BUYING AND SELLING REAL ESTATE
BUYING REAL ESTATE
A purchaser must first consider whether he or she can afford to buy a home. Financial institutions suggest that no more than 30% to 32% of your gross annual income should go to "mortgage expenses" - i.e., principal, interest, property taxes, water, gas, and electricity. For instance, a person earning a gross income of $2,500 per month should not spend more than $800 per month on a mortgage payment, taxes, and utilities.
Expenses Of Purchasing a Home
- Down-payment: If a mortgage is required to finance part of the purchase price, the buyer(s) usually need to put at least 5% of the purchase price down. Generally, banks or credit unions find it unacceptable to lend money to make the down payment.
- Taxes: It may be necessary to reimburse the property seller for taxes paid for that part of the year when the buyer owns the property. For example, if the buyer takes possession on October 1st and the taxes have been paid in full for the year, he or she will have to repay the seller for the taxes for October, November and December.
- Fire/Homeowner's Insurance: The property and buildings must be insured to obtain a mortgage.
- Appraisal: A bank or credit union may require an appraisal of the property before approving the mortgage. Generally, the buyer must pay for the cost of the appraisal.
- Mortgage Approval Fee: If applying for a high-risk mortgage, the lender may require a fee to process the application for a mortgage.
- Legal Fees: The legal aspects of the purchase will involve fees and disbursements incurred by our firm, Land Title costs, and GST.
- Other: Possible expenses may include life insurance on the mortgage, title insurance, repair work, furnace inspection, appliances, moving costs, utility deposits and hook-up charges.
Financing
A mortgage is a loan from a lending institution such as a bank or credit union. It is sometimes possible for buyers to assume the seller's existing mortgage, depending upon the terms and conditions of the seller's mortgage contract with his lender. A second or third mortgage is available if there is sufficient equity in the property. Equity is the difference between the value of the property and the amount owing on a mortgage.
Terminology
Agreement of Sale: A binding contract whereby the seller retains title to the property until the buyer pays the entire purchase price. Standard terms may include: the possession date; certain conditions applicable to the sale - refinancing approval; approval by a third party (such as a spouse); the sale of a current residence; a satisfactory building, furnace, or wiring inspection; a deposit which is usually held in trust by the realtors or lawyers; and a clause with regards to chattel or other property that may be included in the sale, such as appliances, sheds, garage door openers.
- Amortization Period: Chosen length of time it will take to fully repay the mortgage money to the lender (i.e., 25 years)
- Affidavit Re Value of Land: is signed and sworn to by the buyer, swearing as to the value of the property being purchased.
- Caveat: A Notice, registered at Land Titles Office, that a third party has an interest in that property.
- Closed Mortgage: A mortgage that does not permit early payment or additional payments, except those allowed in the mortgage. If additional payments are made, it is often in conjunction with payment of a penalty (prepayment charge).
- CMHC Mortgage: When a borrower makes a down-payment of less than 20%, the mortgage is considered a high-ratio loan, and the borrower must take out CMHC insurance to cover the lender if he/she defaults on the mortgage.
- Conventional Mortgage: A loan is available when the borrower makes a minimum down payment of 25%.
- Equity: The difference between the market value of the property and any money still owing against the property.
- Foreclosure: An action to collect money owing under a mortgage or to take title of a mortgaged property. If a borrower defaults on payments, the lender may initiate foreclosure proceedings.
- Lien: A claim registered against the title to secure payment for work done to the property.
- Mortgagee: The financial institution, usually a bank or credit union, which lends the mortgage money.
- Mortgage Life Insurance: To ensure the balance owing on the mortgage will be paid out if the property owner(s) die(s).
- Mortgagor: The borrower of mortgage money, usually the owner or buyer of the property.
- Open Mortgage: A mortgage that allows additional payments or early payout of the borrowed funds without penalty.
- Real Property Report: A real property report is a legal document that clearly illustrates the location of significant visible improvements relative to property boundaries and is often a requirement of the lending institution.
- Term of a Mortgage: The length of time a mortgage runs before the borrower must renew it (i.e., 5-year term).
- Title Insurance: Title insurance protects lenders and buyers against challenges to the ownership of the home or from financial loss due to defects in a title to property. Most mortgage lenders will require you to pay for a policy to protect them when you get a new mortgage.
If you have any other questions, don't hesitate to contact us. We will gladly help you with every detail of your real estate purchase.
BUYING AND SELLING REAL ESTATE
SELLING REAL ESTATE
When using the services of a real estate agency, a Listing Agreement is signed. The Listing Agreement is a binding contract between a seller and a real estate agency and gives the agency authority to sell the property on certain conditions.
The contract provides that the real estate agent receives a commission upon the sale of the property. Usually, the commission is a percentage of the purchase price received. There are two types of standard Listing Agreements: Multiple Listing Agreement (MLS) and an Exclusive Listing Agreement (ELA). An MLS listing is the most common type, and it authorizes one real estate agency to use the service of other agencies in the area to sell the property. The advantage of an MLS is that the property is made known to more prospective purchasers. Private Sales It is possible to sell a property without using the services of a real estate agency, although such agencies are usually best able to market the property. If a private sale, the seller must solicit, screen, and negotiate with prospective buyers. Furthermore, the seller is responsible for preparing and drafting documents relating to the sale. The seller should seek legal advice before signing any document to ensure the document reflects the desires and interests of the seller and is legally sound.
Can You Change Your Mind?
The terms and conditions included in an Agreement for Sale will bind both parties and can be difficult to change once both purchaser and vendor have signed the Agreement. If one party refuses to comply with the terms of the Agreement for Sale, legal remedies may be available to the injured party.
Terminology
- Fire/Home Insurance: Homeowner's insurance for your residence should only be cancelled after your lawyer receives the total purchase price from the seller's lawyer, even if this is after the closing date.
- Real Property Report: If you have a Real Property Report and Compliance Certificate and are required to supply a copy to the purchaser, please forward it to us as soon as possible. Your purchaser's mortgage company often requires a copy of the Certificate before advancing funds.
- Your Mortgage Payments: You'll use the proceeds from the sale of your home to pay off your existing mortgage balance. Your lender will receive their payout at the time of closing.
- Utilities: Please ensure that all meters are read and telephones disconnected effective possession date. Provide all utility companies with your new address so they can send you their final Statement of Account. Our Statement of Adjustments does not include adjustments for utilities.
- Taxes: If the current year's taxes are known, the tax adjustment will be based on the actual taxes for the year. If unknown, the tax adjustment will be based on an estimate.
- Interim/Bridge Financing: If you are selling your house and purchasing a new property on the same date or before, the monies from your sale may not be released to you until after your new possession date. You should speak to your lawyer to see if you will require temporary/bridge financing to obtain possession of your new property without delay.
- Assumption Of Your Mortgage: If your purchaser is assuming your mortgage, ensure that you make arrangements with your mortgagee, in writing, to be released from any personal covenant to make the mortgage payments. If other people have guaranteed your mortgage or are named as co-covenanters, ensure that they are released, in writing, by your mortgagee before your purchaser assumes your mortgage.
- Statement Of Adjustments: This law firm will provide you with a Statement of Adjustments, which accounts for any adjustments made to the purchase price and the cash to close to be paid to the seller on the possession date. Please read it very carefully to verify its accuracy.
- Appointment For Signing Your Documents: As soon as we have your transfer documents ready, we will be in touch with you. If you are leaving the town before the possession date, don't hesitate to contact us to complete these documents earlier to avoid the extra costs and delays of couriering documents to you.
- Change Of Address: Please confirm your new address and telephone number with us as soon as possible. Make sure that you have also advised the following of your change of address: banks, credit card companies, newspaper, utility companies, relatives and friends and all other important people and organizations. Do not assume that your purchaser will redirect your mail.
- Keys to your Property: Your real estate agent should be given all keys to your property as soon as you no longer require them. If you wish, you may label the keys for your purchaser. Any warranty books relating to the furnace, water softener, electric air filter, air conditioner, central vacuum, water heater, and any other appliances staying with the property may be left inside the house for the purchaser.
- Items Remaining after the Possession: It may be impossible to remove all your belongings before the possession date. If so, please notify your Realtor and make arrangements with the purchaser to store these articles either in the house or garage. Remember that the purchaser is entitled to vacant possession of the house, and that means, unless otherwise agreed, the purchaser is not required to store any of your belongings.
Expenses Of Selling A Home
- Legal Fees: This includes:- searching and investigating the Title, Agreement For Sale if you are involved in a private sale, preparing documents including the Transfer of Title, the Dower Affidavit/Consent, Direction of Payment and Certificates of Exempt Property as required by the Excise Tax Act, obtaining an assumption statement from your bank or credit union if the purchaser is assuming your existing mortgage; paying and discharging encumbrances not assumed by the purchaser, preparing a Statement of Adjustments for you, and attending with you to review and execute all documents, holding funds in trust under your name, providing proper trust conditions to the purchaser so that the sale proceeds are guaranteed to be available on possession day, commission to Realtor, Land Title costs involving the discharge of mortgage.
- Commission To Realtor: this figure is agreed upon when you execute the Realtor's documents.
- Tax Adjustments: if taxes are unpaid.
- Land Title Costs: including discharge of any mortgage or other non-assumable encumbrances.
- Disbursements: including any postage, photocopying, office supplies, courier charges, long-distance telephone, and fax charges. Any other disbursements we pay on your behalf.
- GST, if applicable.
- Unexpected costs may arise, such as preparing Affidavits of Identity and GST concerns. It is the policy of this firm to notify you immediately as to the possibility and the reason for such unexpected additional costs.
If you have any other questions, don't hesitate to contact us. We will gladly help you with every detail of your real estate sale.