ensure it fits within the buyer's budget, avoiding any time wasted on properties outside the budget.
During the showing, a dedicated real estate agent can also provide a guided tour of the properties, offering insights and highlighting the pros and cons of each property. They can even record a video of the property, providing a useful reference for clients who are unable to attend the showing in person.
5. Putting an Offer on a Home
Once a desirable property is identified, the next step is to make an offer to purchase the home. This involves the buyer's agent drafting the Agreement of Purchase and Sale (APS) as a letter of intent for the buyer to buy the property.
When buyers find a property they are interested in, their real estate agent can draft an Agreement of Purchase and Sale (APS), which is commonly referred to as an Offer, on the property. The agent should put various protection clauses for the buyer in the APS, such as ensuring that the property has not had any unnatural deaths or is not a marijuana grow-op. In a city as diverse as Toronto, these protections are crucial when buying a home.
The buyer’s agent should be able to recommend a suitable price range based on their comparable market analysis of the property, the current state of the Toronto market, and communication with the seller's listing agent. After reviewing all information, the buyers can then offer a price they feel comfortable with. Ultimately, the buyer’s own satisfaction is the most important measurement, they must evaluate the market information and how much they like the property.
In a standard listing scenario where there is no bidding, the buyer submits an offer through the APS to the seller. The seller may counteroffer (bargain), reject, or accept the offer. This process continues until both parties agree on the terms of the agreement or one party refuses the offer. In Toronto, there is an irrevocable time for offers and counteroffers, which means that negotiations have a limited time. If neither party accepts or signs the offer before the end of the irrevocable time, the contract becomes void, and the transaction fails.
If the property is not listed for bidding, both the buyer and seller will typically negotiate by signing and counter-signing the APS until one party fully accepts the offer and its terms, verbal communication is important, but an agreement between the two parties can only be legally established if it is in writing. In the Greater Toronto Area real estate market, all offers and counter-offers have an irrevocable time. If either party fails to accept or counter-sign within the allotted time, the contract becomes void, the negotiation ends, and the deal falls through. However, buyers can always send in another offer in an attempt to restart the negotiation.
In the case of a bidding situation, the seller sets a date and time to receive offers from interested buyers. The seller's agent presents all received offers to the seller, who then decides whether to accept, counteroffer, or reject them. If no offers are received, or if none of the offers satisfy the seller, the seller may choose not to sell the property and announce that the bid has failed. The seller can then choose to delist the property or relist it at a new price.
If a property is listed for bidding, the seller and the listing agent will typically set a date and time for when they will review all offers at once. Interested buyers then submit their bids before the said time. The seller's agent will then present all the offers to the sellers and help them decide which to accept or counter-sign. If no offers meet the seller's expectations, the seller has the option to not sell, which is known as a "failed bid." The seller can either withdraw the listing from the market or relist at a new price that they want to sell at.
More on How to Win a Bidding War. URL
NOTE: When it comes to participating in a bidding war, buyers need to do their due diligence, especially in a seller's market. Unless necessary, majorities of the sellers won’t accept conditional offers while there are multiple competing offers. A conditional offer can be based on homebuyer’s financing, a home inspection, or the lawyer’s review of condominium documents (status certificate review condition). If the seller accepts a conditional offer and the buyer finds the result of the conditions unsatisfactory, the buyer can then back out of the Agreement of Purchase and Sales, and all the effort the seller put into the bidding war is wasted. Therefore, during a bidding war, the seller is extremely cautious about accepting conditional offers. This doesn’t mean homebuyers shouldn’t get a home inspection, check in with their lending institution about their mortgage, or have their lawyer review the condominium documents, buyers can complete these preliminary due diligence prior to making an offer, hence why it is strongly recommended to get a mortgage pre-approval early. Once the buyer is satisfied with all aspects of this property, the buyer can then submit a ‘clean offer’ without any contingent conditions, making their offer more competitive and increasing the chance of success. Of course, the drawback will be if the buyer still ends up getting outbid by the other buyers, then all the home inspection fee or legal fee for condominium document review will be wasted. The buyer must weigh the level of their interest in the property and whether it's worth the risk. If they do decide to commit, then the buyers should make a serious offer with the goal of winning.
The closing date is also a critical aspect of the APS that both the buyer and seller can negotiate on. In principle, the closing date can be any business day. In smaller cities, the closing date can be as long as 90 or 120 days, but in the Greater Toronto Area, the typical closing date is between 30 and 60 days from the date of the contract's submission. A shorter closing date may not give the buyer enough time to prepare their finances and fulfill any other conditions of the purchase, while a longer closing date may be inconvenient for the seller.
6. From Offer Accepted to Closing
As per Greater Toronto Area’s common practice, once the offer is accepted, the buyer has to pay a deposit to the listing brokerage's trust account within 24 hours of the agreement, unless otherwise stated in the agreement. Physically present buyers can give a cheque or a direct deposit to the brokerage, while those who are not in Canada can deposit through wire transfer. If the wire transfer cannot be received within 24 hours, the buyer can provide proof of payment to the seller. Upon receiving the deposit, the brokerage will issue a receipt and change the status of the property on the MLS to "Sold" or "Sold Conditional".
For a property sold conditionally, the buyer can use the time specified in the contract to verify the conditions, such as obtaining a suitable mortgage approval, conduct a home inspection, or have a lawyer review building documents. If the conditions are met, the buyer's agent will help the buyer issue a Fulfillment letter. If the conditions are not met but the buyer still wishes to proceed, the buyer can issue a Waiver. Both documents serve the same purpose of changing the status of the property from "Sold Conditional" to "Sold".
If the conditions are not met, the buyer can exercise their right to terminate the purchase without any penalty and have the deposit returned. The seller can then relist the property or withdraw it from the market. This is why sellers tend to prefer unconditional offers when there are multiple offers on the property.
Once the property is sold firmed, the buyer needs to send all the relevant documents to their mortgage broker and lawyer as soon as possible for them to start working.
After the offer is accepted, lawyers play a crucial role for the remainder of the transaction process. To start, they will conduct a title search to ensure that the seller's ownership is clean, and there are no other unrelated persons registered. The lawyer will also recommend a few title insurances the buyer can purchase, which is always recommended! A title insurance will protect the buyer from any title dispute that may arise in the future. About a week before the closing date, the lawyer will contact the buyer and prepare a bill with the remaining balance and legal fees and invite the buyer to their office to sign the necessary documents.
The lawyers for both parties will settle the utility costs on the closing date and ensure that the buyer is only charged for the amount owed. In some cases, the lawyer can also assist in the process of transferring utilities to the buyer's name.
During this period, the lending institution will also invite the buyer to sign various loan documents. The buyer is required to be present, although in recent years, some banks have accepted video conferencing for signing the documents.
7. What happens on the Closing day
On the closing day, the mortgage loan and the downpayment from the buyer will typically be released to the buyer’s lawyer’s trust account first, then paid to the seller's lawyer’s trust account. After the payment is done, the buyer's lawyer will register the title registration for the buyer. After successful registration, the buyer becomes the new owner of the property. Note that when successfully buying a home in Toronto, there is no paper real estate certificate, but the ownership of the property is public information that can be queried. For example: ONLAND, https://www.onland.ca/ui/.
On the day of closing, the buyer's lawyer will transfer the down payment and the remaining balance to the seller's lawyer. The lender will also release the mortgage funds to the seller's lawyer on the same day. Once the payment is received and everything is in order, the buyer's lawyer will register the property title, making the buyer the new owner of the property. It's important to note that in Toronto, there's no physical property deed after a successful transaction, but ownership can be verified through public records, such as ONLAND (https://www.onland.ca/ui/).
After the pandemic, the handover of the keys is usually done by the seller’s agent who leaves a Lock Box with a code at the property. After successfully registering the property rights, the buyer's lawyer will give the lock Box code to the new owner.
Sometimes some buyers want to have their new furniture delivered to their new home before the closing date. Most of the time, seller won’t allow such a practice unless the buyer and seller amend the closing date to an earlier date. All arrangements for entering the new home should be planned after the closing date.
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