DECIDING TO BUY
Purchasing a property is most likely the biggest financial decision you will ever make. Whether this is your first purchase or you are an experienced buyer, this decision must be made carefully
Why Do You Want to Buy?
Are you tired of paying rent? Have you decided to pay your own mortgage and not your landlord’s? Have you outgrown your current home? Are you looking for an investment portfolio? Are you looking for a rental property? Would you like a larger yard? Do you need to relocate for work? Do you want to shorten your commute or live in a quieter area with less traffic? Having a clear sense of your reasons for buying will help you choose the right property.
Has Your Income Grown?
Property ownership is an excellent investment; whether you are looking for your dream home, a rental property, or to expand your investment portfolio. Owning real estate is one of the best ways to build equity (with low-risk) or to obtain a greater return on your initial investment.
Prepare Your Green File
PREPARING TO BUY
A green file contains all your important financial documents. You will need it to secure financing for your property. The green file should contain:
- Financial statements
- Bank account information
- Credit cards
- Auto loans
- Recent pay stubs
- Tax returns for two years
- Copies of leases for investment properties
- RRSP or pension statements, life insurance, stocks, bonds, and mutual account information.
Your credit score will have a huge impact on what type of property you can buy, and at what price. It is first recommended to check your credit rating with an experienced lending institution so that we can determine what you can afford. The lender will research your credit ratings from the three credit reporting agencies Equifax, Experian and Trans Union. We will be happy to recommend experienced, knowledgeable lenders in the residential, construction, and commercial and investment real estate fields.
It is important to be qualified or pre-approved for financing before you start looking for a home. This lets you and your agent know what you can afford as well as providing a written confirmation or certificate for a fixed interest rate good for a specific period of time. To obtain pre-approval, contact your agent or mortgage broker. The benefit of a mortgage broker is that he or she operates independently of the lender and therefore can assist you in finding the best financial product at the best rate from a variety of sources and usually at no expense to you.
Be Careful with Your Finances
Now is not a good time to make sudden career changes or large purchases. You want to approach your property purchase from a position of financial stability.
Buying a property requires making many important financial decisions, understanding complex issues and completing a lot of paperwork. It helps to have an expert in your corner when undertaking such a large purchase. We can guide you through this process, and also provide you with access to property listings before they hit the general market.
CHOOSING A REAL ESTATE AGENT
Here are some factors to consider when choosing your real estate professional:
- Look for a full-time agent – one who has experience completing transactions similar to yours.
- Interview a few agents: Are they familiar with the area in which you are interested?
- Ask how much time the agent will have for you, and if they are available at night and on weekends.
- Ask about their credentials and education: A good agent will continually strive to improve and gain knowledge of the latest real estate trends and hold the highest designations in their respective fields of expertise.
- Does the agent return your calls promptly? Time is money when attempting to buy a property.
- Ask for a list of properties they have sold or a list of references.
- Choose an agent who listens attentively to your needs and concerns. Pick an agent, with whom you feel comfortable.
HOUSE SHOPPINGTake a Drive
Get to know the neighborhoods, complexes, or subdivisions, which interest you. Drive around and get a feel for what it would be like to own a property in the area. Start getting a sense of the properties available in those areas.
Narrow Your Search
Select a few properties that interest you the most and have your real estate agent make appointments to visit them. Ask your real estate agent about the potential long term resale value of the properties you are considering.
Create a list of your top 5 must-haves
Make sure you’re on the same page with your partner or family
You’ve found your perfect home! What do you do now? Your Sales Representative will prepare an Agreement of Purchase and Sale, including any custom clauses you may require. Most Buyers will make an offer provided certain conditions are met. These may include:
Even if you have been pre-approved for a mortgage, the property will require an appraisal to assure the lender that the price you are paying falls within accepted market value. Once your financing has been approved you are required to provide written notice to the Seller in the form of a waiver of amendment before the expiry of the condition.
This condition applies only to the purchase of a condominium. It allows your solicitor to review the condominium’s documents to ensure the corporation is financially sound and meets all the requirements of the Condominium Act. Under the Condominium Act, the property management company has up to 10 days to prepare the Status Certificate and can charge a maximum of $100 for the service.
This condition provides an opportunity to have the property inspected by a qualified person who will look for any major defects in the building prior to your entering into a firm agreement. Many Buyers choose to have a termite inspection done as well, especially for older homes.
As of June 23, 2008 for every Purchase and Sale in real estate, the Brokerage must obtain an Individual Client Information Record. This record sets out the Buyer/Seller name and address, and the nature of your principal business/occupation and date of birth. You will need to show a piece of identification that you confirm your identity. For example, birth certificate, driver’s license, passport. For more information go to www.fintrac.ca
For the offer to be valid, it must contain a number of specific dates and times. Your initial offer will be valid for a specific period dates and times. Your initial offer will be valid for a specific period of time, usually until midnight of the same day or the following day, after which the offer is deemed to be dead. This time frame is called the irrevocable period.
This is the date set for the transfer of ownership of the property negotiated between you and the Seller and can also be referred to as the closing date.
This is the period in which your lawyer must determine if there are any problems with the title of the property and is usually set 30 days prior to the completion date.
A deposit cheque must accompany the offer to the Seller. The amount of the deposit will vary depending upon the value of the property but usually represents between 5% and 10% of the purchase price. The offer is a representation of how serious the buyer is. The deposit will be held in trust by the Seller’s brokerage.
Fixtures are any items permanently attached to the property. For example, a bathtub, sink or toilet permanently plumbed in would be a fixture. Technically, anything nailed to the building is a fixture while items screwed in (because screws can be removed) are chattels. This is often an area of contention when buying a resale home. So be aware of this distinction and, if in doubt, put it in the offer.
Chattels, unlike fixtures, are not deemed to be part of the property and must be specified in the offer if you want them included in the sale. The following are some items you may wish to include in the offer: area rugs, ceiling fans, chandeliers and other light fixtures, draperies, wood burning stoves and accessories, microwave ovens, refrigerators/ freezers, stoves and ovens, washers and dryers, window air conditioners, garage door openers, storage sheds, swing sets and other playground equipment, garden furniture, barbecues, central vacuums and equipment.
Important to Remember
Stick to the schedule. Now that you have chosen your offer, you and the seller will be given a timeline to mark every stage in the process of closing the real estate contract. Meeting the requirements on time ensures a smoother flow of negotiations so that each party involved is not in breach of their agreements. During the process we will keep you constantly updated, so you will always be prepared for the next step.
Negotiating the Offer
After signing the offer, your Sales Representative will register it with the listing broker. A time will be set for the listing Sales Representative and your Sales Representative to meet and present the offer to the Seller. The Seller has a number of options available: Reject the offer; Accept the offer exactly as presented, making no changes; Make a counter-offer back to you with whatever changes the Seller wants, such as price, closing or conditions. You then have the option of accepting the Seller’s counter-offer or making your own changes and signing the newly amended offer back to them. This is where your Sales Representative’s negotiation skills come into play.
Once your offer is accepted by the seller, you can choose to have a licensed property inspector inspect the property within the time frame that was agreed upon in the effective contract to purchase. You may elect to have different inspectors inspect the property, if you wish to obtain professional opinions from inspectors who specialize in a specific area (i.e., roof, HVAC, structure). If you are purchasing a commercial property, then you will need to have an environmental audit done on the site for the lending institution. We can recommend several different inspectors.
Depending on the outcome of these inspections, one of two things may happen:
1. Either each milestone is successfully closed and the contingencies will be removed, bringing you one step closer to the close; or
2. The buyer, after reviewing the property and the papers, requests a renegotiation of the terms of contract (usually the price).
Registering the Mortgage
The lawyer receives instructions from the mortgage company, prepares the draft mortgage document, forwards the draft to the lender, makes amendments if required and arranges for you to sign the documents. The mortgage company then releases the funds to your lawyer. Some lenders prefer to pay the property taxes on your behalf to ensure the taxes are never in arrears. In this case, the mortgagee will hold back a certain amount from the advance on closing to start a tax account. Your payment will include the taxes in addition to the regular principal in interest. Check with your mortgage representative to see how your taxes will be handled.
The Role of Your Real Estate Lawyer
Your lawyer (or closing agent) will hold the deposit in escrow and will research the complete recorded history of the property to ensure that the title is free and clear of encumbrances by the date of closing and that all new encumbrances are properly added to the title. Some properties are subject to restrictions which limit various activities such as building or parking restrictions. There may be recorded easements and encroachments, which limit the rights to use your property. Restrictions, easements and encroachments, may affect the value of the property you are purchasing and your enjoyment of it, so it’s important to be aware of the details.
Your Realtor will deliver all documentation related to the sale to your lawyer.
If you are obtaining a loan, you will be required by your lender to purchase a certain amount of insurance on the property. The value will depend on the lending institution and the purchase price of the property. You may be able to save hundreds of dollars a year on homeowners insurance by shopping around for insurance. You can also save money with these tips.
- Consider a higher deductible. Increasing your deductible by just a few hundred dollars can make a big difference in your premium.
- Ask your insurance agent about discounts. You may be able get a lower premium if your home has safety features such as dead-bolt locks, smoke detectors, an alarm system, storm shutters or fire-retardant roofing materials.
- Persons over 55 years of age or long-term customers may also be offered discounts.
- Insure your house NOT the land under it. After a disaster, the land is still there. If you do not subtract the value of the land when deciding how much homeowner’s insurance to buy, you will pay more than you should.
The coverage should be for at least the amount of the mortgage to be acceptable to the mortgagee. A guaranteed replacement clause is usually acceptable and must take effect on the closing date.
Land Transfer Tax
Payable by the Buyer on closing, the tax is based on the purchase price (you may be eligible for a full or partial refund of this if you are a first-time home buyer).
A lawyer will usually charge between $750 and $1,000, plus disbursements, for a straightforward real estate transaction. This is payable prior to closing.
Statement of Adjustments
The closing balance to be paid by the Buyer is “subject to the usual adjustments.” The statement of adjustments is a system of credits and debits whereby amounts are added to or subtracted from the balance to be paid by the Buyer, depending on whether or not the Seller has paid certain items in advance. The day of closing is assigned to the Buyer, who is responsible for taxes and utilities from 12:01am of that day. For example, taxes might have to be paid up to the date after the scheduled closing, so the Buyer will credit the Seller for the exact number of days “overpaid.” The same applies to water rates and fuel. Utility companies are notified of the change of ownership by your lawyer and final meter readings are arranged for the date of closing.
The lawyers or clerks exchange documents and funds to close the transaction. You can expect to get access to your new home by late afternoon on that day, but check with your lawyer. Changing locks is recommended after closing as a safety precaution. If you have any dead-bolt locks on your doors, it is a simple matter to remove the cylinder and replace it with a new one.
Once you’ve got the keys, it’s time to pop open the champagne!