Review in Advance Be Prepared
When considering buying a home from someone selling privately without the help of a realtor, talk to a lawyer first. A lawyer will help you:
review the Offer to Purchase in advance
complete the Offer to Purchase properly
review any Counter-Offer
respond to it accordingly
ensure that when all conditions, if any, are removed, the seller acknowledges in writing the agreement is binding.
Occasionally, a buyer preparing the Offer to Purchase will not complete important items or fail to properly list specific terms that are advantageous. Without knowing in advance how to complete this document, you may wind up with a very unsatisfactory contract or perhaps, no contract at all. Your realtor or lawyer will help you avoid such pitfalls.
Conditions and Inspections – Meeting Expectations
If a conditional offer is accepted but the conditions cannot be removed despite everyone’s best effort, the buyer is entitled to a return of all the deposit money. A few examples of conditions you may wish to include in your offer are:
you will only buy the house if you are able to sell your own home first
you are able to arrange a mortgage sufficient to complete the purchase price
you wish to have the home professionally inspected
you wish to have specific items such the furnace or a swimming pool inspected
the seller must provide a written statement disclosing their knowledge of the condition of the property
your mortgage company also approves the property.
you wish to view the surveyor’s certificate / real property report to ensure there are no encroachments.
On this last point, you may have already prearranged a mortgage in a particular amount. This does not mean your financial institution will necessarily approve the house you have chosen. Your mortgage company will likely not approve a $260,000 mortgage for a home that appraises at only $245,000 unless you intend to do renovations that raise the value of the home past a certain point in relation to the amount of the mortgage.
If you plan on renovating, your mortgage company will likely want to reconfirm the value of the property after renovations are complete. Quite often, the mortgage company will arrange for an appraisal at your expense. If you want your own appraisal report, it will cost you approximately $350 to $450 dollars. Your mortgage lender will guide you in this regard.
Where appropriate, your realtor may also suggest you make your offer to purchase conditional upon the seller making certain repairs to the property before you have a deal or providing proof that the location of improvements, like a detached garage, were not constructed over a buried gas or telephone line.
Depending on the type of property, your realtor may suggest including such additional conditions as a well-water quantity and quality test, confirmation that a septic system was installed according to local by-laws or confirmation that there are no environmental concerns with the property.
Many different conditions can apply in a particular situation.
Possession Date – Getting the Keys
In the Offer to Purchase, this is the date the buyer can obtain the keys from the seller and move in to the house. This date becomes fixed at the moment you have a binding agreement.
The possession date may be amended after a deal is reached, however it can be very difficult if not impossible. This usually does not happen unless there is a very good reason to change it and both the buyer and seller agree to the change. Moving arrangements need to be booked in advance and are often difficult or costly to reschedule, especially if either party is leaving or entering the province.
The flow of money and documents at your lawyer’s office are designed around the possession date. If it changes after the fact, it can affect the way your lawyer calculates a number of adjustments. Try to pick a possession date that won’t interfere with other important events in your life.
Usually, the realtor provides you with the keys after the lawyer has ensured everything is in order and has authorized their release. In a private sale, the release of keys is usually coordinated through the buyer and seller with the lawyer’s approval. In almost every case, the keys can be released to the buyer if you have:
completed all conditions of the mortgage company
executed all required mortgage documentation
purchased homeowner’s insurance that takes effect on the day you take possession of the house
provided your lawyer with an amount of money representing the difference between the purchase price and the amount of money the mortgage company is funding the buyer with in order to purchase the house.
If you have completed all these requirements by the possession date, you will be able to move into your new home as planned.
Occasionally, the buyer is allowed to move into the house even though the seller has not yet been paid in full. This routinely occurs because the Land Titles Office processes documents in order of submission. Depending on the time of year, registering a transfer document that creates a new Certificate of Title with your name and the bank’s mortgage entered upon it may take approximately one to four days to complete.
Where possible, our office will submit all documents to the Land Titles Office well in advance of the possession date to prevent delays. But in many instances, our office cannot control the timing of every variable involved in a purchase transaction, especially the receipt of the transfer documents from the seller’s lawyer and mortgage instructions from the mortgage company.
A delay in registration, for example, may result from difficulties encountered while trying to schedule an appointment with the purchaser or seller due to holidays, work schedules, sickness or if the mortgage documentation is either delayed or requires amendments.
When this happens, our office will take care of a few calculations to ensure the transaction is completed smoothly. In other words, the seller will get paid what they are entitled to under the contract and the transaction will be handled properly.
How it works:
Your mortgage company provides your lawyer with the mortgage money needed to buy the house provided two things happen:
1. Title to the property must register at the Land Titles Office in your name
2. The mortgage must be registered upon your new Certificate of Title.
In many instances, your mortgage company will not advance or fund the mortgage money to your lawyer until both happen, unless you have title insurance.
When the registration of Title occurs after the possession date, the seller must wait to be paid. When this happens, the buyer usually compensates the seller for waiting for payment by paying an additional amount of money in interest that is calculated on the amount owing as of the possession date. The rate of interest is set out in the offer to purchase.
While the buyer is paying the seller interest, the buyer will not be paying any interest to the bank over this period. This is because the mortgage money has not been released yet. Once registration is complete, the mortgage money will be funded and the seller will then be paid in full. At this point, the buyer stops paying the seller interest and instead, begins to pay interest under the mortgage.
In most cases, the calculation of interest payable to the seller or to the bank is almost equal. In that way, it makes little difference whether or not the registration of documents happens on time.
As soon as you take possession of your home, you will start paying interest to somebody. Your lawyer will determine how that interest is paid but you usually will not be paying interest to both the mortgage company and the seller at the same time.
There is a section on the Offer to Purchase used to detail what items are normally included as standard in the purchase price of the house (blinds, draperies, etc.). If there are additional items you specifically want included as part of the deal, you must ask for them in writing in this section. Any deletions can also be listed in this section or as part of a Counteroffer.
You should avoid making verbal arrangements regarding what items are included in the price. In the event of a dispute, there will obviously be no record of what the ‘real’ deal was.
Verbal arrangements complicate things and make your deal difficult to enforce. The following are just a few of the items that buyers usually request as being included in the price of the house:
up-to-date Real Property Report or Surveyor’s Certificate, if one is available
appliances like a dishwasher, washer, dryer and refrigerator
garage door opener with all remotes
attachments to a power vacuum system
garden or utility shed
certain unique ‘as is’ features of a house like a chandelier or custom landscaping.
It does not matter what was in the listing or highlight sheet if it is not in the offer it is not included in the deal.
Make sure these kinds of items are agreed to in writing to help prevent hard feelings after the deal is done.
Representations – Describing the Details
A real estate listing includes a number of statements that expressly describe the main features of a house. When the listing is made public, it becomes a representation the seller has made about the house in order to attract a buyer.
A representation can be made either in writing or while having a conversation with the seller. It can be rather general or quite specific in nature. Representations are generally made to induce a buyer into entering into a binding contract. Potential buyers should ensure that each representation is verified by independent means.
Representations are occasionally made by careless or dishonest sellers. Rely as little as possible on representations when looking at a house – even an honest seller may sometimes mistakenly make a statement about the house that is completely untrue.
Double-check what people tell you. Depending on the circumstances, certain kinds of representations may be difficult to enforce later in court.
Easiest rule to follow is if it is not in writing it is as enforceable as the paper it is written on.
Condition of the House – Keeping Everything in Order
Once you have a binding agreement, the seller is then obligated to keep the house in reasonable condition until the possession date. This includes cutting the grass, keeping the house tidy, maintaining the furnace, completing routine repairs as normal and preventing the house from being damaged.
In short, the house should basically look the same on the day you take possession as it did on the day you first looked at it. There cannot be holes in the walls, new extensive flood damage in the basement or new burns in the carpet that take you by surprise.
Furthermore, the seller cannot remove items from the house that were supposed to be included in the purchase price. Likewise, a seller cannot switch an included item with a similar but inferior product. If this happens, discuss the situation immediately with your realtor and lawyer so the problem can be resolved quickly without any serious disputes.
When a situation like this arises, your lawyer can usually negotiate but cannot guarantee a financial settlement or insist the removed items are returned. While these kinds of situations rarely occur, when they do it is typically because the seller simply forgot what items were or were not included. A problem arises when the seller and the buyer disagree on the condition of the house when it was viewed or what is a fixture (part of the house and included) or a chattel (something that is not part of the house and not included). The disputes sometimes end up in the courts, usually small claims.
Warranties – Getting It In Writing
When you purchase a pre-owned home there are usually no warranties however, when you purchase a newly constructed house, most reputable builders provide a written warranty that promises your new home is suitable to live in and is free of major defects. The warranty is usually limited to cover certain things over a specific period of time. In some cases, the warranty period on certain items will expire a year from the possession date.
Take the time to read your warranty carefully. Notify your builder immediately if problems occur while a particular item of the house is still under warranty. If you do experience a problem while the house is under warranty but fail to discuss it with your builder until after the warranty period has expired, you could have difficulty trying to get the problem fixed.
If you wish (and provided your builder participates in this program), there may be additional options under the New Home Warranty Program which allow you to increase the period of coverage or extend what is included under your warranty.
We recommend you inquire whether or not your builder participates in this program before deciding to either purchase a newly constructed house or prior to hiring a builder to construct one for you.