As most of you know the 2020-2021 market has been something of a rollercoaster, especially for buyers. With almost every home selling with multiple offers and over asking, the financing condition has become a large topic of conversation between my clients and I. My sellers ask why it is necessary if the buyers are stating they are already pre-approved and qualified and my buyers are getting frustrated when losing to a lower offer because the other offer did not have a financing condition written in. Today, I am going to talk about the importance of the financing condition if you are taking out a mortgage on a home and why I still strongly encourage it, even in this market.

First off, lets start by talking about what the financing condition is. The financing condition is there to protect the buyer in the occasion that the lender (bank, credit union etc.) or the mortgage insurer (we will go in more detail about this later) does not approve the buyer for the amount necessary for them to purchase the property. Without this condition, if the lender does not approve the mortgage, the buyer still technically bought the property under contract and is at risk of losing their deposit and even more, the potential of being sued by the seller for breaking contract. Usually deposits range from $10,000.00 to $20,000.00 here in Manitoba but in a market like we are in, some buyers will increase that amount to make their offer stronger, thus resulting in a big hit to the pocket book if financing doesn`t end up working out.

Now most buyers are probably thinking, “Well that all sounds a little scary, but I`m pre-approved so why wouldn`t the lender approve me?” There are many reasons why even after getting your pre-approval that financing can still fall through and it is very important that you understand all of these risks before writing an offer without the financing condition in it. 

Appraisals: Banks and other lenders rely on the “appraised value” of a home to deem if it is worth the amount you are asking them to lend you. They will often times send in their own appraiser to the property after the offer has been accepted to determine its value as they want to make sure if you default on payments, they will recoup their investment. In a market where buyers are offering 80K over the asking price, there is always a chance that the appraised value and the amount offered do not match and, in that case, it would be the buyer’s responsibility to make up the difference in value IN CASH. Unfortunately if there is no financing condition and the buyer does not have the cash to make up that difference the buyer will not be able to come up with the cash necessary to close resulting in a loss of their deposit and once again the chance of being sued by the seller for breaking contract.

Changes in financial buying power: Buying a home can be long process for some and life still continues to go on while you are in that process. Unexpected bills, job loss and large purchases are just some of the reasons why your buying power may have changed between being pre-approved and getting an accepted offer. Just because the bank told you 6 months ago that you were pre-approved for a certain amount does not mean that after purchasing a brand-new vehicle that they will still lend you that same amount of money. I always recommend getting a new pre-approval every 3 months to ensure you are still qualified for the necessary amount to purchase the property we are offering on.

Interest Rates: Most lenders will lock you in at a certain interest rate for 90 days once you go through the process of being pre-approved but like I had just mentioned, sometimes the process can take longer. If interest rates have changed between when you were first pre-approved and when you receive an accepted offer you may no longer be qualified for the amount necessary to purchase the property you offered on, ESPECIALLY if you are writing at the top of your budget.

New “Stress Test” guidelines: Have you ever heard of a stress test? This is a “test” in where a lender will have to qualify you at a higher interest rate than you are currently being offered so that if interest rates rise in the future you will still be able to afford your monthly payments. During busy markets, like the one we just experienced, the government may impose an increase to the amount they are testing you at to limit the buying power of buyers so that the sale prices of homes can equalize or level out a little to keep the market more consistent.

Mortgage Default Insurers: This is a big one. Mortgage default insurance is required by the Government of Canada when a home buyer is putting less than the 20% down payment typically needed to qualify for a conventional mortgage. If you are putting down less than 20% not only does the lender need to approve your mortgage but the mortgage default insurer does as well. Mortgage default insurance insures the lender NOT the buyer in case of default. There are 3 mortgage default insurers in Canada; CMHC (Canadian Mortgage and Housing Corporation), Sagen (formerly Genworth Canada) and Canada Guaranty. Each one of these insurers have different qualifications on which properties and which buyers they are willing to insure and which they wont and for the most part we are completely blind to what those qualifications are. In my experience, this is where financing falls through the most often and unfortunately the hardest to predict. I have seen them deny financing based on outdated electrical, shared well systems, location, asbestos and a multitude of other factors that we cannot control.  The financing condition really comes into play here.

Due to the market we are experiencing I am unfortunately seeing more and more buyers writing offers without the financing condition even though they are taking out a mortgage. As I have now explained, this can be a huge risk to the buyer but also to the sellers who may need to put their home back on the market if the buyer ends up not being able to close. If you are selling your home and there is an offer without a financing condition make sure your agent is asking the right questions; are the buyers taking out a mortgage or paying cash, if they are taking out a mortgage, do they have a back up plan if they are not approved? How much are they putting down?  Have they been pre-approved? These questions can help you assess the risk involved in accepting that offer.  Also, you will want to make sure they have put down a big enough deposit to cover any costs that may arise from the deal not closing due to the default of the buyer, this is especially important when you’ve received multiple offers as you may be declining offers of more qualified buyers that have financing conditions.

Now buyers, there are ways we can still write a strong offer even with a financing condition. Making sure you have an up to date pre-approval is a must. We can include your pre-approval letter in the offer so that the sellers are able to see you have done the work and are qualified to purchase their home. We can also make the deadline for financing as short as possible by staying in close contact with your mortgage specialist/broker prior to writing an offer. Here in Manitoba we typically see financing deadlines within 2-3 business days of the offer being accepted, although I have had some superstar brokers get it done in less than 24 hours! We can also write in detail (and should) a summary of how much you are planning on putting down vs how much you will be taking out as a mortgage. The more information the seller has the more confident they will be moving forward with your offer.

After everything I just touched on, unfortunately it might still come down to removing your financing condition to get you the house of your dreams. If that is the case, you now know all of the risks involved in doing so and you can be prepared to make an educated decision on how much risk you are willing to take. I always recommend having a back up plan in the event financing doesn’t go your way but sometimes you need to just take the risk in life!

#AgentAshton

Ashton Augert

Phone: (204) 781-1767
Email: Ashton@JenniferQueen.com

Another blog that seems to have come out of necessity!  It used to be that when we would give valuations on homes with pools, that the pool really added no significant value to ultimate price a seller would get. And it makes sense – Winnipeg’s summers can be short, so to really only get to swim in your pool from June until September didn’t make that much sense in terms of the hassle and economics that go with having a pool. However, in the advent of COVID, where people were forced to stay home, having that backyard oasis became far more important, and we started seeing homes with pools actually sell for a premium.

I also have another theory for what has contributed to the increase in sales prices for homes with pools. Winnipeg has had some of the hottest and driest summers that I can remember over these last couple of years and it may just be that global warming could actually be improving our summers here.  I did no research on this and have made many assumptions in arriving at this conclusion, but these are the late-night thoughts of a sleep-deprived mother of three. I swear it is getting hotter, and warmer for longer here.  Anyways, I've selected some of my favourite pools from our recent sales to highlight here.  Because who doesn't love a beautiful pool or yard!?

Before you take the plunge (literally):

Now here are some things that you need to know before you make the pool commitment!

• Balancing a pool is a science.  Many clients think that you just dump some chlorine in and the pool will be good to swim for the week.  However, there is a lot of balancing that needs to be done to keep the water in your pool healthy.  If you have a long stretch of hot weather in the summer, you will often need to increase your use of chemicals.  If you have a large party with many bodies jumping in and out of the pool, perhaps some kids relieving themselves (gag), you will also find that the pool needs to be more regularly balanced.  I have found that most clients find hiring a pool company to be incredibly beneficial.  The monthly quotes that I have heard for this maintenance begin around $250, but can go up quickly from there.  Oftentimes though, I find that my clients will hire a company for their first year, learn the ropes, get comfortable with the process, and manage the balancing of the water themselves moving forward.
• Other regular maintenance.  There are many tools you will want to invest in (if your house did not come with pool equipment).  A pool skimmer is incredibly important to keep debris out and depending on the trees within your area, might be a very regular occurrence.  Purchasing a pool vacuum is also an option many people choose to keep the bottom clear of debris.
• Ongoing pool ownership costs.  In addition to that monthly maintenance cost, you have to look at other costs such as heating of your pool, or the cost to fill your pool.  The water costs are not substantial after your initial fill, as you leave a lot of that water in your pool over the winter and just top it up again the following year. However, you will find you often need to do some touch ups. You will likely want to pay for the springtime opening of the pool as well as the winter closing of the pool, too.  Again, this is a cost you could likely eliminate if you are comfortable doing the work yourself.
• Types of heaters.  There are gas heaters for pools but there are also heat pump systems for pools (similar in some theories to a geothermal system).  Both have pros and cons.  The gas heater can heat up your pool on demand – if it is a cool spring day but you want to have a pool party, crank up the heat and hop in!  The negative though is that all of this natural gas does come at a cost.  On the other hand, the heat pump system takes the ambient air, converts it into heat, and then uses that to heat the pool.  The cost is much lower as it is using natural resources to heat the pool.  However, once your temperatures in the evening start dropping to around that 12-degree Celsius mark, there just isn’t enough heat left in the system to heat the pool enough during the day.  So, your season with this type of heating is much shorter. True Story – I once had clients that would crank their pool on (they had a gas heater, obviously) every March for a “St Patrick’s Day Party”.  They said they would crank it up to like 40 degrees and the water would just be steaming in the cool air. I think they said their bill for that month was always close to $800 but it was “SOOOO worth it!”. 
• Liability/Safety – pools are an attraction for many – and young children are no exception.  Doing whatever you can to prevent access to young children is paramount to keeping your neighbourhood safe.  If you haven’t already invested in a locked gate, be sure to do so.  There are some great products out there, including substantial pool covers for those winter months (the advertisement for those products shows an elephant standing on the pool cover).  These pool covers oftentimes require deep grommets to be drilled into the ground, however the safety factor is worth it. There is also a company called “Protect a Child” that offers pool fences that are super cool and unique and can be set up quickly and taken down even more quickly, if you want a more movable fence within your existing fenced yard. Here is a review I found on it on YouTube: https://www.youtube.com/watch?v=41TCt5yjg0k and my client that had this same fence system raved about it as well.  I have heard of people removing their diving boards as well to reduce their potential liability should anything happen from a dive or jump gone wrong.
• The big-ticket items are costly.  Major components of a pool, like a skimmer or a liner have a life span of around 10-15 years (at least in my experience).  While you can fix small pool-liner leaks relatively inexpensively, these are often temporary fixes that shouldn’t continue for extended periods of time.  At some point, if water starts getting behind that liner it can absolutely destroy the foundation of your pool.  The cost to replace a liner in Winnipeg is often around $8000 - $10,000 but depends on the complexity of the pool.  Another item I’ve seen fail in a personal pool was the skimmer.  But guess what!?  To change out the skimmer in that circumstance, the seller had to also change out the liner.  So, the costs really do add up!

When you are purchasing a home with a pool, there are some additional steps you are going to want to take to protect your investment.

• If buying a home with a pool in the Winter, you are going to want to insert a specific clause that allows for a holdback until the spring when you can inspect the pool.  Talk to your Realtor about just how to structure this term so that you aren’t left with unforeseen expenses.
• Have a thorough inspection done of the pool if it is available to view in full.  Oftentimes home inspectors in Winnipeg are not as familiar with inspecting pools, just because we do see them more seldom.  Having a pool expert come to assess the system is incredibly important.
• Ask for maintenance history of the pool.  Ask for the age of the pool, although don’t necessarily give this too much weight.  I have sold homes with 44-year-old pools before that were in great condition.  What is important, is the maintenance history of the pool.  Ask the seller if they can allow their pool service company to provide information directly to you, so that you can get a feel for just how well it has been maintained.
• Get proper training on how to care for your pool.  Some companies in Winnipeg are willing to do a learner course with you, so that you can handle the ongoing maintenance of the pool.  However, knowing how to properly care for filters, properly clean the pool, and properly balance the pool will reduce your costs long-term as they will extend the lifetime of your important pool equipment.

Just a word or two, from personal experience.  The cost to add a pool is pretty substantial – most starting at around $50,000 for a smaller, 15’ x 30’ pool.  If you are on a sloped lot and will require a significant amount of landscaping, that cost can go up exponentially.  You will likely NEVER get the return back on that home.  So don’t expect to put a $50,000 (or more) pool in, and increase the value of your home by $50,000.  Because it simply isn’t going to happen.  BUT, if this is going to be your forever home – one in which you can see yourself enjoying the pool for years and years to come, and that is worth it to you – I say GO FOR IT!  Or better yet, just buy a house with a pool!

Logan and I really struggled with the decision, personally.  We are both Realtors and for us to take on any project within our home that doesn’t add to the resale value, it feels sacrilege.  However, we have discussed this many times over and have agreed that we are in our forever home.  Our children are young (at the time of writing, 6, 3 and 1), and we know that means there will be many years of enjoyment before they are teenagers and too cool to hang poolside with their parents.  We are also on a larger lot and wouldn’t really miss the green space that a pool eats up.  So for us, we have made the deposit to go ahead and get that pool.  I should also add – with the “COVID Premiums” of 2020 and 2021 on pools – the waiting list became close to 2 years.  We are apparently “lucky” that we are going to be able to get our pool in, in 2022!

Thanks for reading.  If you found value in this, please let me know in the comments below.  I ramble a lot and write many of these blog posts after a glass of wine once the kids are in bed.  Should somebody be taking my computer away?

#AgentJen

Jennifer Queen

Phone: (204) 797-7945
Email: Jennifer@JenniferQueen.com