Am I Ready to Purchase a Home?
Beginning the search for your new home is an exciting adventure but can also be a bit nervewracking! A home is likely the most significant financial investment you will ever make, but not only is it an investment, it is a also where you build your life, so you want to be sure you’re making the right decision. There are two main questions you should consider before beginning the search for your dream home:
- What are your housing needs?
- What can you afford to spend?
What you want in a home and your income are the two biggest deciding factors for what kind of housing is suitable for your lifestyle.
Single Family, Detached Home – A detached home has no common walls with any other residential structure. This means that it rests on its own land with front, rear and side yards. The size of a detached home can range from a small, one-storey to a mansion.
Semi-Detached Home – A semi-detached home is sometimes referred to as a “side-by-side” duplex. It is two single family homes joined by a common wall.
Duplex – A duplex consists of two homes attached either side-by-side (a semi-detached home as described above) or one unit above the other. Please note that this type of structure may be a strata-titled property and could therefore be subject to the Strata Property Act.
Townhouse – In British Columbia, townhouses are a group of dwellings (most often two-storey) that are joined together by common walls. Each home will have its own entrance from the outside.
Apartment – An apartment is one of several dwellings joined together by common walls (most often single storey). Each home has its own entrance from a common hall. The overall apartment building containing the apartments may be three or more floors tall.
Mobile or Manufactured Home – Manufactured homes are factory-built residential structures designed to be moved, although not necessarily on wheels. Most often, manufactured homes are placed on a rented space, referred to as a “pad”, in a manufactured home park.
There are a variety of housing ownership interests and we’ve compiled the most common below:
Freehold – Also known as a fee simple, a freehold interest is a more precise term for what we usually refer to as “ownership” of a home. A freehold interest includes full use and control of the land and the buildings that rest on it, subject to any rights of the Crown, local land-use bylaws and any other restrictions in place from the time of purchase.
Strata Title – This type of ownership is for some duplexes, townhouses, complexes, warehouses, apartment blocks and other properties where the strata title is designed to provide exclusive use and ownership of a specific housing unit (the strata lot), which is contained in a larger property (the strata project). This includes shared use and ownership of the common areas like halls, grounds, elevators and garages. Since ownership of the common space is shared, the financial responsibility of its maintenance is also shared among the owners.
Leasehold – In certain cases, you might purchase the right to use a residential property for a defined period of time. This is called a leasehold interest. This type of ownership is most often applied to townhouses or apartments built on land owned by the city. Sometimes, it is also used for homes on farm land or on First Nations land or for apartments where the owner of the freehold interest of an entire apartment block sells leasehold interests in apartment units. The leasehold interest duration is frequently set for periods of 99 years but regardless of the length, a new purchaser will only be able to buy the remaining portion. The shorter the remaining portion, the less you or the person you may eventually want to sell your leasehold interest to, will be willing to pay.
Cooperative – In the cooperative form of ownership, a company or a cooperative association owns the property. Each owner owns a share in the company or cooperative association and are assigned one particular unit in which to reside.
What Can I Afford?
Understanding how much you can afford will help you focus your search on homes which are within your price range. Here’s one way of approximating what that range should be:
$______ The down-payment (cash saved to be used for a home purchase)
$______ Plus: The amount of borrowed money you can obtain (learn more about mortgage pre-qualifications and pre-approvals here)
$______ Less: Closing costs and other miscellaneous costs associated with a real estate purchase
Your answer is the maximum price with which to focus your search! On Suuty, you can use our search filter to only display listings that match your price criteria.
Down Payments and Deposits
A down payment is the payment made in cash at the onset of the purchase of the home. Typically, it represents a percentage of the full purchase price. In general, your down payment should be as large as possible. Lending institution policies may vary but they usually require you to make a down payment of 5% to 10%. It is important to note that in Canada you have to purchase mortgage loan insurance, which protects the lender if the event you default on your payment, if you put less than 20% down.
A deposit is part of the down payment that is provided during the negotiation of the purchase of the property, usually in the form of a cheque or bank draft. Once your offer has been accepted, your cheque is deposited and held “in trust”, until the deal closes, whereupon the deposit amount is deducted from your down payment.
What is a Mortgage?
A mortgage is a loan you can obtain to finance the purchase of your new home. An easy way to determine how much money you will be able to borrow is to consult with one or more lending institutions. They will apply standard tests to determine the amount of money they will lend you. These tests are administered with information about your finances and a credit check to assess your ability to repay the loan.
A mortgage document will set out the terms and conditions for the loan and its repayment. If your debt obligations are not met, the lender may have the right to claim your home to cover what you still owe.
What Types of Mortgage Loans Are There?
There are two basic types of mortgage loans:
- A conventional mortgageloan – allows you to borrow up to 75% of the appraised value of the home or the purchase price, whichever is less.
- A high-ratio mortgageloan – allows you to borrow more than 75% of the appraised value of the home or the purchase price, whichever is less. The borrower however, must also pay a mortgage default insurance premium to protect the lender if payments are not made.
What is an Amortization Period?
The size of a mortgage loan payment is typically calculated as if the loan payments were going to be paid over 20 or 25 years. The amortization period is this time. Each payment will repay the interest due up to the payment date, along with some of the principal owed. It stands to reason that the longer the amortization period you choose, the lower the regular payment will be. This also means that you will spend longer paying back the loan. Suuty has a mortgage calculator in the sidebar of all of our listings that you can use to calculate your mortgage repayments!
What is a Term?
Most mortgage loan contracts only permit the regular payments to continue for a specified term, shorter than the amortization period. The term can be as long as ten years, or even as short as six months.
At the end of the term, the full unpaid balance must be repaid. If you don’t have the cash necessary to pay the balance, it may be necessary to refinance the loan.
Deciding on the length of term you want will depend partly on whether you think interest rates will go up or down. Keep in mind that the longer the term you choose, the longer your monthly payment remains stable. Because you are essentially reducing your exposure to risk by locking in a longer term, your monthly payments will also increase.
Please note: Although it is common to refinance at the end of your term, the lender is not obligated to do so.
How Much Can You Afford to Pay in Mortgage Payments?
Based on Your Income:
A good rule of thumb is to allow no more than 30% of your gross monthly income (prior to deductions) to make your monthly payments. This test of your mortgage loan repayment ability is generally referred to as the Gross Debt Service Ratio.
Below is a calculation you can complete to determine the approximate amount you may be able to afford for the mortgage payment, the property taxes and, if applicable, 50% of the strata maintenance fees. Sometimes heating costs are included in this maximum monthly payment calculation as well.
Your gross monthly income $___
Co-signor’s gross monthly income (if applicable) $_____
Other income (monthly) $______
Total monthly income $______
Multiply the Total line above by 30% to calculate your: Total monthly maximum housing payment $__________________
Based on your Other Financial Obligations:
The lending institution will also apply the Total Debt Service Ratio test, if you have other monthly financial obligations like car or credit card payments.
$ ____ Your monthly housing payment
$ ____ Your calculated monthly debt payments (car, credit card, etc.)
$ ____ Total monthly payment
When you add your monthly housing payment to your other monthly debt payments, that figure should not exceed 40% of your monthly gross income.
The Gross Debt Service Ratio and the Total Debt Service Ratio tests protect both you and the lender by ensuring that you do not take on more debt that you can reasonably afford to repay.
Many lending institutions will prequalify you for a specific size and type of mortgage loan before you begin searching for your new home. Taking the time to apply for a pre-approved mortgage will give you the security of knowing how much you can afford to spend.
Before concluding the loan agreement, most lending institutions will require an appraisal of your selected home. The appraised value is a professional opinion of the value of the home and may be different from the purchase price you are willing to pay. This appraised value may also affect the approved value of the loan.
Keep in mind that there are last-minute costs, which include taxes, legal fees, appraisal fees, moving expenses and home insurance to pay for before you can settle into your new home. It is best to budget for these expenses as soon as possible.
Property Transfer Tax – A property tax is imposed by the British Columbia Provincial Government and must be paid before any home can be legally transferred to a new owner. Some buyers may be exempt from this tax. Please refer to this link for more information: www.sbr.gov.bc.ca/business/Property_Taxes/Property_Transfer_Tax/ptt.htm.
If you are purchasing a property outside of British Columbia, please refer to the related resources in that Province or Territory to inform your decision.
Goods & Services Tax – You may be subject to GST on the purchase price if you purchased a newly constructed home. Depending on the value of the home, there may be available rebates. Contact the Canada Revenue Agency for more information at www.cra-arc.gc.ca.
Property Tax – If the current owners have already paid the full year’s property taxes to the municipality, you will have to reimburse them for your share of the year’s taxes.
Appraisal Fee – The appraiser’s fee may be your responsibility to pay when the lending institution requires an appraisal of the home as a part of the evaluation to approve your loan.
Survey Fee – The survey will formally establish the boundaries of the property and ensure that all buildings are within those formal boundaries. The lending institution may require you to present a survey certificate. This could be a building location survey (establishes where a building is located on a property) or a monumental survey (establishes the actual boundaries of a property). If the current owner cannot provide you with a recent survey certificate, you will have to pay the surveyor’s fee.
Mortgage Application Fee – Lending institutions may charge a mortgage application fee, which may vary depending on different lending institutions.
Last minute costs can add up too
Mortgage Loan Insurance – Mortgage loan insurance ensures that the lender will not lose any money if you are unable to make your mortgage payments and the value of your home is insufficient to cover what you owe. Mortgage loan insurance is required on most mortgage loans that are in excess of 80% of the appraised home value. The insurance premium is paid to the lender and in most cases, added to the loan amount and paid over the term of the loan.
Life & Disability Mortgage Insurance – You could purchase insurance which will ensure that your outstanding mortgage balance is paid in the event of death or disability.
Fire & Liability Insurance – This insurance policy guarantees that, in the event of fire, the lender will receive the balance owing on the mortgage loan before you receive any insurance proceedings. This may be insisted on by the mortgage lender.
Legal Fees – To protect your interests, the transfer of ownership from the seller to the buyer must be recorded in the Land Title and Survey Authority Office.
A lawyer or notary public will charge a fee for this service, plus disbursements, including the Land Title Registration fee. A further fee and disbursements are required if you are financing your purchases with a new mortgage loan, in order to prepare and register the mortgage documents.
Other last-minute costs that you may want to consider include:
- home inspection fees
- moving expenses
- deposits required by utility companies
- household goods:
- kitchen appliances,
- garden equipment,
- garbage cans, tools, window coverings, etc.
- redecorating or renovations
Before beginning the search for your new home, it is important to consider your needs, the needs of the other people who will be living in the house and how all your daily activities may influence the size, location or type of house you decide to look for. Here are some considerations to help you get started:
- Rural? Small town? Suburban? City?
- What kind of facilities would you want to be close to? These may include shopping centres, places of worship, schools, hospitals, recreational facilities and more.
- Are property taxes comparable to those in other communities?
- Do you like the future developments planned for the area?
- Are the sewage and water systems adequate?
- What is the availability and cost of utilities: electricity? gas? water?
- What public services are provided: police? fire protection? ambulance? garbage collection? mail delivery? snow removal?
- How long will your commute be to work or to visit friends and family?
- Is there nearby public transportation available?
- Can you afford to drive to and park at your workplace?
- Will another car be needed for your partner to drive to work, or take children to school or other activities?
- Are major roads easily accessible?
- Is public and private property maintained to your satisfaction?
- What is the composition of families living nearby: quiet, mature people? teenagers? potential playmates for children?
- Are their incomes and lifestyles compatible with yours?
- Have home values risen, fallen, or remained stable in the recent past?
- Are there any projects in the neighbourhood on the horizon that could substantially change the lifestyle or home prices in the area?
- Have you looked at the registered bylaws of the strata corporation and do you understand the effects? For example, will the bylaws allow you to rent the property or keep pets?
- Are you interested in brand new only? An historic, character home? An already renovated resale? A solid, older home that just needs redecorating? or can you purchase a “fixer upper” and do major renovations yourself?
- What combination of space do you require? Think not only about bedrooms, bathrooms and garages, but also about areas for hobby activities and children’s play;
- How much storage space will you require for clothes, skis, bicycles, wind surfers, tools, garden equipment, etc.
- Is a large, well-equipped kitchen important to you? How about a fireplace? A large entrance hall? A sun deck? A pool?
- Would you prefer a small lawn and low-maintenance garden, or do you enjoy cutting grass and making things grow?
- Do you need a dwelling with room to eventually accommodate more children? Elderly parents? In-laws? Do you require wheelchair accessibility either for you or your visitors?
- Are there any restrictions which could prohibit pets or rentals?
- What schooling is available in the area: primary? high school? adult evening programs? college?
- How close are the schools and how do the students get there?
- Are the schools crowded?
- Are their sports or extracurricular programs satisfactory?
- Do the students have a high achievement record?
- If your family has special educational needs, are these available?
The Big Search
When you’ve found some homes you like, you should investigate each home on your shortlist carefully. Here are some things to look for:
- Is the lot fully serviced (sewage, water, gas and electrical lines)?
- What size and shape is the lot?
- What is the condition and age of the roof? Are there any leaks or recent repairs? If only part of the roof was repaired, will the rest need to be repaired in the near future as well?
- Are there proper roof gutters and downspouts that connect to storm drains?
- How large is the garage? Is the driveway adequate? Is there cracking or lifting and is drainage satisfactory?
- What is the condition of caulking on windows and doors? What kind of storm windows are there and what condition are they in? Do windows and doors open and close easily?
- Do the windows, doors and walls provide sufficient insulation?
- How many square feet of living space is there? How many rooms and bathrooms?
- Are the room sizes adequate for your family’s needs? Is the layout compatible with your habits?
- How about the storage and closet spaces? Are they enough for your family’s needs?
- Are the interior walls and ceilings solid? drywall or plaster? Is there any evidence of leaks or cracks?
- Are floors firm and level? What about the condition of the floor boards and supports? Does the ceiling sag?
- Is there evidence of termites or dry rot?
- What types of floors are beneath the carpeting?
- Are stairs and door frames level and well joined? Is the natural lighting to your liking?
- Which way does the front face—north, south, east or west? Consider which way the largest windows face as well.
- Are there hookups for a washer and dryer?
Safety and Regulations
- Has there been any renovations done? If so, are there copies of building, electrical and gas permits for this work? Please note that while plumbing work is covered by a building permit, gas and electric work require separate permits.
- What kind of condition is the electrical wiring in? Check if there are cables visible in the basement or close to the electric panel that are not fastened to the floor joists or walls. If you notice visible cables, this could be a sign that work was done on the electrical system without a permit.
- Is there a hot tub or swimming pool installed? Check for electrical permits for these installations. It’s important for safety that proper grounding of the electric systems for these devices is in place.
- Has the home ever had a gas fireplace insert? If so, is there a gas permit for this installation? Proper clearances for these kinds of installations is very important and a permit is usually confirmation that the work was done by a licensed contractor and/or inspected by a qualified person.
- What about satisfactory ventilating equipment? Are there exhaust fans in the kitchen and bathrooms?
- What type of heating system does the home use (forced air, gravity, etc.)? What kind of fuel is used? Is there a heat pump?
- Is there sufficient electrical wiring? Is there enough power for your electrical equipment? Are there adequate outlets in the home? Has the fuse box been updated?
- Drainage—is the home well drained and has landscaping been done to prevent erosion?
- What is the condition of the basement and foundation? You should check the walls and floors. Is the floor dry?
- What about the attic or crawl space? Is there evidence of leaks? Dry rot? Is there proper ventilation and insulation? Does the insulation meet current specifications?
- Are there severe cracks in or excessive or uneven settlement of the foundation?
Questions to Ask and Getting Advice
If you don’t know, ask
If you are uncertain about anything related to the home, call an expert.
Consider having the home inspected by a building inspection service which will also prepare a written report. Home inspections are primarily visual inspections and therefore, do not always reveal problems with electrical or gas systems. Especially in the case where work has been done without the appropriate permits, you should consider having qualified people inspect those systems.
Stigmatized or Psychologically Impacted Properties
During the home search process, make sure you ask questions regarding issues of specific importance to you and your family. Sometimes, a property is described as a “stigmatized property” or a “psychologically impacted property”. Usually, this is applied to a property that has had some circumstance occur in or near it, even if these events did not alter the appearance or function of the property itself.
Examples of these in a residential context might include:
- a sexual offender is reported to live in the neighbourhood;
- a death occurred in the property;
- a former resident was suspected of being an organized crime gang member;
- the property was robbed or vandalized; and
- there are reports that the property is haunted.
In British Columbia, the law does not define stigmatized properties. Sellers or licensees who represent them are not legally required to disclose circumstances that could be considered stigmas. Therefore, buyers are advised to carefully think over any areas of concern they have and ensure that the necessary inquiries are made before purchasing the property.
What Other Questions Should You Ask?
Is a Property Disclosure Statement available?
In British Columbia, sellers may have completed a Property Disclosure Statement. This statement provides information about the state of the home to potential buyers. Most sellers listing properties on Suuty will have filled out a Property Disclosure Statement.
What is the zoning on this home?
Zoning sets the type of buildings which may be built on a particular piece of land and how these buildings may be used. The zoning on a home is established by the local government. It is recommended to ask about the zoning on the surrounding properties to determine what the surrounding environment may look like in the future.
Is a Land Title Search Available?
The owner of the home and any registered mortgages, easements, restrictive covenants, rights of way, etc. can be found through a Land Title Search. This information may affect the use or value of the home.
Are there any restrictive covenants?
A restrictive covenant places a specific limitation on the owner’s use or occupancy of the property. Examples of restrictive covenants you may encounter include a prohibited type of exterior finish, the minimum size of the structure or the maximum height of the structure. If you purchase a property with restrictive covenants, you are compelled to abide by it.
Are there any easements?
An easement grants the right to one party to use the land of another for a special purpose. Some examples of easements include the easements given to telephone and electric companies to erect poles and run lines over private property, easements given to gas and water companies to run pipelines through the private property, or easements given to people to drive or walk across someone else’s land.
How much are the property taxes?
The amount of property taxes payable will be included in the calculation to determine how much money you can borrow to finance your purchase.
Is the structure on the property covered by any warranty?
The third-party warranty insurance provisions of the Homeowner Protection Act are mandatory for homes built by a licensed residential builder under a building permit applied for on or after July 1, 1999, or where construction began on or after July 1, 1999 in areas where no building permit is required. The Homeowner Protection Office Branch of BC Housing (HPO) can assist with questions regarding warranty issues. The HPO can be reached through their toll-free information line at 1-800-407-7757 or visit their website at www.hpo.bc.ca.
Fixtures vs. Chattels
Things contained in a building or on the land are either fixtures or chattels. It’s important to distinguish between the two because fixtures stay with the home when it is sold, but chattels depart with the old owner. If you see a vacuum canister in the utility, custom window blinds or a nice fireplace insert that you hope will stay, ask if it is a fixture.
Are there permits in place?
Check if there are permits for building and/or renovation work and for the electrical and gas systems including original and alterations/additions? Please contact the BC Safety Authority at 1-866-566-7233 or visit www.safetyauthority.ca, for more information on what type of work in a home requires gas and electric permits.
Strata Properties and Cooperatives
If you are considering the purchase of a home which involves the strata or cooperative type of ownership, there are some additional information you should consider:
- What are the strata fees (the monthly charges for common area maintenance)? Does this fee include services or utilities?
- Does the building or complex have a good reputation for honesty and good operations?
- How is the property managed? Is the property being managed by a company licensed by the Real Estate Council to provide strata management services or is it being “self managed” whereby all the owners are collectively responsible for the management?
- Will you be required to pay extra fees for using any of the facilities or amenities?
- What portion of the strata fee is being contributed monthly to the contingency reserve fund? How much money is in this fund? What expenditures is this fund being maintained for? Examples could include roof replacement, water piping replacement, interior decorating upgrades, etc.
- Are owners permitted to rent their units to tenants? Is there a limit to how many rental units will be allowed in the project?
- Are pets allowed in the building?
- Have any special assessments been agreed upon or have any structural problems been noted which may lead to a special assessment in the future?
- Has the building been renovated recently? Since October 1, 2000, all contractors who engage in, arrange for, or manage building envelope renovations in British Columbia must be licensed as a building envelope renovator by the Homeowner Protection Office. They must provide applicable third-party home warranty insurance on applicable building envelope renovations.
- How are parking stalls and storage lockers managed? There are two main designations of property in strata developments that can be found on a strata plan – property designated as either a strata lot or common property (CP). Common property can be divided into limited common property (LCP) for the exclusive use of one or more strata lots. Usually, the parking stalls and storage lockers are arranged in one of the following ways:
- The parking stall or storage locker is a separate strata lot: This is a rare arrangement but parking stalls and storage lockers can exist as a separate strata lot with their own strata lot number.
- The parking stall or storage locker is part of a strata lot unit: This designation allows the buyer to have automatic use of the stall or locker.
- The parking stall or storage locker is part of the common property: In this case, the strata corporation has ultimate control over the use of these areas, unless there is a developer’s lease.All owners own common property as tenants in common. The strata council has the authority under the Strata Property Act to permit an owner to exclusively use common property. If parking stalls or storage lockers are designated common property, owners are entitled to use a particular area through a short-term exclusive use agreement whereby the strata council allows the owner to exclusively use a parking stall or storage locker for a limited time period of one year. This arrangement can then be renewed with the strata council but they could choose not to.In a developer lease, the developer has entered into a lease of the common property parking stalls and storage lockers to itself or to a company related to the developer. After leasing the common property, the developer then enters into agreements with buyers in which the developer subleases one or more parking stalls or storage lockers to each buyer. Discovering them can be a challenge because these leases are seldom registered on title.
- The parking stall or storage locker is limited common property: Although it continues to be owned by all owners within the strata corporation as tenants in common, an LCP may only be used by the owner whose strata lot is identified in the strata plan as being entitled to it.
Additional points to consider:
- Registered bylaws
- Current rules
- Annual operating fund budget
- Information Certificate (Form B under the Strata Property Act)
- The last two-years’ minutes of all meetings (including strata council meetings, annual or special general meetings and meetings of the executive (or of the members) of any section in the strata corporation to which the strata lot belongs.
- Applicable warranty information, envelope inspection reports or remediation reports
- Registered strata plan
- Any amendments or resolutions dealing with the common property
- Any correspondence to owners from the strata council over the last twelve months.
These documents will give you a good understanding of the way your unit and the common areas will be managed. They will also shed light on any potential problems and important on-going matters in the building.
Ancillary Services - Inspection and Addtional Investigation Reports
When you are ready to make your offer, in addition to the information and suggested areas of investigation above, you may also wish to consider engaging the services of experts to provide inspections and reports on important components of a property. Most commonly, these services are engaged after you make your offer subject to receiving and being satisfied with applicable inspections or reports. These costs may vary and you should consider them when making your budget.
The types of inspections and reports you may need will depend on the type of property, including factors like geographic location and mechanical and service components. Below is a list of the more common inspections and reports that are available to buyers, in no order of importance:
- Appraisal Report:provides guidance to the value of a property and may be required by mortgage companies or obtained by buyers who want an estimate of the value of a property.
- Depreciation Report: helps strata corporations plan for future repair and maintenance costs and helps prospective buyers to understand what repairs will be required and the future costs to a strata corporation to undertake the repairs.
- Electrical Inspection: an inspection of the electrical system and components of a property which will identify the deficiencies, if any.
- Engineer’s Report:provides information on the integrity of any buildings and other aspects of the property.
- Environmental Report:assists in determining if there are any environmental problems or considerations with a property, including but not limited to asbestos, radon gas, underground oil storage tanks or riparian areas.
- Furnace and Chimney Inspection:assists in determining if the furnace and the chimney meet current safety and insurance standards.
- Gas Line Inspection:undertaken by a natural gas utility, determines the integrity of gas lines and if any improvements to the property have been built over the gas service lines requiring their relocation.
- Home Inspection:provides information on the physical condition of a property.
- Municipal Compliance Report: provides information relating to (non)compliance with municipal bylaws and regulations, or to waivers granted by the municipality.
- Plumbing Inspection:an inspection of the plumbing and drainage components of a property outlining any deficiencies.
- Property Disclosure Statement:a statement provided by a seller concerning the condition of a property, to the best of their knowledge.
- Surveyors Certificate:a report showing the property boundaries and the location of all improvements in relationship to those boundaries.
- Septic/Sewer Inspection:determines the condition of the sewer/septic system.
- Title Search:ascertains the ownership of land and whether there are any easements, restrictive covenants, leases, mortgages and encumbrances and charges registered against the land.
- Water Quality/Quantity Test:determines the recovery rate and quality of the water supply.
- Wood Stove/Fireplace Inspection:undertaken to determine if the wood stove or fireplace meets insurance requirements.
Requests for inspection of specific components of a property (like the roof, air conditioner or more) can be done as well.
Making an Offer
When you prepare an offer, it should contain a number of standard details, plus any conditions which are important to you. Be fully aware that once you sign this document and the seller also signs it, a legally binding contract has been formed. Legally binding means both you and the seller will be bound by the terms of the contract and must each perform your respective obligations as stated within that contract. Either of you can go to court to compel the other to perform his or her part of the contract. Even if a contract contains subject clauses, it is legally binding as soon as both the buyer and the seller have signed the contract.
Your offer should include:
- The date of offer and the date and time your offer expires.
- Full legal names and addresses of both the buyer and the seller.
- Full legal description of the home.
- Amount of the deposit you are giving (which will be held in a trust account and will form part of your down-payment).
- The sale price.
- Amount of cash paid as down-payment and details as to how you will finance or provide the remainder of the purchase price.
- The desired closing and possession dates.
- A list of the conditions which must be satisfied before the sale can occur. These are called “subject clauses” or “conditions precedent.”
- A list of items which are not attached to the building (chattels), but which you state are to be included in the sale price; for example, drapes, refrigerator, stove, etc. It is helpful to be specific in the description of these items.
- Your signature.
What are the Seller’s Options?
When the seller receives your “offer to purchase,” she or he has four options.
Accept the Offer Exactly as Written
If the seller signs your offer without making any changes, a legally binding contract has been formed. Again, legally binding means both you and the seller will be bound by the terms of the contract and must each perform your respective obligations as stated. Your performance can be enforced in a court of law.
Reject the Offer
The seller is under no obligation to accept your offer or to make a counter-offer.
Ignore the Offer
The seller is under no obligation to acknowledge receipt of your offer.
Contact the Buyer
At any point during the offer submission period, the seller can use the Suuty platform to contact the buyer. A seller could request that the buyer make changes to the offer up to the point where bidding closes and the offers become final.
What are the Buyer’s Options?
If, after making a written offer, you decide you don’t want to purchase the home, it may be possible to revoke the offer. Many legal problems can result from the revocation of an offer, so you may want to seek professional advice about the correct procedure to follow.
More About “Subject” Clauses
The purpose of a subject clause (or a condition precedent) in an offer to purchase is to set out a specific condition which must be fulfilled before the sale can go through, although the Contract of Purchase and Sale is legally binding once signed by both parties.
Subject clauses must be carefully worded to ensure that they communicate what you want them to mean.
There can be as many subject clauses as you are able to negotiate with the seller but keep in mind that the fewer the subjects, the more serious the offer will seem to the seller and the better the chance that it will be accepted. This is because you are essentially asking the seller to take the home off the market while you fulfill the conditions you have set.
Here is a list of some subjects you may find helpful:
- A satisfactory building inspection
- the arrangement of the financing you require
- the lender’s approval of your application to assume the seller’s existing mortgage
- the sale of your present home
- Inclusions and exclusions
- Closing date
- if the home is a strata lot, satisfactory review of all relevant strata documentation, including engineer’s reports and/or building inspection reports, if any.
Subject clauses can and should not be used as an “escape” clause. You are required to use every reasonable effort to see that the conditions are satisfied. Once the conditions have been fulfilled, written notification should be given to the seller that you are removing the subject clauses.
If you are unable to meet the conditions after making every reasonable effort to do so, the contract ends and there is no legal obligation to complete the purchase. However, your deposit can only be released to you if both you and the seller sign a deposit release form.
A seller may wish to still be free to consider other offers until you have removed the condition. To do so, they may ask for a clause in the agreement which permits the seller to require you to remove all subject conditions within a short, specified time period if the seller receives another attractive offer. This time period is usually between 24 and 72 hours. If you cannot do so, your conditional contract comes to an end. Sellers are most likely to request this time clause where you have made an offer which is subject to the sale of your current home.
More About Deposits
With Suuty, you will make a deposit with your notary or lawyer after your offer is accepted. That deposit is then held in their trust account for the benefit of the transaction.
Completing Your Purchase
The Contract of Purchase and Sale, which you signed, will state the completion day for the transaction. On that day, legal ownership will transfer from the old owner to you in exchange for the purchase price of the home. You will be able to move in on the possession date stated on your contract. The completion and possession dates are not necessarily on the same date.
Do You Need Legal Assistance to Complete the Purchase?
Usually a buyer will engage a lawyer or notary public to prepare the documents required to transfer the legal ownership. They will be able to:
- search the title in the Land Title and Survey Authority Office registration system to discern if anyone other than the seller has any legal rights to the home and to check if there are any registered easements or restrictive covenants
- prepare the documents to transfer ownership from the seller to you, including the Property Transfer Tax return
- ensure that the seller’s old mortgage has been properly discharged
- confirm that all payments each party is responsible for have been made
- prepare a Statement of Adjustments that outline everything owed by you and the funds you will need to complete the transaction
- deliver the final amount due to the seller and ensure that you are registered with the Land Title and Survey Authority Office as the owner
- obtain documents for strata titled properties like the Information Certificate, Certificate of Payment and the strata corporation’s Certificate of Insurance
And with that, your home search is over! You have signed the documents, turned over your cheque and received the keys. Congratulations!