Many people in Ontario will buy a home or a piece of land at some point in their life.
This is one of the biggest decisions anyone makes. It entails spending a lot of money and for decades making payments on a mortgage. Therefore, before you make any decisions, it is important to learn as much as possible about the task of buying property.
Why do we need real-estate agents?
Most people who sell property use a real estate agent to do so. Real estate agents in Ontario are governed by The Real Estate Council of Ontario (RECO). RECO administers the Real Estate and Business Brokers Act, which regulates real estate brokerages, brokers and salespersons in Ontario.
Agents must be licensed in order to sell a property. Licensing ensures that they follow certain standards of ethical practice, or they risk losing their license. It is crucial to grasp that the real-estate agent is hired and acts for the seller, not the buyer.
In Ontario, agents can rent, buy or sell a property for clients.
They also study property listings, advertise the property, interview prospective clients, book viewings, accompany clients to property site, discuss conditions of sale, follow the instructions of the Seller in any negotiations and draw up real estate contracts.
The Seller also called the Vendor, signs a “Listing Agreement” with the real estate agent for a period of time – usually three to six months. In this agreement, the seller agrees to pay the agent a commission when the property sells – usually 5 or 6 percent of the selling price of the property, but this is negotiable.
If the property has not sold after the term of the contract is over, the seller can re-list with the same agency, list with another company, or try to sell it on his own.
Some sellers decide to sell privately in order to avoid real estate fees
They may place a sign on the property, list it in newspapers, or advertise it on the internet. If you are looking to buy, it is a good idea to check out private sales as well.
What happens first?
Before you begin a search for a suitable home or piece of land, you should look at your financial situation to decide what you can afford. Often this can be done together with a mortgage company or bank. The bank will tell you about their lending range and conditions you must meet to qualify for a mortgage. The bank may give pre-approval for a mortgage up to certain value even before you have found a place to buy.
Once you know your price range, you can find the place you want to buy. If your plan is to buy land and build on it, it is important to check the provincial laws and all municipal and community by-laws for that location. There may be restrictions on land use, or on a type of development, or access to the highway. Most subdivisions have restrictive covenants that govern construction specifications and land use.
The developer may be trying to ensure that all homes in a community are of a similar size or built to a certain standard. It is the Buyer’s responsibility to make sure that your construction plans are possible before you make an offer to buy.
One way to do this is to include, as part of the “Agreement of Purchase and Sale”, conditions that must be met before the purchase goes ahead – for example, you could include that “this offer is conditional upon the purchaser obtaining a building permit for a 2000 sq.ft. home.
I’ve found a property I want to buy. What Now?
Once you find a property, you make an “Offer to Purchase,” listing the proposed purchase price and any conditions you want to be included. The conditions could be things like being able to get a mortgage, being able to sell your present home, or having the seller agree to get particular work done to the property before the deal closes.
It is recommended that you hire a qualified home inspector and have a satisfactory inspection included as a condition to completing the sale. It is important to be very clear about what the conditions are and to have them in writing.
The seller will either accept the offer and sign it or refuse the offer and make a counteroffer.
Some negotiation usually takes place before a final agreement is reached. Generally, the offers and counter-offers include time limits to respond.
If you need more time to meet conditions, it is important to get a written extension through the lawyers or real estate agent. Time limits are taken very seriously in real estate transactions.
Why Do I need a lawyer?
Both Buyer and Seller need the services of separate lawyers to complete a sale. The lawyers’ job is to protect their clients and to ensure that their client, either the Buyer or the Seller, is treated fairly. Using lawyers from the same law firm raises concerns about a conflict of interest.
The Law Society requires that, if lawyers from the same firm act for both sides of a property transaction, they must advise their clients of this and have a conflict of interest form signed. If an actual conflict arises that cannot be resolved, then both lawyers must withdraw from the transaction and new lawyers must be hired.
He or she will check to make sure that liens, like property taxes and sewer and water charges, are paid to the date of closing. Adjustments will be made to the amount you must pay to cover expenses like legal fees and registration costs, or unused heating fuel left with a house. Your lawyer will get declarations that the furnace, hot water heating systems, and propane tanks are owned and not leased.
It is in your best interests to have the title to the property searched. A standard clause in “Agreements of Purchase and Sale” gives time limits for your lawyer to perform the title search. In a title search, the ownership of the land is traced back at least forty years, and a chain of ownership is completed to be sure that the seller owns the land he or she is trying to sell, and that no one else has a claim to that land.
A claim could come about, for example, if there were judgments against the owner for unpaid bills or if the description of the land is inconsistent with other deeds for land around it. If there is no clear title to the property, it is the responsibility of the Seller to correct this within a set period of time.
Most of the time a lawyer will recommend that you get “Title Insurance.” This can be used to cover expenses arising from any problems with the title.
What happens after I have reached a deal with the seller?
The signed accepted offer is referred to as the “Agreement of Purchase and Sale”. This is often on a real estate company’s standard form. It is a binding contract, so both sides should have it reviewed by a lawyer before signing it. If not done before signing, your lawyer should go over the form with you later to explain any conditional clauses, so you follow them to the letter. No contract for purchase and sale of land is binding unless it is in writing.
The Buyer often makes a deposit on the property to be held “in trust” by the real estate company or the seller’s lawyer until the closing date. If you break the deal, this deposit will be forfeited, and you may be responsible for other costs as well, such as legal fees or other costs incurred by the seller in preparing for the sale. Depending on the circumstances, the seller may have the right to force the completion of the sale through court action.
How do I get a mortgage?
When you have a signed “Agreement of Purchase and Sale”, you will need to approach a mortgage company unless you are paying in cash. If you are approved for the mortgage, the mortgage instructions will be sent to your lawyer, and the lawyer will prepare the documents required for the mortgage and the closing of the sale.
If there are buildings on the property, the mortgage company will require fire insurance to be in place by the closing date. The fire insurance policy should have the loss payable first to the mortgage company. This is usually for the replacement value of the home.
The mortgage company or the insurance company will also require that the seller provides a clean water certificate and warranty that hazardous products like urea formaldehyde insulation are not used in any buildings on the property. It is a good idea to check the property, especially outbuildings, to be sure stockpiles of hazardous materials have not been left behind.
Do I need a survey done? Why?
If the purchase is financed with a mortgage, the mortgage company will usually require a survey plot plan. The mortgage company wants to be sure that any buildings are located within the property lines and that you are receiving what has been sold.
Usually, a deed describes boundaries of a property in words and makes no reference to buildings on the land. Often the wording in deeds is very old and the only way to be sure that the deed reflects exactly what you were shown is to have a surveyor pin the boundaries of the property and draw a survey plan from which a more accurate description can be drawn.
What happens if I find problems with the property?
Any defect known to the seller and not apparent to the purchaser on a visual inspection must be disclosed before purchase. If you find yourself in a situation where full disclosure was not made, you should speak with a lawyer. If you have been deceived or misled by the seller or the real estate agency, you can sue to recover losses.
If you or a real estate agent has suffered losses because of deliberate misinformation, a lawsuit is also possible. Depending on the circumstances and seriousness of the situation, a criminal charge of fraud is also a possibility. Do not forget, however, that the old expression “Let the Buyer beware” applies in real estate transactions.
What happens at closing?
On the closing date, each party meets with their lawyer to sign all documentation. You, the buyer, will be required to pay all fees connected to the transfer, such as deed registration costs, mortgage registration fees, title search fees, lawyer fees, “Title Insurance” premiums, and so on. Your lawyer then distributes the money to the appropriate places, gives or delivers a cheque for the balance of the selling price to the seller’s lawyer, and sends the new deed and mortgage to the “Registry of Deeds”. The sale is then complete.
Your lawyer will send a reporting letter to you after the closing confirming all the details of the transaction and either certifying title or providing the Title Insurance policy. When buying property in Ontario, the Deed and the majority of closing costs are the responsibility of the buyer. The seller must pay out any existing mortgage, leases, and other encumbrances in order to provide a good and clear title.
Be sure to ask your lawyer to explain anything you do not understand in the paperwork or the process, at any step along the way. It is your right to have things explained to you so that you understand what you are agreeing to and signing. Any competent real estate lawyer will usually do this as part of the transaction fee.