It’s easy to make mistakes when you’re buying or selling your home. Especially in today’s hot market because decisions have to be made even more quickly than usual and because higher prices mean mistakes are more costly.  

I see people make mistakes every day. Literally. But thankfully not our own clients.

How do I define a mistake? Buying or selling a home involves a lot of decisions. You’re the one making those decisions. You need the right information and advice to make the best decisions, but that doesn’t always happen. When something happens that you don’t want to happen and that you could have prevented from happening if you had the right information and advice, that’s a mistake.

So when you’re looking for a house in a specific school district and buy a house thinking it’s in that school district when it’s actually in another school district because the school boundaries zig zag and you didn’t know to check the boundaries, that’s a mistake. But if you decide to buy a home in another school district when you know it’s not in the school district you want that’s not a mistake.

Some mistakes are easy to fix, like when you think you own your alarm system so you include it in the sale price only to find out it’s leased and you have to pay $3,000 to buy out the lease  so you can sell it free and clear to the buyer as you agreed to do, that’s an easy mistake to fix.

Other mistakes are hard to fix, like when you buy a house with the intention of tearing it down to build your dream home only to discover it has a heritage designation which prevents it from being torn down. You’ve already paid the large land transfer taxes to buy it and now you have to pay a significant commission to sell it.

But what are the biggest and most expensive mistakes I see people make on a regular basis? And when I say expensive, I mean expensive. These mistakes can cost you tens or hundreds of thousands of dollars. To make things simple, the biggest and most expensive mistakes I see people make on a regular basis fall into two categories: 1. Selling too low; and 2. Paying too much.

Let’s look at each category individually for a few examples of how these mistakes happen so you can make sure to avoid them.

Selling Too Low

     A. The Low List Price

You have to choose a strategy when you sell your home. There are always different options from which to choose. Setting a low list price and hoping for a bidding war is a fairly common strategy these days, but it’s not the right strategy for every situation and it may not be successful.

If it’s not the right strategy for your type of home and you don’t get multiple offers, then what? Yes, you can raise your list price, but you’ve lost your chance at hitting the market with a bang and it doesn’t look good. A good Realtor could have told you this wasn’t the right strategy for your home.

What about the unsuccessful bidding war? Your home is worth $2m based on the comparable sales, but you don’t know that because your Realtor told you the market determines the value of your home so you should set a low list price and let the market determine its value. You set a list price of $1.7m, receive ten offers and sell your home for $1.9m. You and your Realtor may feel great about how things worked out, but you left a lot of money on the table because you didn’t know your home was worth $2m. A good Realtor could have told you what your home was worth and the right price at which to list it to make sure you sold your home for full value.

     B. The Private Sale

There’s nothing wrong with selling your home privately. I don’t think it’s the best way to maximize your price because you’re not exposing your home to as many buyers as possible, but the decision is yours to make. If you do decide to go this route, understand there are additional risks you’ll be taking.

For example, you meet with your Realtor to talk about selling your home. Your Realtor says it’s worth about $2m if you prepare it for market properly so it shows its best. You plan on putting it on the market in sixty days.

About a month later you’re on a Zoom call with some office mates and one of them says they’re looking for a home in your neighbourhood. A few back and forths later you agree to sell them your home for $1.9m which you feel is a fair price because it’s about equal to $2m less the commission you won’t have to pay and you get the added benefit of not having to do any more market preparation.

The only thing is that the market has spiked in the month since you met with your Realtor and your home is now worth $2.25m. That happens every now and then. A good Realtor could have told you that. Your office mate got a great deal and you left a lot of money on the table.

     C. The Lowball Offer

Your house is worth $2m based on the comparable sales. The low list price strategy isn’t right for your home so you list it at $2.2m and are prepared to negotiate.

You receive an offer after two weeks for $1.75m. The buyer’s Realtor lists all the things wrong with your house. He says your house hasn’t sold yet because your list price is too high. Your own Realtor tells you the market determines the price and your first offer is always your best offer. (This is a commonly used Realtor expression I’ve always believed to be false.)

You get nervous and think you’ll never see a better offer or you may never sell your house. You decide to accept $1.8m for your house.

Your Realtor could have told you there are comparable sales to support a $2m price and, while there are never any guarantees, two weeks on the market isn’t a long time. Yes, there’s always a risk you may not see a better offer, but it’s worth trying. That’s what a good Realtor would have told you.

Are you starting to see a common theme here?

Paying Too Much

     A. The Emotional Bidder

You find your dream house. It’s listed at $2m. The comparable sales show it’s worth about $2.2m. You’re in love.

Offer day comes. There are six offers. You decide to offer $2.25m because you have to have it. The seller asks all buyers to improve their prices. You increase your price to $2.35m. This is your dream home. The seller narrows it down to three buyers including you. He asks you to improve your price. You go to $2.45m. You may never see a house like this again. The seller narrows it down to you and one other buyer. You increase your price to $2.5m. You win! You’re ecstatic.

You wake up the next morning feeling awful. You just paid $2.5m for a house that’s only worth $2.2m. $300k is a lot of money. Then you find out your bank isn’t going to loan you enough money to pay $2.5m for a house that’s worth $2.2m. It’s only going to loan you enough money to pay $2.2m. You’re going to have to find financing for the additional $300k.

How did you get into this mess? Yes, you decided of your own free will to pay $2.5m, but did you receive the information and advice you needed to make the right decision?

You could have established your top price before the bidding started so you wouldn’t get influenced by your emotions in the heat of the bidding. That price should have taken the comparable sales into account as well as how much you wanted the house. If you were going to pay more than the house was worth, you should have looked into the additional financing you might need if the bank won’t loan you the full amount. That’s the advice a good Realtor would have given you.

     B. Buying the Wrong House

Your kids are growing. They and their things are taking up more and more space. You’re working from home now. You need a bigger house.

You start looking, but you’re looking in popular neighbourhoods where there isn’t much turnover. And you’re looking for something special. You don’t want to spend $2m on something that doesn’t fit your needs.

You look for a year, but nothing really captures your heart. Finally a home comes on the market that ticks most of your boxes. It has the bedrooms and bathrooms you want. It has a family room. It’s not recently renovated, but it’s not too old. It’s not close to the subway, but it’s not too far. It doesn’t have parking for two cars, but there’s space for one car if you park it on an angle. It’s not perfect, but it’s good enough. You’re desperate for more space.

Do you buy it? The decision is yours. But being desperate isn’t a reason to spend $2m on a house you don’t really like. You should love the house you buy. Yes, you can buy it, but houses don’t come with thirty day money back guarantees. They don’t even come with a cancel within twenty four hours policy. Think about these things carefully before you decide whether to buy this house and know there will always be other houses. That’s what a good Realtor would say.

Keep these examples in mind as you buy or sell your home. Hopefully they’ll help you avoid a few of the biggest and most expensive mistakes I see buyers and sellers make on a regular basis.

Remember, you’re the one who makes the decisions. If you knowingly decide to sell too low or pay too much for some reason, and these things do happen occasionally, it’s not a mistake. It’s your decision. But most buyers who pay too much and sellers who sell too low have made a mistake because they didn’t get the information and advice they needed to make the right decision. Avoid mistakes that can cost you tens or hundreds of thousands of dollars. Hire a good Realtor. It’s as simple as that.