An Open Letter To Today’s First -Time Toronto Home Buyer

And by “home-buyer” I mean home, as in house, as in freehold.

Yes, the “first-time home-buyers,” those looking for a freehold home in the central core, $650,000, $700,000, $750,000 – whatever today’s going rate provides, represent the most unfortunate souls in the buyer pool.

So today, let me be the man who told you there was no Santa Claus, and maybe, just maybe, you’ll thank me for it when you find yourself well into the process, grinding away…

HappyFamily

That’s you, right?

Or that’s going to be you, once you find the right home?

I like to throw the word “honesty” around a lot on my blog, and maybe it’s getting old.  But “blunt” will never go away.

When I talk to a new client for the first time, specifically those looking for a freehold home in the central core, I’m honest, blunt, and I tell them exactly what looking for a home is going to be like.

I don’t sugar-coat it, and I figure it’s better to tell them at the onset, then to spring it on them later.

Maybe I get approach from my father, who infamously sent me to Camp Kawabi in 1986 as a 6-year-old, when all the other campers were at least seven, and who told me, in the parking lot, as all the kids were boarding the bus “There is no Santa Claus, it’s something parents make up for their kids.”  He knew I was already at a disadvantage for being younger than my cabin-mates, and in his own way, he thought he was helping me.

Maybe my approach isn’t one used by every real estate agent out there, but I think after the initial shock (if there is shock, since many buyers are already aware of what they’re facing) wears off, my buyers are far more prepared for the market and the process of buying a home, and they’re always grateful for my honesty.

So having said that, let me now take everything that I would want to tell today’s would-be, first-time home-buyer, and put it in an open letter…

 


Dear 2016 Toronto House-Buyer,

So you’re doing it, eh?

Good for you.

It’s a great decision, and I can’t wait for the day you move in!

But I have to be honest: it’s not going to be easy.

Wait, that sounds cliche.  “It’s not going to be easy.”  Actually, that sounds like the most simple explanation of what lays ahead.

It’s not going to be easy, in fact, it’s going to be tough, and at times, seem near impossible.

It’s going to be far more difficult than you could have ever imagined.

It’s going to take a lot longer as well.

It’s going to be frustrating.

You’re going to hate it.

It’s not fun, trust me.  Forget about what you see on TV – you won’t smile once during this whole process.

You’re going to cry.

You’re going to argue with your partner.

You’re going to doubt yourself.

Your parents are going to tell you you’re over-paying.

Every colleague, friend, or family member is going to give you unsolicited advice, most of it conflicting and contradicting.

And you are going to pay more for a house than you thought you would – both in terms of your overall budget as you came into the process, and for the actual house you end up buying.

But that’s just a brief summary of what to expect.

Let me start from the beginning…

You are now embarking upon an incredibly difficult journey: buying a house in what could be, the hottest market on planet earth.

“Planet earth.”  Those words are most often used in extreme exaggerations, metaphors, and euphemisms.  But I mean it – if you put together a list of the hottest markets in the world, in terms of the deficit resulting from supply and demand, and the price appreciation, Toronto might actually be at the very top of that list.

So that’s what you’re doing, or trying to do.

You’re not “house shopping,” but rather you’re trying to buy a house in one of the hottest markets in the world.  Do not, at any point, lose sight of that fact.

You’re not shopping at Loblaws.  There are no items “on sale.”  If you’re looking for tomato sauce, you can choose between Primo, Prego, Classico, Hunts, Bertolli, Ragu, Unico, and maybe even No Name.

But the Toronto real estate market is different.  There aren’t a dozen types of an item, with hundreds of each type from you to choose from.

Buying a house in Toronto in 2016 is a process unlike any other you’ve experienced before.

At the most basic level, you need to start by understanding you’re not going to get what you want.  You have to be realistic, and basically take everything you want in a house, and cut it in half.  If your budget was unlimited, then yes, you can get whatever you want.  But you, with your $750,000 mortgage pre-approval, are not getting a 4-bed, 4-bath house in Riverdale with a 2-car garage.  So do yourself a favour, and figure out what you can do away with first, and then second, and so on…

You need to also acknowledge that you will be in competition with other buyers.

It’s probably been a few years since I’ve had somebody tell me, “I’m not looking do do a ‘bidding war thing’ for a house; I won’t make an offer if there are other people interested.”  And while I’m cautiously optimistic that even today’s most uninformed buyers still know that virtually every entry-level home in Toronto has competition, I want to make sure YOU know that as well.

You’re also more than likely going to lose an offer, or two, before you buy a house.

It’s only natural.

You can’t imagine how much you’re going to have to pay for a home, and it’s not easy to “throw the boat” at a house your first time around.

When that $599,000 house, that your agent tells you will sell for $750,000, ends up selling for $768,000, you will feel silly for offering $660,000, and you won’t do it again.

You’ll learn from your mistakes.  You have to.

You’ll also learn you had emotions you didn’t know you possessed, like hate.

You hate all those other couples you see at open houses, who are also vying for what you expect to become “your” house.

You hate their agents too.  They look so smarmy, and you just want to punch them in the mouth, and wipe that fake smile off their face.  Although come to think of it, they look just like your agent.

You hate your friends and colleagues who already own homes.

You hate when they talk about their houses, and you hate when they give you advice.  What the hell do they know anyways?  They lucked out.  They only bought three years ago because they got knocked up, not because they were smart.  Their parents helped them anyways.  And you used their bathroom when they had you over for dinner that one time, and they had ugly-ass wallpaper.  Who has wallpaper anyways?  It’s 2016!  You would do it differently; you would do it better!

And those real estate TV shows that you love so much?  You’re going to hate them as well.

You’re going to see just how unrealistic they are.

A happy couple goes and looks at three houses, then goes for a beer, and “chooses” one of them?

What a joke.

It doesn’t work like that in Toronto.

If there were three houses, and there’s usually one if you’re lucky, one would sell with a bully offer before you saw it, one would be wrong for you on many levels, and if you did “choose” one, you’d still have to outbid a dozen other couples that look exactly like you.

You’re going to learn to live and breathe real estate.

You’re going to have multiple real estate apps and websites on your phone.

You’re going to wake up in the morning thinking about houses, and go to bed at night thinking about houses.

You’re going to think about houses during your office meeting, and during your spin class, and during the entire TTC ride, both to, and from work.

You have no idea how much real estate is about to take over your lives.

If a house comes out on Tuesday afternoon, you’re going to have to see it on Tuesday night, otherwise, it might sell via bully offer.

So whatever plans you had on Tuesday night, you’ll have to break them.  You’ll have to miss hockey, and your buddies might be upset, but they went through this last year, so they know.

And on Friday night – as you’re getting ready for dinner with Jonathan and Vicky, your agent is going to call you and tell you there’s a bully offer on that house that was supposed to review offers on Tuesday, but now you have no choice but to jump into the mix, or lose the house.

You’ll connect with Jonathan and Vicky another time…

You have to answer your phone at the movie, or at the wedding, or at the funeral.  It’s your agent!  It’s important!

You’re going to learn your agent’s middle name, by the way.  Those MLS listings emailed to you, from “DAVID JOSEPH FLEMING” will give you equal feelings of excitement and anxiety as soon as you see them in your inbox.

Your weekends are going to be busy!  Sure, you’ll probably see houses 1-2 weeknights per week, but you’ll probably have a sort-of “standing date” with your agent every Saturday to see properties.  And then on Sunday – your day away from real estate, you’ll probably end up driving around and going to open houses.  Hey we’re all addicted to something, right?

You’re going to get frustrated, eventually.

And then you’re going to get mad.

You’ll be mad at your partner, mad at your agent, and mad at the market.

But don’t get so mad that you do something crazy – like turn this into something it’s not.

Because one thing this is not, is unfair.

You have to remember that.  The process of buying an entry-level freehold property in Toronto is difficult, and time-consuming, and expensive, and frustrating, but it is NOT unfair.  It’s supply and demand, nothing more, nothing less.

The moment you start to feel that you are being hard-done-by is the minute you’ve taken a step out of reality, and into fantasy.

A lot of people fantasize.

I have people give me “what if” scenarios for houses, like, “What if this house didn’t get any offers?”

That’s a fantasy.  That’s something the rational-you wouldn’t think about, and it’s how you know you’ve taken a step back.

Your frustration might lead to anger, but you can’t let that anger become personal, and then push you off course, by convincing you that the process is unfair.

Because once you believe it’s unfair, you might look for a reason to quit.

The market is going to cool.

It’s going to be easier in the summer.

The fall is always cheaper than the spring.

Your parents say prices have to level off.

The Bank of Canada is going to raise interest rates.

If you want to find a reason why real estate is going to drop in price, look hard enough and you’ll find ten.

Denial has stolen hundreds of millions of dollars worth of tax-free capital gains from people who get frustrated with the market, decide not to buy, and then tell anybody that will listen, “the market is going to correct” for years on end.

So in order to not get to this point, just go back to the very beginning, and note the underlying theme of this letter: preparation.

This letter might frustrate you, but only because it’s true.  Acknowledge the content, and you will be well-prepared.

Some people don’t like to be made aware of inconvenient truths, but others will absorb the truths and use it to build knowledge.

So then be prepared.

Be realistic.

Be informed.

Be ready.

Be aggressive.

And be committed.

Be committed to the process, and everything it entails, because the buyers who are “casually looking” won’t buy in this market cycle, and it’s going to cost them more later.  The buyers who are willing to offer “what they would like to pay for the home” end up being the ones you hear about through a friend who have, sadly, lost nine offers, and who say, “We’ve been searching for a home for over eighteen months.”

Above all, you must be accepting.

You simply have to accept the market conditions for what they are, otherwise you’ll never be able to transact.  You, and you alone, cannot change the forces of supply and demand, and those forces have made the 2016 Toronto market what it is today.

Best of luck, and I hope to see you in a house at some point in the near future.

David.


Well, I’ve read it through, and there’s nothing I’d change.

I wouldn’t add anything, and I wouldn’t take anything out.

It’s blunt.  Oh yeah, I don’t think that’s in doubt.

And it’s honest.  Maybe too honest for some, but such is life…

Above all, however, it’s accurate.

We’re not talking about condos here, and we’re not talking houses over $1,000,000, or in Scarborough or Mimico – we’re talking about entry-level freehold in the central core, around $700,000, where every buyer is looking.

If a would-be buyer in that part of the market were to read my letter, I don’t think they could possibly be better prepared for what lays ahead.

Some might rather not hear it, and would rather “ease” into the process.

But what good is a 35-year-old who still believes in Santa Claus?

18 Comments

Post A Comment

Your email address will not be published. Required fields are marked *

  1. lui says:

    My sister just sold her house for way over asking,the young couple who bought it was literally crying with joy when they heard their offer was accepted,they mentioned they been searching for a house for over 8 months and got out bid every time,even the houses they didn’t really thought was “perfect” and overpriced they placed a offer over asking.They got so frustrated with the disappointment of losing so many homes (7) to higher offers it caused tension between them and was about to give up and rent until the market cools down.

  2. B says:

    FOMO – fear of missing out

  3. Paully says:

    Sounds like a horrible experience. Why do so many do it, if it is so awful?

    1. Geoff says:

      Divorce is I’m sure not fun and has a 50% chance of happening. Yet why do people still get married? Because is the answer.

  4. condodweller says:

    This is a great letter for what to expect. The question for me, if I were in the market, is not whether or not today is the right time to buy a first home. It’s the question of affordability and how much debt I would be comfortable taking on. Personally, I would never take on a mortgage that was more than 50% of what the banks are willing to lend me. Would I take the leap to buy a house today as a first buyer? Well, let’s just say I believe in Santa Clause more with each passing year.

    My advice to people looking to get into the market is to consider the leverage you take on. For someone who can buy the house for cash they are only risking their principal and if they have that much cash they should have no financial difficulties handling an eventual downturn in the markets.

    At the other end of the spectrum with 5% down and borrowing or taking the $50k downpayment from Mom and Dad you first must realize that you are going to pay $250k in interest over the life of the mortgage. Next, realize that at the $150k income level required to service the mortgage you are clearing, about $85k/year and your take home pay for 35 years, i.e. for the rest of your working life (assuming your are 30 and can maintain that income level until 65) you will pay 1 of every 3 $$ you earn your entire life towards your house. How do you feel about that? How would you feel if you had to sell your house in the first few years for whatever reason? Do you realize that when you sell your house, you are the last person to get paid? Your lawyer will pay the bank first, your real estate agent 2nd, perhaps himself 3rd and if there is enough money left over, and if you are lucky there might be something left for you, and you won’t be in debt to your bank and your broker after the sale. Do the math for the worst case scenario if you had to turn around and had to sell your house the first year of ownership for the same price. Here is a hint, after losing the land transfer tax you paid, your lawyer fees, your real estate agents commission on the sale, you will need a healthy appreciation of your home during the first year to come out even, as long as you don’t have to pay back Mom and Dad their downpayment. Then once that has sunk in, consider the possibility of a 5%,10%,15% market decline and do the math for each case.

    Once you have done the above, make your decision using those numbers with realistically considering your job security, and if one or both of you lost your job how long it would take to find a new one, and would you be able to get the same salary? You may also want to consider if you could still afford your payments once you add about $30k/year to your expenses for daycare for your two kids if you are a new family looking for your first home.

    I don’t mean to scare anyone but I believe everyone should go through the exercise to be able to make a fully informed decision.

    1. jeff316 says:

      But that’s only a useful exercise if you do are forced to go through the same rationalizations about all the inconvenient aspects of and potentially negative outcomes involved with renting.

      1. condodweller says:

        This is not a rent vs. buy discussion.

        1. jeff316 says:

          This was a discussion about what to expect in this market when it comes to searching, viewing and bidding on houses.

          Your post takes that further, running various negative scenarios to test a buyer’s internal resolve for buying by trying to get them to predict how they will react should things go sour.

          That’s fine, if a little pie in the sky (you don’t know how you will react to things in the future), and a little biased (e.g. Mom and Dad’s money.) But it’s not very comprehensive as this is an equation with variables on both sides. And how the two sides compare can change a buyer’s readiness or resolve for buying or not buying.

          Looking at it single-mindedly focused on various potential pitfalls present in one side – those that are plausible, possible, unlikely, or assumed – is arguably not much less dangerous than not considering any variables at all.

  5. Noelle says:

    This post sums up EXACTLY what it’s like out there. And we got lucky. After the horror show that was our first crazy bidding experience, on a Mimico detached home, we were almost permanently discouraged from keeping at it. And it was just one experience! The second go around, it was a small semi that hadn’t been on the market in 50 years. We went in at asking, and had no other bidders to deal with. And we had enough time to arrange and advance home inspection which came back clean. The sellers accepted, it was a done deal in about 20minutes, and now we close in a couple of weeks. But yes. You have to be calm, you have to drop everything at a moment’s notice to go see places, you have to act rationally when all you want to do is scream, you have to promise to not argue with you partner or parents. And you will spend all your time trying to navigate the MLS, trying not to cry, trying not to drown your sorrows in bottles pinot, and trying to keep it together at the office or when out with friends. And sorry young Toronto buyers. You willlllllllll have to settle. Whether you like it or not. You will have to learn to accept that you’re not going to get your dream home right out the gate. But, if you think smart, have a great relationship with your agent, and have the perseverance and tenacity to do the research in this market, and consider options that are only within your means, you will succeed eventually.

  6. Buckley B. Buckington says:

    I have a personal rule: “If the game is stacked against you, the smartest move is not to play.” Now I am sure there are some people out there who thrive on competition and love to play such games, but that is their prerogative.

  7. iwill says:

    I would have thought your open letter would just say dont bother to get involved in this market right now. Owning a POS house with a $750,000 mortgage is a huge mistake unless you have the ability to pay off that mortgage in 5-10 years. You won’t want that house 5 years from now, and you likely won’t be able to get our of it without losing money.

    1. Kyle says:

      ^^^ LOL, must be one of the Santa believers you speak of ^^^

      1. @ Kyle

        Go back six years, and you’ll see the exact same post as that one above – except “$750,000” would be “$500,000.”

        Go back ten years, and it’s even worse.

        I think we’re all used to it by now.

        1. Iwill says:

          David, you’re not being honest with yourself now. 5 or 10 years ago, first time buyers weren’t taking out $800-$1M mortgages now where they? Com’on Dave, admit it. You see these young kids taking out stupid mortgages and you shake your head. You think they’re crazy but you don’t say a word. Meanwhile, you make more than a $1M a year, but choose to buy a $900K condo. No mortgage, no debt. Why not?

  8. Marina says:

    Great letter, David.
    We went through pretty much everything you outlined above when we bought 5 years ago. It took us a year and a half to find something we could afford that we also liked. By the end we were very clear on what we would compromise on (basement, back yard, heating) and what we would not (location, storage space, bedroom size, light, deck).

    The WORST part by far was getting the “market will cool down” speech, over and over. The process is frustrating, and you already doubt yourself, so when someone gives that speech you feel like it’s an excuse to quit.

    But the best advice came from my mother (of course). She said, “you buy a house when it’s the right time in your life to buy a house – you can afford it, you are ready for it, and that’s the life you want.” Really glad we didn’t quit. Honestly I don’t think we would be able to afford our house today.

    1. jeff316 says:

      Well put. Your mom had a great outlook. We took a lot of flack when we bought years ago. It made the process so so so sooooooo much more stressful. Everyone told us the market would cool, and IMHO I’m pretty sure it will, but it’s proven that it wouldn’t have cooled in time for us. Had we waited we wouldn’t have spent any more money (I don’t know if I would buy anything if searching now) but if we had bought later we certainly wouldn’t have been as happy with what we could have gotten. We did our homework and our math and our scenarios and I’m sure we’ll be fine but of course you never really know. But I’m glad we bought when we did because, like you, it was the right time. We were ready, we could afford it, and that is the life we wanted.

  9. Kyle says:

    Great Open Letter! Really gets to the mind set and prep that is required to be successful.

    I would suggest some other prep items a buyer should do before even talking to an Agent. 1. Figure out your budget and ensure you can get the financing you need and are comfortable living with those payments and terms 2. Research prospective neighbourhoods, then go out and spend some time in the neighbourhood. I find it funny that people will spend weeks or more reading Lonely Planets, Fodors, and Tripadvisor reviews on cities where they will stay for only one week, but they won’t spend as much effort learning about a neighbourhood they are going to live in for many years. 3. Sign up for TOSolds, pay the measly subscription fee or if you’re too cheap to spend $1/month, sign up for one of the free ones offered by other brokerages. You need to know what houses are ACTUALLY selling for. Looking at houses on mls, with their listed price will only set you up for a disappointing reality check later.

    1. Free Country says:

      Yes, I agree that, first and foremost, know your budget, and understand it from both a balance sheet and cash flow perspective. Then you will know what you can afford, and learn not to think twice about the houses that cost more than you can afford. If your budget is $1 million, you wouldn’t be looking on the Bridle Path, would you? You wouldn’t get upset that you missed out on Conrad Black’s $7 million plot on the Bridle Path, would you? So don’t get all worked up when you find the house in Playter Estates went for $1.5 million. Just move on.

TWEETS