Buying the home from your landlord can be a good choice for home buyers. As the renter, you already have a good sense on the benefits and drawbacks of the property and there will be no moving expenses! It does not happen very often in Calgary, but it is certainly possible. Here are a few pointers every renter should consider before buying their property from the landlord.
1. Get pre-approved
Whether you are approaching your landlord or your landlord is asking you to buy the property, due diligence is always important. You will need to get qualified by a lender, just as every potential home buyer. Contact your bank or mortgage agent, ask if you qualify and run the numbers for your monthly cost as a home owner.
2. Determine the value of the property
It is nearly proven that most home owners overvalue their property. Just one more reason to really invest in a good evaluation on the market value of the home. If the amount of your mortgage approval seems in the right price range, you will need to find out the value of the property you currently rent. That is probably the most important crux – what is the value of the home you rent? You will need to find out fair market value. Here are some tips to determine the property’s fair market value.
- Review sold data for the houses that were recently listed and sold in your community. We offer free Calgary market reports every month – just let us know what community you live in. However, know that this information is a broad indicator because every home is different and the report only includes basic details on the properties.
- Avoid online home valuation tools. There are some available on the internet, but they don’t consider the details of your community and property. These tools just work in averages.
- The City of Calgary property assessment is not the best indicator for the value of a property. The city does not look at re-saleability, layout, the state of the property – all things that affect the selling price. Since the city’s assessment only determines the value of the property the previous summer, it does not show the current value.
That leaves either a realtor or an appraiser to ask for an evaluation. But be aware there are a few important differences between the two.
A realtor will look at fair value – that is what the home potentially could sell for in Calgary in today’s market. This potential sale price is presented in a range, for example: this home should sell for between $450,000 and $470,000.
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Before deciding on these options, make sure you understand the different relationships with a realtor. A realtor is bound by agency relationship, meaning they work in the best interest for one side. The realtor could work impartial and evenhanded, when the landlord agrees to work without his own representation.
The appraiser, on the other hand, is an independent and impartial person. Banks, lenders, insurance companies, estates, divorces, legal disputes – all those cases rely on a certified appraiser and not on evaluations of real estate agents. The appraiser will give you a detailed report (with all homes that comparably sold in the recent past), and without any bias will give the value of the home.
Most likely you will end up negotiating with your landlord on the price.
Appraisers are inexpensive. In our experience, it may be worth to ask for two different appraisers. Sometimes the differences in evaluation can pay for the cost of the appraisals.
It is clear the realtor and appraiser have different motivations. The best practice for the landlord is to get his own appraisal done. With multiple appraisal reports in hand, you now can negotiate a price you both are comfortable with.
3. Negotiate with your landlord
Most likely you will end up negotiating with your landlord on the price. When you get into that situation, calculate in the fact that your landlord is saving selling commissions and saving any cost to make it ready to sell (such as fixing and upgrading things). Your landlord avoids any vacancy of the property. As the buyer, you can take these things into consideration in the negotiations. You will also have to think and discuss any terms or conditions with your landlord. For example, if you want your landlord to fix a few things before you buy the property.
4. Complete a home inspection
Even if you know the property well, it is highly recommended to still have a home inspection performed. You may think you know the property and may know how your landlord kept up with maintenance, but you never know what else can come up. Besides that, spending a few hours with your home inspector will teach you a lot about everything concerning in home. That learning curve alone is worth the home inspection. Make sure you use a home inspection with thermal imaging so the leaks and the drafts are noted in the house.
5. Get a real estate lawyer
This is an absolute must, and preferably as soon as possible in the process. When you agree on a price with your landlord, and you don’t have a realtor involved, get a real estate lawyer to draw up the contract. Make sure you choose your own real estate lawyer and don’t go with the suggested lawyer of your landlord. Your lawyer should also conduct title search and discuss with you if you have any other conditions and terms to put into the contract. Let your lawyer explain the entire contract to you.
By the way, know that a handshake is not valid when it comes to real estate in Alberta. The sale of real estate is not valid until both parties have signed the contract.
A few final thoughts
Finally, make very sure the home works for you and your future. At least you know the home, because you have lived in it. While you may love the home, be very critical to the question if this home will work for the long term. Have you checked out some other homes in your neighborhood? Comparing several homes with the home you currently rent may give you different perspectives. Renting is often a very different mindset over owning that same home. Sure, it may be attractive to not have to move, save yourself the stress and a few dollars. But always ask if it is worth buying the home.
The above is general information only and is not meant to be legal advice.