In June, 2010, when my boyfriend and I bought our first house together – a 1940s bungalow in Mimico just steps away from Lake Ontario – we were thrilled. Home ownership signalled our status as adults. Like many young and eager homeowners, we spent countless hours hunting the aisles of IKEA and Home Depot, as well as painting and assembling furniture. (It's likely I still have flakes of paint in my hair and Allen key calluses on my hands).
But as enthusiastic as we were about our place, the desire to live downtown - while we're still sans enfants - never left me. Over rides on the GO train in the morning or on the rambling Long Branch streetcar in the evening, I'd imagine what life would be like if I could walk to work, or to improv class at Second City or to my flag football games at Lamport Stadium in Liberty Village.
Now selling, moving and buying a home (and all its associated headache-inducing minutiae) involves incredible amounts of time, energy and money – especially in a market as hot as Toronto's . It's not a decision to be taken lightly, especially considering the drastic financial repercussions an ill-advised or poorly-timed move can have.
After months of discussing our future, researching downtown neighbourhoods, weighing the pros and cons of moving and figuring out how we could afford it, we have decided that we will list our house on the market in the spring. To make sure that we've covered our bases, I spoke with real estate investor Don R. Campbell to find out the questions everyone should ask before they decide to sell their house.
1. Do I need to move or do I want to?
This may seem like an obvious one, but it’s remarkable how many people confuse their wants with needs, says Mr. Campbell.
If you have to move, can you clearly define why? Is your one bedroom 600-square-foot condo in the downtown too small with a baby on the way? Is your 6,000-square foot palace in Vaughn far too big for your empty nest? Or perhaps somebody in the family has been transferred, forcing you to relocate. If you need to move, explains Mr. Campbell, the moving process is accelerated and you cannot be as picky as you may like to be.
If moving is simply a dream – whether for more space, to be closer to work, to have a better view, for example – the seller/buyer can be much more selective. “Under the 'want' window you have a lot more flexibility,” he says.
2. What will my ‘real net’ be when I sell?
There are a number of costs associated with moving that we often forget when analyzing our budgets, which can sometimes lead to coming up short at closing time, says Mr. Campbell. “The key is to know your real net.”
Many assume that if they sell a home they bought two years ago for $200,000 for $350,000, they’ll have $150,000 to buy the next property. But after taking into account the laundry list of costs associated with moving – including realtor fees and closing costs, to name a few – the seller is looking to have closer to $100,000 to play with.
Mr. Campbell emphasizes the need for sellers/buyers to do the math early, rather than be surprised and disappointed when they realize that they cannot afford what they initially thought they could.
For a full list, read: Costs to consider when calculating your real estate net
3. Do I know where I want to move?
Do we want to live in Markham or Little Italy? High Park or Scarborough? The question of where to move is so self-evident, it seems strange to ask. But figuring out where you want to move – and narrowing your options down to a few areas – is a critical question. We live in the Greater Toronto Area but it applies to markets across the country.
Taking the time to research the market and to be realistic is key. In Toronto, for example, certain markets are extremely hot. Did you know that a three-bedroom bungalow in North York just sold for $421,800 over asking? That might be one area to cross off your list.
4. Can I really afford what I want/need?
When calculating how much house you can afford, estimate mortgage payments based on interest rates that are two or three percentage points higher than current rates, and if you cannot afford that, get a smaller mortgage and buy a less expensive house.
But “even if you can afford it, pay that equivalent no matter how good a rate you can get,” Mr. Campbell says. “If you can pay the equivalent of 4.99 per cent, why not just pay it because that extra payment every month will dramatically shorten your amortization and help you pay down the principal faster? And then when rates creep back up, the jump won’t hurt you because you’re already there.”
5. How can I afford to move to an area I like?
In order to move downtown, my boyfriend and I have decided that we will need to purchase a house with an income property. If this is something you have considered, the questions you should ask yourself are:
- Can I legally have a renter in the area in which I’m targeting? Mr. Campbell says he has had clients who have bought properties or put in suites only to have them shut down.
- Is there a high demand for rental properties in the area?
- Have I thought about the repercussions of a tenant, and the idea of having direct contact with him or her every day?
- Have I weighed the financial reward versus the inconvenience of having a tenant in my house?
Now you’ve done the initial homework and confirmed the value of your property, as well as figured out what you can realistically afford. You have made the big decision to sell your house.
The next step is figuring out how you’re going to get the best price: Should you go with a realtor, discount realtor or do it yourself? That’s what we’ll explore in next week’s blog post.