As housing affordability tightens, motivated buyers might be willing to cross items off their must-have list to enter the market. However, there are some things a homebuyer should never settle for. Knowing what to look out for — whether you’re a first-time homebuyer or have experience purchasing property — can mean the difference between a happy investment and a financial disaster.
Now that inventory is building in most major cities in Canada, homebuyers have more choices and time to mull over their real estate decisions. Sales are slowing down across the country as well, which means buyers may face less competition. This should reduce the need to make any hasty choices or accept disadvantageous compromises to get the home of their dreams.
Most real estate transactions go according to plan, but when a large amount of money is involved, something can always go wrong. Below are five red flags you need to watch out for when purchasing a home.
1. Pressure to skip the home inspection
In the case of a bidding war, when there are multiple offers for a home, it might be tempting to sweeten the deal by making an offer with no conditions, including forgoing a home inspection.
That’s what happened to this Ontario couple, who ended up buying a home without paying for a home inspection, resulting in thousands of dollars in repairs and construction, including a rotting foundation and mushrooms growing in the kitchen.
Conducting a home inspection is essential to ensuring that your dream home is as beautiful on the inside as the outside. Home inspections cost between $300 and $500, and involve checking the plumbing, electricity, ventilation, foundation, and structural integrity of the home. Don’t let the pressure of competition rush you into making an offer you aren’t ready to make. Home inspections might feel costly in the moment, but in the long run, they’ll save you a lot of worry and financial headaches.
2. Private mortgage lending schemes
With both interest rates and inflation remaining high, it’s much harder to qualify for a mortgage than it was a few years ago. This has led to a rise in private mortgages.
In general, it can be easier to obtain a mortgage from a private lender but it comes with risks that homebuyers need to be aware of. In contrast to a traditional mortgage, a private mortgage often features much higher fees and stricter rules if you fail to meet your payment deadlines, which can include foreclosure.
For example, in 2022, a Markham, Ont. homeowner obtained a high-interest private mortgage in desperation but was unable to keep up with the payments, which nearly lost him his home. With a traditional mortgage, your lender will usually be more forgiving of financial troubles and try to work out a payment plan that could allow you to keep your home.
To avoid being taken advantage of, talk to several different mortgage lenders and compare rates. Research each lender thoroughly before deciding on anything and make sure to check the penalties involved, too. Getting an independent lawyer to check the terms and conditions of your mortgage can also help you to avoid a disastrous financial situation. You can even ask your realtor for advice on finding a trustworthy lender.
3. A lengthy time on the market
It’s becoming more common these days to see real estate listings active for longer, now that the COVID-incited homebuying flurry has waned. But a property that’s been sitting on the market for far longer than the average time on the market could indicate a problem.
For example, in September 2023, the average number of days a property in the Greater Toronto Area would stay on the market was 30 days. If a home has been on the market slightly longer than that, there’s likely no reason to worry. However, if the home has been on the market for several months, you may want to ask your real estate agent about this.
You can also ask your agent about the history of the home, why it hasn’t been selling, and if there have been any drastic price reductions.
4. A too-good-to-be-true price
If a home’s listing price is much lower than those of surrounding or similar properties, this could indicate several potential issues.
For one, the seller may be hoping to start a bidding war by attracting as many interested buyers as possible to the property. This could eventually result in buyers paying more than what the home is really worth. A few years ago, a Toronto home was listed for $1 and then sold for more than $1.1 million due to the competition it generated.
Especially in the case of fixer-uppers, an unusually low listing price could be a sign of significant renovation costs down the line. It’s possible the home needs costly repairs, like a damaged roof, insect infestation, or old electrical wiring.
5. Water damage or stains
A recent fresh coat of paint might be nothing more than a design choice, but it could also be covering up something more serious, like water damage.
Water stains are a significant problem that should be examined carefully before you buy, as the cost to fix a leaky pipe or roof can run into the thousands of dollars.
For this Nova Scotian buyer, a water stain ended up costing him more than $10,000. Five months after moving into his new home, water seeped into the basement. While a home inspector initially flagged the basement for potential water damage before the buyer moved in, nothing was done to repair the issue.
Following the advice of a home inspector is crucial to avoiding costly repairs. Water stains may seem small at first, but they can develop holes or cracks that lead to structural damage.
Doing your due diligence to identify red flags can help you avoid potential pitfalls when buying a home. Make sure to ask your realtor and mortgage lender the right questions, take your time in the decision-making process, and read every document carefully before signing. By making an informed decision, you will find a home that meets your needs without any unwelcome surprises.
Mackenzie is the content marketing specialist at Zoocasa, an award-winning property technology company that uses data and technology to deliver an intelligent, end-to-end real estate experience. Her research and insights have earned her recognition from prominent media outlets such as BNN Bloomberg, CTV News, and The Globe and Mail.