When I am doing pre-approvals for clients, I get this question all the time: “Is this pre-approval good for both kinds of listings, realtor and private sales?”

It is a good question, and I suppose an important one because everyone wants to maximize their house hunting opportunities. For that maximizing reason I understand the desire to ask that question. Although it does represent a notion that there is a special deal, or diamond in the rough opportunity with private sales that is not possible with one’s listed with a realtor.

Before I go much further, let me remind you that I am a mortgage broker with the ability to be unbiased. Technically it does not matter how a client finds a home for me to get a great mortgage. My job is to receive the home information, and go to work getting the best available mortgage product and rate regardless of it being listed privately or MLS. Also know that no one is paying me to lean towards one side or the other, and no one asked me to write this post. Now that is out of the way, let’s get to the battle.

Private sales = Better deals???

Typically the only one that is getting a better deal is the seller. A seller will list a home privately so they can avoid the realtor fee and net more profit. But these savings have no effect on the buyer because you the buyer are still paying market value for the home. Whether you buy with a realtor or privately, you will be paying market value for the home unless you get extremely lucky and find a gem. If the seller was to sell it for less than market value just because they listed privately, then they may as well hired a realtor and got full value minus the realtor fee. It would work out to the same net profit for them anyways…and save the head ache.

Private sales are just as easy as a realtor sale???

The only thing that is easier about a private sale is your ability to be stressed out. I have done over one hundred mortgages for private sales in my career and almost every time something goes wrong, haywire, awkward, etc. Not because people are trying to screw each other over, or cause problems. It is simply because there are lots of rules and laws that are involved with real estate, lots of parties involved, strict timelines, and human emotions. I find my clients not knowing where to turn for advice, and soon the advice can be expensive because you lean heavily on your lawyer. The lawyer bills out at $300/hour and your so-called savings are vanished. Don’t forget the most awkward part is negotiating the purchase price. This is usually done on the phone and in person, and you have no one to advise you on how to do this except for a couple random Google searches and who knows if they are current advice, and if it applies to the US market or the Canadian. In summary, if you like stress and feeling abandoned I recommend a private sale.

Financing is all the same with a private sale???

Here is where I get to be brutally honest because this is my department. 🙂 Unfortunately financing rules change on private sales, and this actually disappoints me because I feel bad enough for my private sale customers. Not only are they stressed, confused, misguided by unprofessional advice along the way, they now have difficulties getting a mortgage approval. The buyer could be the banks “dream” client with perfect credit, 30 years on the job, and a large down payment from savings. That exact client will get outright declined by over a dozen banks in Canada simply because they do not allow private sales. The majority of the banks do accept private sales, but there are plenty that have policies that do not. Some banks will add a rate premium on the mortgage, which means they now have a higher interest rate just because it was listed privately. Lastly, and most importantly, an appraisal is required 99% of the time. The bank does not trust a private sellers ability to judge the value of a home, and buyers are often too emotional when making offers that the house prices can be out to lunch. Often overpriced by 5-10%, even though they have an accepted offer by a buyer willing to pay that price. What happens next? The appraiser is hired to go do an appraisal (valuation) on the home to determine what is the home actually worth. This comes at a cost to the buyer every time (approx. $350) and we cross our fingers that all the negotiating and number crunching to get that price wasn’t for waste. In the last 2 years, 35% of private sales were overpriced and had to be renegotiated with the seller. Some of them came to an agreement, and others fell apart. Once again, I feel so bad for my honest hard working buyers that go through this emotional roller coaster to buy a home.

When is it smart to do a private sale???

When you are selling or buying from family. This would be one of the few times I would recommend a private sale and having a good lawyer and myself to help guide you through the process. The negotiation is usually friendly between family, and there is no advertising on kijiji, or endless Facebook posts, and annoying open houses shown by you. You already have a buyer, you already have a fair price in mind, and the timelines are more of a guide than a strict deadline. The savings are usually split between the buyer and the seller and everyone wins. This kind of sale makes sense to me! The best part of family private sale is the ability to gift equity in the home. That special price you gave the buyer, can actually turn into their down payment, which is a huge added bonus for any buyer!

I think that summarizes my thoughts for now….a bit wordy, but you can see where the pros and cons lay. My desire is for my mortgage clients to have a fun and enjoyable process and not a stressful one. The results that I witness year after year speak for themselves, and show that your ability to enjoy your home buying experience has lots to do with if you chose a realtor or not. Choose wisely!

The Winner of the this battle…….. REALTOR!

Oh, and I should say this… PLEASE DO NOT be embarrassed if you have bought and sold privately in the past or are planning on doing it in the future. These are simply opinions based on my experiences over the years and I am always down with getting proven wrong! May you be the exception to the rule!!!! Good luck my friends.

If you want any more of my outspoken thoughts on real estate or have further questions please comment below or feel free to fire me an email at greimer@dominionlending.ca. If you have any burning questions and topics you would like me to blog about, please let me know by clicking the “Ask It Now” button on the right and submitting your question.

Thanks for reading!
Graham Reimer