For many, real estate properties are the biggest purchases they will ever make in their lives. Whether it’s a home for your family, or investments for a better tomorrow – the stability and tangibility of real estate have always made it high in demand.
But unlike buying a fridge or a table, it’s very difficult to understand their purchase process and best protect yourselves – as that requires sufficient legal knowledge and experience. Today, Sabrina, principal lawyer at Varity Law, will guide you through the practical steps of a real estate purchase.
Step 1: Signing the Agreement of Purchase and Sale
After you have selected the preferred property, yourself or your realtor will ask you to put in an offer – once accepted, that property will be yours on closing date. Below are important considerations:
a) If possible, try adding the following conditions onto the offer/agreement:
I. Financing condition – this allows you to get a mortgage approval before a certain date, and if you cannot, you can back out the agreement with your full deposit back; otherwise, you must honour the agreement or risk being charged damages;
II. Property inspection condition – this allows you to examine the property for defects; any defects you find unacceptable allow you to back out of the agreement; alternatively, defects can be listed in the agreement, requiring the seller to fix them before closing date;
III. Lawyer review condition – this allows you to take the agreement to a lawyer; you can back out of the agreement if you and the lawyer find it unacceptable; or, the lawyer could suggest crucial changes to the agreement before it’s binding.
b) Identify the following items clearly:
I. Chattels included – chattels are any items that are not attached to the property and can be easily removed, such as chairs and tables; property law assumes that all chattels will be removed by the seller on closing date (aka does not come with the property) unless they are specifically listed on the agreement;
II. Fixtures excluded – fixtures are any items that are attached to the property and cannot be easily removed without damaging the property, which may include chandeliers and built-in cabinets; property law assumes that all fixtures will be left by the seller (does come with the property) unless specifically listed on the agreement;
III. Rental items – anything that is rented (not owned) by the seller, which often requires a monthly rental fee – if listed on the agreement, then the purchaser must inherit it and pay the monthly fees.
Click HERE for more information about key considerations for the purchase agreement.
c) If possible, do not set the closing date to a Friday or the day before a Statutory Holiday.
Although we always expect the purchase or sale to close on time, sometimes there are factors beyond anyone’s control. Those include bank delays (e.g. bank did not give the mortgage funds until 4:00 pm), last minute disputes with the opposing party (you were supposed to fix that scratch!), or service interruptions (e.g. the electronic system for registering deeds is down).
If those things occur, you want to reduce the damages as much as possible. If the closing date is Friday, and there is a delay – then the damages would be for at least 3 days (Saturday, Sunday, and Monday) because most institutions do not work on weekends. Similarly, as many institutions are closed on statutory holidays, setting the closing date to the day before a holiday is unwise.
Step 2: Have the Real Estate Lawyer Do Proper Searches
There are many searches that a diligent real estate lawyer should do for the purchaser. Below is a brief rundown:
a) Any outstanding debts attached to the property – in Canada, any registered property debt is attached to the property and not only to the people who incurred them; thus, once you buy the property, you technically inherit the debt. It’s crucial that your lawyer ensure those debts are or will be paid out.
b) Any legal disputes or illegality – those are also attached to the property, and can include things like boundary dispute with the neighbours (e.g. claiming that part of the backyard belongs to them) or work orders issued by the municipality (e.g. when the old owner renovated the basement without a permit, when a permit is required); those issues must be solved, or the seller must undertake to solve them when they arise.
c) Any unknown risks – possible title defects, such as an unregistered property debt, that the lawyer could not find (or chose not to search for) are usually covered by title insurance (one-time purchase, lasts for the lifetime of your property ownership); it’s strongly recommended that you purchase title insurance to reduce your risks.
For a detailed run down of searches, please click HERE.
Step 3: Preparing the Funds and Getting the Property!
It is important to tell your mortgage lender (usually a bank) bright and early of the mortgage funds required and the closing date. As well, you would need sufficient time to prepare for down payment.
Both require an organized and experienced law firm, and strong co-operation between your lender and your lawyer. Also, check early whether your lawyer can close different types of financing, as some law firms do not close mortgages from B lenders such as Home Trust, or from private lenders such as mortgage investment companies or individual lenders (at Varity Law, we are proficient with closing all types of financing). Any delays in getting the mortgage funds or preparing down payment may result in delayed closing and corresponding damages charged by the seller.
After all that and once all problems are solved, the deed is transferred into your name, and you get your keys to your property! Congratulations!
Conclusion
Making a real estate purchase requires having a suitable agreement of purchase & sale, an array of searches performed, and a confirmation that sufficient mortgage funds will arrive on time.
We encourage our readers to book an initial free consultation with Varity Law to discuss your specific situation. Our team wish you all the best in securing your home or locking in that investment property.
