Buying first house - things to take care of

[Gaurav Dhir]

Hi

I am in an interesting situation. I have recently moved to Oshawa, ON, Canada. I will be buying a small home operated business there from a gentleman who is moving out of the city. I have proposed to buy his house also, since he is relocating. I list below, the advantages and the possible pitfalls of the deal. 

Advantages

1. Since we are dealing directly with no real estate agent involved, we will save 5-6% on the deal which we will split 50-50.
2. This one is a small advantage, but still mentioning it here. All the equipment for the business is already set up in the basement and I will have an up and running operation.

Possible Pitfalls

1. Since we are dealing directly, both of us have a different idea of the value of the property. While he thinks it is around CAD 550-560 K, I think it is more to the tune of CAD 510-520 K.
2. He was already in the process of renovating the house to sell it when we started talking. I am afraid that if he knows that his house is selling for a certain price, he might be inclined to cut corners on the renovation and rehabbing.

Some details about the house:

• It is a 4 bed, 2 bath house with 1 bath en-suite the master bedroom. It has a den and a finished basement. The basement does not have a bath.
• I can spend about CAD 10-15 K and convert it into a duplex with 1 side yielding a rent of around CAD 1 K.
• The basement business gives CAD 2 K monthly, allowing me to effectively stay for free in the house.

I have a few questions:

1. Since no real estate agents are involved, what will be the best method to determine the correct value of the house? The seller believes that appraisers are conservative and give a low value. To me, an appraisal seems a fair way to bridge the price expectation gap between the buyer and the seller. Anyway, my bank will lend me basis their appraisal value.
2. This is my first deal and I will be house hacking. What should I be checking in terms of the house and renovation quality before closing the deal.

Inputs on this will be greatly appreciated.

Thanks

[Brandon Rodriguez]

First off, why are you splitting the fees?  He is the one that benefits from not using a realtor, not you.  He is saving 5-6% by going this route.  Are you splitting it to incentivize  him to stay off market?

Once you enter escrow, your bank should require an appraisal, and if not, I highly encourage you get one.  He is correct when he says that appraisers are conservative, but that is not always the case.  I have seen it go in every direction.  Yes, banks only lend based on the appraisal value anyways.

As far as renovation quality, find a qualified home inspector and let him or her know your plans, they will be the best ones to ask this question to.

All in all, since it is your first deal, it can get tricky without a realtor.  My advise if you definitely will not hire one, befriend one and pay them a small fee to go over everything with you.