In most cases, you no longer can. Since the first edition of Chilton’s book appeared in 1989, the wages of typical Canadian workers (barbers or otherwise) have not kept up with the rising cost of houses, especially in larger cities. In my view, the slow and steady 10% savings rule just isn’t realistic for most young homeowners these days. So what should you do instead?

Consider an alternative strategy devised by Malcolm Hamilton, partner at Mercer, a human resources consultancy. You might call it the 20% strategy. He suggests earmarking 20% of your income for either housing payments or retirement savings throughout your life: “The entire 20% goes to the mortgage until the mortgage is gone, then the whole 20% goes to the RRSP,” says Hamilton.

I agree this strategy should help a lot of young Canadians afford a home and save for retirement. But Hamilton and Chilton agree it’s not for everyone. Will it work for you?

Different ways to build wealth. The beauty of the 20% strategy is that it allows you to successfully achieve two of life’s biggest financial goals. Early in life you can focus on buying as nice a house as you can afford, and you’ll pay off the mortgage as quickly as possible as your salary grows. Next you save for retirement in an intense, concentrated period. In my experience, this approach fits well with how most people naturally set their priorities.

Saving for retirement just isn’t important to most Canadians in their 20s and 30s, who are often desperately eager to buy a comfortable home in a good neighbourhood. But after buying that home, they chafe under the mortgage and want to get it off their backs as soon as possible. Then finally they turn their focus to building their retirement nest egg at a stage of life when that becomes increasingly important. It can all work out perfectly well, since paying off your mortgage and building up your investment balance are just different ways to build wealth.

To show how the 20% strategy could work in practice, I have developed a fictional scenario for a typical middle-class Canadian couple we’ll call Eric and Jennifer. Starting in their mid-20s, Eric and Jennifer set aside 20% of their income in order to accumulate a down payment on a home. Then in their early 30s they’re able to buy a $325,000 house with a mortgage of $260,000 (in today’s dollars). Each year they increase their mortgage payments in proportion to their growing salaries in order to pay it off in 17 years, just before they turn 50.

With the mortgage gone, they turn to building up their nest egg by applying 20% of their income (plus RRSP tax rebates) to savings. That allows them to save $525,000 (again, in today’s dollars) by the end of the year they turn 65. That’s more than adequate to provide a comfortable retirement.

Customize the strategy. Adopting this mortgage and savings plan at the 20% level should suit Canadians in average circumstances, says Hamilton. But to sustain their lifestyle in retirement, affluent Canadians should save more, while low-income Canadians will need less, he says.

Other circumstances may force you to tweak the strategy. Many young people are hobbled with enormous student debt and can’t start saving for a down payment immediately after graduating, although a good education might help earn bigger salaries later on. The plan also assumes you will have virtually no savings until you’re in your late 40s or early 50s, which isn’t the case for many people. Few Canadians outside the public sector enjoy good defined benefit pensions anymore, but many will by then have significant amounts in more modest employer-sponsored plans, or RRSPs and TFSAs. For better or worse, you’ll probably need to adjust the numbers accordingly.

Do you have the discipline? While Hamilton’s strategy should ease the path to home ownership and retirement savings for many Canadians, that doesn’t mean it’s easy. Like the slow and steady 10% savings approach, it too requires discipline. To do it properly, you first need to increase your mortgage payments as your salary increases in order to pay off the mortgage quickly. As a rule of thumb, if you have no other substantial savings or pension, you need to pay off your mortgage 15 to 20 years ahead of your retirement date, says Hamilton.

Then when you’re mortgage-free, you need to have the discipline to change gears: after decades of putting it off, you will need to suddenly embrace investing. That means socking away the full 20%, and avoiding the temptation to buy a larger house with a new mortgage, or ramp up your lifestyle expenses. (In my view, most people should also save their RRSP tax rebates on top of the 20% to make the most of the strategy.)

This is harder than it may sound. Chilton talks to a lot of people about their finances, and he says that while many Canadians are good at paying off their mortgages, he finds a large proportion don’t subsequently save enough when the mortgage is gone. After all, unless you’re willing to let the bank foreclose, you don’t have any choice when it comes to your mortgage payments. But you can come up with a dozen reasons not to invest regularly.

“I have no issue with people doing Malcolm’s approach as long as they avoid the behavioural issues,” says Chilton. Hamilton himself agrees that if you think you may lack the discipline to save large amounts late in your career, you’re probably better off sticking with the traditional approach.

Slow and steady wins some races. Indeed, while the 20% mortgage and savings rule should work well in many cases, it’s not for everybody. If you can start early and save a steady 10% of your income without jeopardizing your dreams of home ownership, then do it. The 10% rule recommended by Chilton is a proven strategy. Consider the fictional example of Hannah, a single woman who earns $50,000 a year (in today’s dollars) throughout her career. By saving 10% plus RRSP tax rebates over 40 years, she’d accumulate $450,000 nest egg in today’s dollars (assuming a conservative 5% return with inflation of 2.5%). That should provide her with a comfortable retirement if she also owns her home mortgage-free.

But the slow and steady strategy has potential pitfalls of its own. In particular, you’ll need to save more if you start late. “If you start at 46—or even 35—you have to save more than 10%,” says Chilton. “This is something we haven’t driven home as well as we should.”

Consider the example of Sergei, who has the same income as Hannah, but only starts saving at around age 40, leaving him just 25 years before retirement. Sergei has to save about 20% of his income to accumulate about the same nest egg as Hannah did by saving 10% for a longer period. In addition, if you’re a renter, you should probably save more than 10% to compensate for the fact that a paid-for home is a valuable asset that reduces your accommodation costs in retirement compared to equivalent rental properties.

Plan for the unexpected. No matter how good your plan, you never know how things will work out. With luck, the pleasant surprises (bigger salary increases, better investment returns, an unexpected inheritance) will at least offset the bad (maybe rising mortgage rates or falling housing prices after you purchase, or personal misfortune such as divorce, business failure or job loss). As Hamilton says, all you can do is “steer up the middle” and adjust when necessary.

That’s easy if the good surprises exceed the bad. But what if events turn out unfavourably? One thing to realize is that saving 20% of your income after your mortgage is paid off often leaves room to save more if you need to catch up. My sense is that saving 20% represents a moderate level of frugality for Canadians who are mortgage-free (see “How much can you save?”) If need be, you can probably save about 25% of your income, or more if you set your mind to it, especially late in your working life if you have no children, or if your kids are financially self-sufficient. And that’s not counting RRSP tax rebates. If you save those as well, that could bring your overall savings rate to 30% or more. So even if things don’t work out as you hoped, there’s a lot you can do to catch up.

While Chilton and Hamilton recommend different saving strategies, they hold each other in great regard. They also wholeheartedly agree that the best general advice you can follow is live within your means, pay down your mortgage and other debt as quickly as you can, and steadily build up your savings for retirement as soon as you can manage it. Do that diligently and you should enjoy a comfortable retirement—whatever strategy you use.

But in era where almost half of marriages end in divorce, it was our way of trying, in a humourous way, to acknowledge that divorce and property is a messy business.

The best solution is, obviously, not to get divorced. But if separation is imminent in your life you may be curious as to how a family break up with impact the marital home.

There are three basic scenarios as to what can happen to your marital home.

Sole possession. This is when one partner opts to buy out the other partner. Often a paid appraisal is conducted, which provides a current or fair market value of the home. Then the spouse who wants to continue living in the home can obtain refinancing, which will pay the other person half of what the home is worth.

Co-ownership. This is typically only undertaken by partners who are going through an amicable divorce, as it means that both are responsible for payments and both are entitled to half the funds when the property is sold. The difficult component of this type of ownership, however, is that both people would be responsible for capital gains on their share of the profit. The spouse that remained living in the home, however, may be able to claim an exemption. Speak to a lawyer for more information on this option.

Sell. While it’s tough to uproot you and/or your family, selling can often be the easiest solution. By selling the marital home, both people are able to take their entitled portion of the sale and then able to pursue their own home ownership needs. Problems can arise, however, if the market is soft and you cannot get a good sale price for the home.

Regardless of what you and your former spouse decides to do with the home, you’ll want to consider the following:

• Business as usual until there’s a settlement: Regardless of how bitter a divorce may become, it’s important to continue paying mortgage, property taxes and bills, at least until a settlement has been reached. Refusing to pay common debts will only hurt your future chances of refinancing and home ownership. If you find your partner is unwilling to help with the payments, simply keep receipts. Then use these receipts to seek reimbursement during the settlement process.
• Separate your finances: As fast as possible, seek to separate your finances from your partner so you can start establishing good credit on your own. That may mean opening a separate bank account, or getting your own credit card.
• Expediency is key: The sooner your divorce is finalized, the better you’ll be financially. That’s because mortgage professionals and other finance advisers may be unable to help you rebuild or move on until the settlement is signed and delivered.

Read an excerpt from the MoneySense Guide to Investing in Real Estate

Three hours later, both parties were signing an offer for just $2,000 under the Pilons’ asking price of $265,000—and $50,000 more than the listing price their local realtor had suggested. And because the Pilons handled the transaction on their own, there were no commissions to pay, saving them at least $13,000. “Boy, are we glad we did it ourselves,” Raymond Pilon enthuses.

Truthfully, the Pilons weren’t completely on their own. They used a service called ComFree.com, one of a growing number of companies that allow you to sell your home online, without the help of a real estate agent. These services have been around for years, but they’ve exploded in popularity since 2010. That’s when the Canadian Real Estate Association agreed to open up its Multiple Listing Service (MLS)—where the overwhelming majority of real estate transactions occur—to agents who charge a flat fee rather than insisting on the industry-standard commission. That expanded the reach of For Sale By Owner (FSBO) services, which had previously operated at a huge disadvantage. Take PropertyGuys.com, which has 123 franchises and more than 10,000 active listings: the company saw a 30% increase in business last year despite being in operation for more than a decade.

But is selling your own home really as easy the Pilons’ story suggests? Clearly not. Many people who choose the FSBO route find it a stressful, time-consuming grind. Take Tawnia Vihos, who tried selling her Ottawa home with a FSBO service, but gave up: “It totally pays to have a real estate agent. More exposure and fewer headaches.”

So is the FSBO method right for you? Here are five things you need to understand before deciding whether you’re cut out to sell your home alone.

1: You save big on commissions

Clearly, the biggest incentive for using a FSBO service is the prospect of selling your home without paying commissions to agents. In traditional deals, the home seller signs a contract with a realtor who takes a percentage of the final selling price. (The length of the contact varies, but six months is the usual maximum.) The standard commission is 5%, which is divided equally among your agent, the buyer’s agent, and their respective brokerages. So on the sale of a typical $350,000 home, you’ll pay $17,500 in commissions, of which your agent pockets $4,375.

FSBO companies don’t collect a commission: instead, they charge you a much lower flat fee. For instance, the median cost of using PropertyGuys.com is $1,000, although the price varies depending on how many services a client uses. Where you live is also factor, as prices are adjusted based on the cost of doing business in a given region. In the Greater Toronto Area, median costs are closer to $2,000, while the same services would be $1,400 in Halifax and less in rural areas.

“We allow folks to sell privately and market privately through our website, taking as little or as much service as they need,” says Walter Melanson, PropertyGuys.com’s director of partnerships. Clients can get online listings, lawn signs, instructions for negotiating and closing deals, email alerts, personalized consultations, professional photos, audio tours, and 360-degree virtual tours.

The burning question, of course, is whether an agent can pay for herself by netting you a higher sale price, even after the commissions are deducted. Many agents will claim they can. But while there are no reliable Canadian data, a 2009 study by economics professor Igal Hendel and his colleagues at Northwestern University in Illinois found that FSBO sellers who did not have access to MLS took longer to sell their homes, but did not have to accept lower prices. “After controlling for differences in house and seller characteristics,” the authors concluded, “we find that the MLS delivers no price premium (even before netting commissions).”

Facing this competition, some realtors have changed their business model, and some even offer variations on the FSBO platform. For instance, Great Canadian Realty in Ontario now offers a $995 FSBO-type option where sellers can have their listing created by knowledgeable realtors. For additional fees they will also assist with other aspects of home selling, such as negotiation. Sundaybell.com will set you up anonymously with realtors, so you can interview them by email and negotiate fees up front, before you disclose your personal information. SaveOnCommission.ca, which still operates under the traditional real estate model, charges a seller’s agent fee of 1%, as opposed to the traditional 2.5%.

2: Agents may not work with you

As a home seller, you may love the idea of not paying commissions to real estate agents. But you can appreciate that the agents don’t share your enthusiasm. Andy Forse discovered this when he tried to sell his home in Mahone Bay, N.S., with PropertyGuys.com. “The agents in our town are all happy to work with each other and see each other’s houses. But they tend to shy away from the PropertyGuys or people selling on their own unless they absolutely have to. They’re not overly keen to recommend that house unless the buyer sees it and says, ‘I want to look at that house.’” Kim MacLaurin found the same thing when she helped her parents sell their home using GrapeVine.ca, a FSBO site for residents of Ottawa and eastern Ontario. Agents openly admitted they would not work with FSBOs. “They’d say other realtors don’t show homes that are listed on Grape Vine because they’re not supporting a market that is working against theirs.”

What really annoyed MacLaurin, though, were the agents who called her ad nauseam asking her to drop her FSBO venture and sign with them, and those who would book showings under false pretenses so they could make their pitch in person. She calls it bullying and says she had to grow a thick skin. She learned to stand firm with this response: “No, I’m not taking your call. No, you can’t show the house unless you have a prospective client.”

Dean Paley of Burlington, Ont., tried to work around this by calling up local agents and telling them that, while he had no interest in representation, if they had a buyer he would pay them a fee equivalent to “the same commission that they’d make in a traditional two-agent deal.” Just be careful, Paley adds. If you do strike a deal with a buyer’s agent, set down the ground rules very carefully, and don’t sign any form until your lawyer sees it.

3: You need to set the price

One of the more important services a realtor can offer is setting an appropriate listing price for your home. An experienced agent has a good feel for the local market, as well as access to a database of recent sales in the neighbourhood.

However, critics point out that the interests of real estate agents and sellers are not well aligned here. Take, for example, a seller who lists a home for $300,000 and gets an offer of $290,000. The seller may want to hold off another week for the additional $10,000, but the agent may push hard for the seller to take the $290,000. Why? Because that extra $10,000 only represents a 5% commission of $500, which is then split four ways. In the end, the seller’s agent would have to work an additional week for only $125.

“It’s not that real estate agents are bad,” say Steven Levitt and Stephen Dubner, authors of the bestseller Freakonomics, “but they’re human beings and human beings respond to incentives.” When it comes to selling their own homes, it seems agents will hold out: using data from the sales of 100,000 Chicago homes, of which 3,000 were owned by realtors, Levitt and Dubner found that agents kept their own homes on the market an average of 10 days longer and sold for 3% more.

When Kim MacLaurin first listed her parents’ house, the realtor suggested a price of $389,000. Although the home was smaller than most in the neighbourhood, other properties were listed for no less than $450,000, which made MacLaurin feel like the agent was undercutting the market. “We almost felt like the price was scaring people off—that they’d be saying, ‘What’s wrong with it?’ We said minimum $399,000, and that was a difficult point for everyone.” When MacLaurin later listed the house on GrapeVine.ca, she priced it at $450,000 and sold it three months later for $425,000.

To Melanson of PropertyGuys.com, avoiding pricing pressure from realtors is one of the major perks of FSBO sites. “If you want to the ability to verify that your price is accurate, we have services and methods to do that. But we’re never calling you and saying, ‘Drop your price.’”

That said, it can de difficult for FSBO sellers to accurately price their own homes, especially in small towns where there are few recent sales to help gauge the market. James D’Aoust definitely had some doubts about using a FSBO service last year, when he was selling his house in Campbellville, a sleepy tourist town about one hour west of Toronto. “The biggest challenge is trying to determine the fair market value for your home without the assistance of a realtor, because of the access they have to information.”

In 2009, D’Aoust sold another home through an agent, and when it came time to sell his current property, he wanted to try doing it himself. “It didn’t seem like rocket science to me, especially with the tools available today through social media. The tipping point for us was the change in the accessibility to MLS.” But before hiring a FSBO service he met with several realtors to ask how they would go about marketing and selling his house, and to hear their suggestions for the listing price.

Some people may be put off by D’Aoust’s strategy: you might argue that he dealt with the realtors in bad faith by leading them to believe he was a prospective client. But he points out that all of the realtors advertised free market assessments, so he was happy to use that service to his advantage, making no promises that he would hire them to sell his home. Phil Soper, president and CEO of Royal LePage, says if getting a valuation is all a home seller is interested in, agents accept that as a part of doing business. But he adds that people just looking for freebies “probably should be dealing with someone else.”

D’Aoust eventually picked an $800 package from PropertyGuys, who arranged to have a photographer take pictures of the home for a web page on PropertyGuys.com, which was linked to a listing on the MLS. In the end, he sold his home for about 5% higher than the average appraisal offered by the realtors, and without paying any commissions.

Dean Paley didn’t approach any agents for assistance in pricing his home, which he calls “playing fair.” Instead, he simply looked at the MLS listings in his area to get an idea of the comparative value of his home. Because Paley and his wife were in a rush to move (having already purchased another home), they listed a hair under what they thought was fair market value and sold within two weeks.

In Raymond Pilon’s case, a recent bank assessment had told him his house was worth $265,000. ComFree.com also showed him—much like the MLS would, he says—what similar homes in his area were selling for, which turned out to be comparable to the bank assessment price.

4: You do the heavy lifting

If you’re still interested in trying your hand at FSBO, we have another question: are you willing to do most of the heavy lifting that a realtor would normally do on your behalf? “We’ve got to make sure you’re willing to do that,” says Melanson of the PropertyGuys. Rest assured, he adds, FSBO services can provide home sellers with all the information they need to guide them through the process should they be up for it.

Traditional realtors point out that their services go far beyond simply listing your house on the MLS. They argue that the vast majority of home sellers work with an agent for the same reason they wouldn’t defend themselves in court if hundreds of thousands of dollars were involved. “The amount of money at stake is large,” says Soper, of Royal LePage. “So they turn to someone who is involved in buying and selling real estate as a profession, and does it every day.”

Every real estate transaction is unique, Soper says, a point he thinks few people really grasp. “It’s really rare that you have a textbook transaction,” he says. “Almost every sale includes some degree of working through challenges. Buyers ask for a lot things, and it’s challenging for the seller to know whether those are acceptable things.” For instance, although it’s a seller’s responsibility to make sure that the home is livable for closing, you have the right to say no to unreasonable demands for repairs.

Adds Hendel, the economics professor: “You do fear all kinds of things going wrong in the bargaining.” He points out that selling a home is typically the biggest transaction most people will ever experience, and says that a traditional real estate agent can offer value during the process. They have experience negotiating with buyers and making counteroffers, for example. D’Aoust makes his living in sales, so all of this came easy for him: in fact, he enjoyed that aspect of the FSBO process. But he concedes that haggling is probably daunting for the average person. “You do have to be someone who enjoys negotiating and selling,” he says. “That has to be a part of your makeup. Some people seem to be allergic to the negotiating process, so it’s probably not a good fit for them.”

Melanson says PropertyGuys.com can help home sellers with all of the steps in the negotiating process, including how to respond to common questions that buyers ask. They also offer an online tool called the Offer Maker, which allows you to negotiate back and forth with a prospective buyer through the website. Other web tools give sellers a dashboard view of the number of people who have viewed their listing, a running log of questions from potential buyers, and a list of all received offers. Melanson says all this information is key for gauging whether your price is drawing interest, and it provides good insight for the seller considering a price adjustment. If you do change your asking price, an email notification is sent out to bidders who had previously expressed interest in new negotiations should the threshold drop.

Hendel says agents can also look after the necessary nuisances involved in selling a home. “They offer the service of showing the house, which might not be pleasant, especially if one is having an open house. These are the things that they can do better, I’d assume, than the average seller.”

That part was challenging, D’Aoust admits. “You have to be willing to make the time commitment, because it does require flexibility to accommodate prospective buyers. So unless you’re prepared to do that, maybe it’s not right for you.” He and his wife took 15 different people through their home before they finalized an offer. To make it easier on themselves, they tried to group several prospective buyers at set times so they weren’t dropping everything immediately to do a showing.

Scott Moffatt encountered a different issue when he unsuccessfully tried to sell his home last year using GrapeVine.ca. As the owner of his own Ottawa-based communications company, Moffatt frequently travels, which meant his wife was at home alone with their two young daughters to do showings. “It made her very uneasy,” he says. “That was a significant drawback.”

Experienced real estate agents can also offer helpful suggestions about how to properly stage your home so it will sell more quickly, and for a higher price. Some of these strategies—such as removing family photos or getting rid of a carpet that smells like your dog—are hard for sellers to identify on their own and require an outside opinion. D’Aoust, however, said the advice he received during market appraisals with realtors was really just common sense. “It wasn’t anything you wouldn’t have been able to pull off the internet yourself in terms of decluttering and simplifying.”

Kim MacLaurin actually felt some of the advice from her realtor was dubious. When she later sold her house on her own, she chose to ignore the suggestion to spend $400 on renting staging furniture. “Was that necessary? Probably not.”

Dean Paley points out that even if you don’t work with a real estate agent, you still need to hire a lawyer to handle the contracts. Fortunately, he and his wife already knew a reputable lawyer who worked in real estate. “We just contacted him in advance and said, ‘This is what we’re doing. We’re going to send you the forms, and just bill us accordingly.’ And it worked out phenomenally.”

The lawyer made sure they did not sign any contract before passing it through him to approve or suggest changes. He also covered all the important due diligence, including checking the documents prepared by the buyer’s lawyer, ensuring that the Paley’s old mortgage was properly discharged, confirming that all necessary payments had been made, and arranging the signing of the transfer documents.

Note that lawyers who work with FSBO sellers often have to take on some responsibilities that the realtor would have handled, and they will bill you accordingly: Paley says he paid about 15% more. “Not a huge price,” he says, particularly since they had saved money on the sale by avoiding the agent’s commission.

That was D’Aoust’s experience as well. While he estimates that his legal costs were double what he paid during a previous sale through a realtor (where his agent negotiated offers and handled most of the paperwork), he figures the money he saved in commissions and the higher selling price more than made up for that.

5: You’d better have the time

Selling a house through a FSBO service usually takes longer—sometimes much longer. The Northwestern University study found that houses initially listed and sold as FSBOs took, on average, 19.5 days more days to sell. For houses that were first listed as FSBOs but eventually sold on the MLS, the time to sell was almost 69 days longer.

It’s important to note that this study was done between 1998 and 2005, when FSBOs did not have access to MLS. But more recent FSBOs still face problems. The Moffatts’ property was unique: it was by far the largest, most expensive home in Smiths Falls, Ont. When they decided to purchase a newly built home in Ottawa, their agreement actually required them to hire a realtor to hasten the sale of their existing home, since they had already been using a FSBO system for six months without success.

Andy Forse also ran into a roadblock. After signing up with PropertyGuys.com to sell his three-bedroom home in Mahone Bay, he gave up after six months when he didn’t see an offer anywhere close to his asking price of $115,000. He and his wife had valued the property based on the selling prices of similar homes they’d seen on the MLS. But while the home was still on the market, they had to move back to Forse’s hometown of Kemptville, N.S., due to a job change, leaving the house sitting empty.

Meanwhile, they were relegated to staying at Forse’s mother’s home until the property in Mahone Bay sold, because the bank wouldn’t approve a new loan until their existing property sold. Feeling pressure to sell quickly, Forse then signed with an agent and sold within weeks. However, he thinks the agent just got lucky. A next-door neighbour who had previously expressed serious interest in buying the property for his daughter—but didn’t have the necessary funds at the time—came up with the money and bought it through the realtor. “We would have sold it had we waited a little longer,” Forse laments.

The Forses are now in the process of trying to upgrade their current home, but will be going with the services of a real estate agent because time, again, is a big consideration. “We decided we’re just too busy to do it on our own, plus we have two little kids. So we said, ‘Let’s get an agent.’”

The sole intent of this insurance is to protect the banks and mortgage lenders in the event that you go into default.

That said, I was rather intrigued to find out that mortgage loan insurance providers, such as Genworth and CMHC, provide ongoing solutions to homebuyers struggling to make payments. This aid is not completely altruistic. By helping a struggling homeowner, these companies avoid having to pay out insurance claims by lenders. But the added benefit is that a homeowner doesn’t lose all their equity through a foreclosure.

According to Rob Kirby, vice president of loss mitigation at Genworth Financial Canada, there were 5,000 families who took advantage of his company’s Homeowner Assistance Program in 2010.

Of these:

• 40% re-negotiated the mortgage to include payments that were in arrears;
• another 25% were provided payments or partial payments by Genworth, in the form of a loan, to make towards their mortgage from their primary mortgage lender;
• 20% had their loan renegotiated or modified, allowing many to take advantage of lower interest rates, or extended amortizations;
• The final 15% included deferral of payments and other extreme solutions.

“We pride ourselves as being solution providers,” says Kirby. “We try and think outside of the box to find the right long term solution for both the borrower and the lender.”

According to Kirby, Genworth’s success rate is between 85% and 90%. This means that in 2010, between 4,250 and 4,500 families didn’t lose their home, or their equity, because of Genworth’s Homeowner Assistance Program.

If you’re struggling to make payments, and originally paid a mortgage loan insurance premium, you can get an idea of what type of assistance you may qualify for by using Genworth’s evaluator tool.

When John Wilson made an offer on Cathy Smith’s house, he quickly learned an important lesson. Cathy accepted his offer, and John cut her a $30,000 cheque as a deposit. But when closing day arrived, the money was gone. Cathy had gone shopping. Worse still, she’d fallen behind on her mortgage payments, taxes and other household bills—bills that can become a buyer’s problem if he’s not careful. It took seven months to sort out the mess. John eventually ended up with the house but any potential profit he’d hoped to gain by flipping it disappeared like smoke up the chimney. His big mistake: He made out his deposit cheque directly to Cathy, rather than to a trustworthy third party to hold until the deal was sealed.

Cathy and John are fictitious names but their story is real. Calgary lawyer Jeff Kahane sorted out the mess. He’s got dozens of similar tales of house buying gone bad. Almost always, the problems trace back to one thing: the offer to purchase. Prospective buyers can spend hundreds of hours looking for that perfect property. When they find it, they get caught up in the emotion and fall into all kinds of traps, not the least of which is failing to protect themselves and their investment by drawing up a fail-safe contract.

“The impression that I get is many people view the offer to purchase as a standard form to get a house. But it’s a legally binding contract and has implications to it,” says Kahane. “A house is a very emotional purchase. Mostly what’s running through people’s heads is, ‘When do I get the keys?’”

HOW MUCH SHOULD YOU BID?

The first decision you have to make upon finding a home that’s right for you is whether to offer the full amount of the listing price. The answer? It depends. “The listing realtor may overvalue a property and sometimes they undervalue it” as part of a sales strategy, says long-time realtor Sano Stante, president of the Calgary Real Estate Board. Knowing the market is key to getting a home for a fair price. That means pulling recent sales of homes in the area for comparison. Then, decide on the maximum amount you’re willing to pay and open the negotiation somewhere below that. How far below depends on how much you think it’s worth, and how much interest there is from other buyers. “Determine fair market value regardless of the list price. That’s what you should base your offer on,” says Stante.

It also doesn’t hurt to pay attention to clues that might give you bargaining power, such as whether the property is occupied, or hints inadvertently dropped by the listing agent. “Try to get as much information as you can, and not give too much information. Some agents will tell you too much, to be honest,” says Toronto agent Elli Davis. “You have to have a good ear.”

The seller’s agent will certainly let you know if you’re up against another buyer or buyers, because competition between buyers helps drive up the price. In this situation, timing can be as important to winning as offering the higher amount. “You want to act expediently. Don’t delay,” says Stante. In a bidding war there is usually no negotiation; buyers put forward their best and final offer. That means coming up with a number you’re prepared to pay, even if it’s over the list price. It can also mean making concessions on items like possession dates.

“There are an infinite number of scenarios,” adds Stante. “You often have to be aggressive.” But aggressive doesn’t mean abandoning common sense. If there’s no opportunity for a pre-inspection of the property, think hard and carefully about whether you’re prepared to buy the house without the advice of a professional. “Some people really dress up their homes,” says Davis. “I think it’s nice for people to clean up their house—but beware of things they might be trying to cover up.”

GETTING IT IN WRITING

Once you’ve decided on the amount, you have to present a written document to the seller. Here’s where agents can really earn their commissions, acting as facilitators, intermediaries and advisers. Your agent will draw up an offer sheet that you’ll have to sign. If you don’t have an agent, you can obtain a standard offer form from a real estate lawyer or website and fill in the details. These specific aspects of your offer include the purchase price, the deposit amount, the dates you plan to pay the balance (known as “closing”) and move in (known as “possession”), and any conditions (often called “subjects”) you attach to the sale.

“If you have too many conditions in the offer then you have a lot of hurdles to cross,” says Len T. Wong, a broker in Calgary. In most cases, the offer should be subject to a home inspection and financing if the required mortgage amount is not already approved. Deals can sometimes go sideways when a buyer and seller disagree about what constitutes a major defect (something the seller’s expected to fix), so include in the offer a maximum dollar value for the cost of a fix that you can live with.

No one wants to drag out the haggling, so it’s reasonable for a buyer to ask for a response to the initial offer within six to 24 hours. But expect some negotiation. The seller may come back to you with a counteroffer, and you respond with an amended offer (possibly the same document, with new dates or numbers written in and initialed), until you reach terms both sides agree on. Or you don’t, and move on.

THE DEPOSIT

You should also have a deposit ready at this time, as you’ll need to pay it as soon as the offer is accepted. It doesn’t have to be large, although a heftier deposit can beat competing offers. (But beware: if the deal falls through, your deposit can be held for up to seven business days.)  On lower-end homes it might be 5% of the purchase price, enough to cover the selling agent’s commission; a lower percentage is acceptable for more expensive homes. The cheque should always be made out to a third party (either the selling realtor’s trust account or the seller’s lawyer) so it can be held until closing—a lesson John learned too late. Usually it’s deposited after a seller accepts the offer and the buyer removes all conditions to the offer. At closing, the deposit will be deducted from the total purchase price.

PROTECTING YOURSELF

The standard real estate contract typically contains wording that cancels the deal if the title is not clear, but you can check the municipal registry on your own (there may be a charge) or have your agent do it to make sure to spare yourself trouble later. Meantime, a survey or real property report should be provided by the seller, and written into the contract if the terms in the standard form don’t already address it.

In his years of practice, Kahane has seen furnaces taken, carpets removed and appliances swapped out for lesser quality ones prior to closing. When a purchase contract details the terms, the buyer has legal recourse if the seller doesn’t uphold his or her end of the bargain.

Many buyers encounter problems post-contract with issues like legal title to parking stalls, or are surprised by special assessments levied because the minutes of the condominium board weren’t reviewed prior to purchase. When buying a condo or townhouse, ensure the purchase is subject to review and approval of condo board documents and don’t waive those conditions until you’re satisfied all is well (see “How to Buy a Condo” on page 28 for more on that).

“Until an offer is accepted, you can cancel it,” says Kahane. “But once you waive conditions, you have a legal obligation and you’re on the hook for losses incurred by the seller” should the deal not be completed. — SUZANNE WILTON

New guidelines coming into effect over the next year require financial institutions to have easy-to-use online calculators showing accurate estimates of penalties. Lenders will also need to provide phone lines with staff who are knowledgeable about the fees.

“It’s unbelievable how many mortgage advisers know almost nothing about penalty calculations,” says mortgage broker Rob McLister.