The Definitive Home Buyer’s Guide – Exclusive

Deciding to buy a home is one of the biggest and most consequential decisions of our lives. Whether you are an existing homeowner, or a first-time home-buyer, it involves a good hard look at the responsibilities that come with owning a home, as well as research and hard work. But the rewards are equally weighty – home ownership can mean stability, a family center, financial security and true independence.

There are many professionals that are part of this experience, some necessary, others optional. Making the right decisions is about knowing all the facts. This guide will tell you who you need, who you might want on your side, and what to expect along the way. Most importantly, it will give you helpful information to help you prepare for this momentous event.

Section 1: Deciding You are Ready to Buy a Home

Section 2: Choosing Your New Home – Putting Details to the Dream

Section 3: The People You Will Need

Section 4: Getting Financing

Section 5:Finding your Dream Home

Section 6: Closing on the Purchase of Your New Home

Section 7: Homebuyer’s Glossary

 

Deciding You Are Ready to Buy a Home

Buying a home is not the right decision for everyone. It’s a big financial commitment, and one that deeply affects our everyday lives. A home means maintenance, taxes, mortgage payments, and insurance; it means a host of responsibilities that cost money and hard work, and not everyone is in a position to undertake these responsibilities at any given moment in their lives. This is why the most important first step is too look at your financial situation: is this the right time for you?

Most homebuyers will need a mortgage in order to buy a home, and finding out whether you qualify and for how much is the first major step in deciding whether now is the right time to buy.

Are you financially ready?

If you are a first-time homebuyer, you are about to take the biggest step of all, and financial readiness is the most important factor.

First, get a sense of your overall financial picture. Draw up a list of all your assets (properties, investments, savings, vehicles, etc.) and liabilities (loans, finance plans, credit cards, back taxes, child support, alimony). Compare the numbers you see to your income. These are the financial details a lender will consider when approving you for a home mortgage. If you have a lot of liabilities and few assets, you may need to show proof of a very good income to qualify. If you have few liabilities but a limited income, this might also limit your options. If you have a good income with few liabilities and even some modest assets, then you stand a better chance of getting a home mortgage.

Next, draw up a list of your total household expenses. Don’t omit anything – rent, utilities, groceries, transportation, parking fees, dental and medical bills, insurance payments, membership payments, recreational activities, savings plans, etc. Remember, some of these household expenses (rent, for example, or perhaps a paid parking space) may disappear if you buy a home, and others might be sacrificed (gym memberships, recreational activities) to achieve your dream of home ownership.

A new home will also bring with it new expenses, and you will need to budget for these as well.

Property Taxes

Most jurisdictions in Canada require homeowners to pay property taxes. Look up the property tax rate for your neighbourhood (or potential neighbourhoods) to get an idea of what you can expect to pay. For example, a search of the terms "Toronto Property Tax" will bring the result for www.toronto.ca, the website for the Greater Toronto Area municipality, which includes a property tax calculator.

Home Maintenance Costs

Homes need maintenance each year, whether its replacing a water heater, fixing a roof, repairing bad plumbing or just repainting a flaking facade. The costs can vary wildly, but as a rule of thumb, you should budget 1-4% of the property’s value for maintenance each year.

Compare all of these expenses with your monthly income: how much of your net pay is left over each month to put toward a mortgage?

Mortgage Calculator

By now you should have a pretty good idea of where you stand financially, and how much you can afford in mortgage payments each month. There are several types of mortgage calculators you can use to plug all of these figures in, varying factors such as down payment, amortization (length of time to pay off the mortgage), and interest rates.

A very important factor will be your down payment. Our Getting Financing section will explore in greater detail the down payment options available to you, as well as getting pre-approved and improving your eligibility. A bigger down payment can make you eligible for a much bigger mortgage (therefore a more expensive home); but it can also reduce the mortgage you take out, getting you out of debt that much faster. It’s up to you to weigh how much you need or want to spend on a home.

There are two major rules of thumb that lenders will use to assess how large a mortgage you can safely assume: housing costs and monthly debt load.

  1. Housing Costs. Your total housing costs should not exceed 32% of your gross monthly income. Housing costs include your mortgage principal, mortgage interest, property taxes and heating expenses. How much is 32% of your gross monthly income? Multiply your monthly income before taxes and deductions by 0.32. This will give you a first idea of the upper limit of what you can afford.
  2. Monthly Debt Load. Your monthly debt load, i.e. all the debt payments you owe each month, must not exceed 40% of your gross monthly income. How much is 40% of your gross monthly income, and how much do you currently pay each month toward debts? Is there anything left over for a mortgage payment?

Remember, these affordability rules will give you an idea of the maximum you can safely afford each month, given your income – it’s always wise to stay below the maximum. Look at how well these amounts match up with the amount that’s left after you deduct your total household expenses (including the ones that come with owning a home) from your monthly net income.

Generally speaking, the safest mortgage amount will be the smallest one yielded by all of these different calculations. Even if the Monthly Debt Load indicates you can afford more, if your monthly expenses eat into that, then the smaller number is what you can actually afford. Don’t bite off more than you can chew: this is a financial commitment that will be with you for many years.

Acronyms of Affordability

  • P.I.T.H : These are your housing costs: Principal and Interest, Taxes and Heating. Condominium owners should add half the monthly condo fees, while ‘lease to own’ buyers should include the entire year’s lease.
  • GDS ratio: Gross Debt Service ratio. The ratio of your monthly housing costs (PITH) should not be more than 32% of your gross household monthly income.
  • TDS ratio: Total Debt Service ratio. The ratio of all your debts including housing costs should not be more than 40% of your gross household monthly income.

Renting vs Buying

If you are currently renting your home, then you will want to weigh the pros and cons of staying where you are versus taking the plunge into home ownership. It may be that it’s actually more affordable to continue renting your home, especially if mortgage rates are high or if you haven’t saved up enough for a sizeable down payment. Some points to consider:

Renting
  • no risk of losing equity
  • maintenance of rental units are the landlord’s responsibility, not yours
  • moving from a rental unit is relatively simple, whereas a home is a greater commitment to location
  • monthly costs are predictable

Buying

  • monthly mortgage payments can be cheaper than expensive rental units
  • you can gain equity through mortgage payments and property appreciation
  • a home can be valuable security in times of financial need
  • a home can be customized to your taste and needs

Putting Down Roots

Buying a home means putting down roots, committing to a new neighbourhood, perhaps even a new city. Choosing where your new home is located is as important as the home itself, as you are investing as much into the location as the property itself. If you choose poorly, selling afterward to move to a new neighbourhood can be complicated, time-consuming, and may even end up costing you money.

Look for neighbourhoods that have desirable features: schools for your kids, close to your work, close to public transportation, near parks or a golf course. Once you’ve established what features you want, ask yourself – are the homes here affordable? What is your lifestyle? Are you ready to commit to a location?

Getting your Credit in Shape

Whether you are a first-time homebuyer or an existing homeowner looking to move, your credit history will go a long way toward determining whether you can get a mortgage, and on what terms. If your credit rating is poor or even just fair, there are ways you can improve it in just a few months to increase your chances, and your options.

The first step is to order a copy of your credit report, and make sure all the details in it are correct. Errors in your credit history may affect how lenders view you as a borrower, and should be corrected immediately. In Canada, there are two credit reporting agencies (also known as credit bureaus) that compile information provided by national and international creditors, to create an overall picture of your behaviour as a borrower: Equifax and Transunion. You can order a free copy of your credit report in writing, and for a fee, also obtain information about your credit score. Your credit score is used by many lenders to assess the risk of lending money to you, and can affect whether or not you can get a mortgage, and whether or not they will offer you the best rates.

A good credit history takes time to build, and a bad credit history can’t be easily repaired, so it is important to plan ahead. If you have a poor credit history – perhaps you have a series of late payments in recent months, or have a lot of outstanding debt – it’s worth spending a year ‘rehabilitating’ your credit to ensure you will qualify for a good mortgage, or any mortgage at all.

Quick Credit Repair Tips
  • Make your payments on time
  • If you have multiple loans/credit cards, consider consolidating them into a single loan; a single payment can be more manageable, and might reduce your average interest rate.
  • Where possible, keep your credit card/line of credit balances below 35%.
  • Don’t seek new credit. Multiple requests for loans count against you. Save your requests for the one that matters most: your home
  • If you don’t have any credit at all, get a low-limit credit card, and use it for ordinary expenses such as groceries or gas. Pay it off in full each month. This will establish a good payment history.

Gauging the Market

Once you’ve decided you are ready, both personally and financially, it’s time to look at the real estate market in the areas you are considering buying.

Look online for news articles from recent months concerning the neighbourhood, city and province you are looking to buy in (where possible). Try to get a sense of whether the market is on an upswing or downswing. If housing prices have been rising markedly in recent months/years, is there a possibility they will drop in the near future? This might be a good reason to wait – not only will you get the same house cheaper in a few months, but you will avoid the nasty situation of losing equity in your new home.

Conversely, the area you are looking at might be poised to gain value, in which case it’s best to move quickly to take advantage of lower prices. Consult with some of the real estate offices in the area, to get a feel for where the local market is heading.

Interest rates are another key factor: low interest rates can mean big savings in the short and long term, by reducing the interest that accumulates on a mortgage and making the most of any lump sum payments you can make for the term you’ve selected. Read as much as you can about interest rates in Canada, and whether they are predicted to rise or fall. Take advantage of low rates but don’t forget to budget for potentially higher rates when renewal time comes around, as you could be facing higher payments for the same mortgage.

Choosing Your New Home: Putting Details to the Dream

There are many types of dwellings to choose from when buying a home, from houses to condominiums to apartments – and a great deal of variation between these, as well. You can buy your home newly built, made to order, or resale, each with its own benefits and drawbacks. It can be helpful to look at the pros and cons of each type of dwelling available, and decide which lines up best with what you need from your home.

Essential Features

Start by drawing up a list of essential features: how many bedrooms do you need? Do you want a yard? Is a view important? What about a pool? Do you want a guest suite? How about a fireplace? Think of all the features your home will need, and the features you would like it to have. Remember future needs – if you are a young family and plan to have more children, for example, you may want to include extra bedrooms.

Be clear on which features are a priority, and which features you would be willing to sacrifice; for example, being close to work might be less important than having a big yard, or you might give up the dream of a lake view in order to gain rental income from a basement apartment.

Helpful tip: Draw up a checklist of essential (must-have) features, and a list of desirable (would-have) features, and make several copies. Not only will this help you in focusing your search for a house, it will also be useful when visiting prospective homes, so that you can tick off how many features each property has, and compare them at the end of the day.

Neighbourhood of choice

Where your home is located is nearly as important as the home itself. Your new neighbourhood will determine the price you pay for your home, the schools for your children, your commute to work, and the kind of environment you live in. Do you prefer a rural setting? Does your job require you to be in an urban setting? Does anyone in your family have special needs that you want ready access to? Do you prefer a quiet residential setting, or the bustle of a city centre? Do you want to be close to family and friends?

When you consider specific neighbourhoods, don’t forget to get a feel for what changes might take place in coming years; local publications such as community newsletters can give you valuable insights into any big projects that might be coming soon that could transform the area for better or worse. For example, a new airport might bring down property values, as well as create a noisy living environment; on the other hand, an old parking lot might be converted into a beautiful park, bringing values and enjoyment up. Talk to local shop owners, if possible, and real estate offices in the area, as they are always good sources of information.

The right kind of home: The House

The next crucial step in the process is choosing what kind of home to buy. Modern homes come in many shapes and sizes, new and old, and each have their particular characteristics, benefits and drawbacks.

Houses are the traditional dwelling structure. A house can come in many shapes and sizes, and be owned by a single individual, family, or multiple families. The most common feature of a house is the sole responsibility of the owner for the maintenance and upkeep of the property.

There are a tremendous variety of styles and configurations, and definitions of each can vary according to the region where they are found, so we will only address some of the major defining features and some of the more common types.

Shared Walls

Detached: A standalone house that shares no common walls or foundations with other houses. Some detached houses can be set very near to neighbouring houses – mere inches – while others may be set on a large plot. A detached house usually offers more privacy and outdoor space, and less noise from neighbours, but can also be more expensive. New fully detached houses are rarely built in city centers nowadays, but instead are being built in suburban areas and expanding smaller towns, as well as rural areas.

Semi-detached: A building that shares one common wall with another building. May also be called a duplex, though this can sometimes refer to a house divided into two apartments. A semi-detached house will often have substantial outdoor space, and is usually less expensive than a detached. New semi-detached houses are also rarely built in today’s crowded city centers, and are more commonly found in suburban and rural areas and smaller towns.

Townhouse: A house that shares two or more common walls with adjacent houses, often set out in a row. Also called rowhouse or brownstone. All units have direct access from the outside. Offers less privacy than fully and semi-detached houses, but is usually lower priced; it may or may not include outdoor space. The more compact layout of townhouses means that new developments can still be found in urban centers as well as suburbs and smaller towns.

Number of storeys

Multi-story: Can be attached or detached, with two or more storeys; may or may not also have a basement.

Bungalow: Single-story house with no basement.

Shared Ownership

A house may be split into different living areas that are owned separately, yet share some common areas. Shared ownership of a house should be distinguished from the shared ownership seen in a condominium.

Duplex: The definition of a duplex can vary widely, but is generally used to refer to a single structure with two separate living units, each of which have separate entrances. These may be side by side (more commonly referred to as a semi-detached house) or stacked on top of one another. Also known as a two-family dwelling, or two-flat. May share a common basement or attic, as well as common outdoor areas. The owner of both units may choose to live in one and rent out the other.

Triplex: Similar to a duplex, but with three separate living units.

Some popular North American house styles
  • A-frame
  • Brownstone
  • Townhouse
  • Bungalow
  • Modular
  • Farmhouse
  • Cottage
  • Ranch
  • Log cabin
  • Bauhaus
  • Split-level
  • Victorian
  • Bay-and-gable
  • Chalet
  • American four-square

The Right Kind of House: The Condominium

Style of Ownership, not the Building

Condominiums are a type of dwelling that has become immensely popular in the last two decades as they gained legal recognition in more and more locales. Superficially, the condominium can assume many shapes and sizes; it is the legal definition of the joint ownership that sets it apart from an ordinary apartment or other shared structure. This legal definition can vary considerably across jurisdictions, restricting the kind of development forms condos can take.

Generally speaking, however, the condominium is a group of units individually-owned, with by-laws governing each owner’s responsibilities and restrictions, and shared common areas such as hallways, stairwells, recreational facilities, gardens and parking areas. The units can be located in a single structure, such as apartments in a high-rise tower, a handful of units in a low-rise, or a horizontal subdivision like row-houses. They may even be fully detached units, set on a common plot with common areas.

Master of Disguise: Condominium literally means "joint sovereignty" (con= together, dominium= sovereignty or ownership). This means a condominium is less about the kind of living units that make it up, and more about sharing the ownership of the common elements of the whole project between all the unit owners. This is why the word condo can conjure up so many different images: a stylish townhouse set on a golf course, a modern apartment in a 30-story urban tower, or even a cozy chalet near a popular ski slope.

Owner’s Association

The owners usually form an association (in some cases a corporation, such as in Ontario) that is then responsible for common property maintenance, record-keeping and finances. Usually this will be handled by a professional management company on behalf of the owner’s association.

Popular in Urban, Vacation and Retirement Settings

Condominiums came into vogue in Canada with the creation of the Ontario Condominium Act of 1998. Since then Toronto has been at the epicentre of the condo boom, capitalizing on the trend of upward density, smaller (and hence more affordable) living spaces, and downtown living; but condos are making appearances in most other major urban centres as well as in suburbs and smaller towns, having gained special popularity with retirees. In British Columbia condominium is known as strata title.

Shared Responsibilities, Pooled Fund

Unlike a house, the condominium owner is usually not directly responsible for the maintenance of the exterior or common areas, and may have limited responsibility for the upkeep of major systems such as heating, plumbing and air conditioning. Instead, each owner pays a monthly or annual fee that is pooled to pay for such maintenance, which is then the responsibility of the management company, or the corporation’s board of directors in the absence of a professional management company.

Condominium law varies considerably across jurisdictions; if you are considering a condo, speak with a real estate professional or lawyer who is familiar with the condo law in your area.

Condo Lingo

  • Units: The private dwellings, owned by and registered to individual owners, within the condominium complex.
  • Unit Factor: The percentage of interest an individual owner has in the whole condominium project, based on the size/value of the unit.

    Common elements: all the parts of the condominium project that are not part of the individually-owned units. Can include hallways, stairwells, major utilities systems, parking, building exteriors, recreational facilities, laundry, roads, etc.

  • Corporation: The condominium corporation is made up of the unit owners, and is responsible for the overall operations of the condominium.
  • Board of Directors: A board of directors is elected within the corporation to manage the corporation’s business operations, and is usually also composed of the unit owners.
  • Property Manager: The board of directors may contract an external professional management company to handle the maintenance and upkeep of the common elements.
  • By-laws and rules: The corporation’s bylaws define how the corporation will be organized, and how it will behave. This can include dispute resolution mechanisms between an individual owner and the corporation, voting shares, maintenance agreements, the division of responsibilities, meetings, etc. The rules include the limitations and responsibilities of individual unit owners, such as whether or not the unit can be rented, acceptable colours of the units’ visible portions, pets, etc. They can be as simple or as complicated as is required by local law, and for the effective operation of the condominium complex.
  • Monthly Fee: Each individual homeowner is generally required to pay a monthly fee that goes toward regular maintenance of the common elements, as well as the reserve fund. Monthly fees will vary according to the owner’s unit factor, and may vary over time as well to meet the condominium complex’s changing needs.
  • Reserve fund: a common pool of funds from which extraordinary maintenance and repairs of common elements are paid.
  • Estoppel/Status Certificates: A fact sheet/package that contains a detailed description of the project, terms and conditions, conditions, by-laws, reserve fund, financial statements, makeup of monthly fees, and any other information relevant to a prospective buyer. These might be freely available, or for a fee; in some jurisdictions they are required under condominium law.
  • Freehold: Generally the land of the condominium complex is part of the common elements, but in the case of a freehold condominium the unit owner also owns the land on which the unit stands, and is responsible for its maintenance. A freehold owner may have more freedom in the kinds of changes to the property that can be made, but overall design restrictions may also apply.

House vs Condo

Choosing between a house and a condo is largely a matter of budget and lifestyle. Houses are the traditional choice for families, offering space and personalization, and some first-time homebuyers opt to buy an affordable "fixer-upper", which they can renovate over time. Condos, on the other hand, have become the modern urban stronghold, as well as a popular choice for retirees, who enjoy the maintenance-free lifestyle and additional amenities.. Both have their benefits and drawbacks, and should be considered in terms of your needs and preferences.

 
House
Condo
Pros
  • often more spacious
  • completely customizable: can be renovated, repainted, landscaped, entirely to owner’s wishes
  • no restrictions on pets, children
  • more privacy
  • no noise restrictions beyond local by-laws
  • strong resale value
  • limited maintenance responsibilities
  • can be more affordable
  • tend to be newer constructions
  • offer downtown living
  • pre-construction units can gain value quickly
  • may include additional on-site benefits such as recreational facilities, beach club, golf course, marina
Cons
  • owner is responsible for payment and execution of all upkeep and maintenance
  • responsible for outdoor areas, including shoveling public walkways
  • can be more expensive
  • harder to find new homes in urban centers
  • older homes may require extensive renovations
  • less privacy
  • may have pet restrictions
  • monthly/annual fees that can go up anytime
  • limits on improvements or modifications that can be made
  • can be more difficult to sell in slow markets
  • less suitable for families

 

New Home vs Resale Home

A homebuyer also faces the decision of whether to buy a resale home, or a new construction. A new construction may be newly completed, or it may be in what’s called pre-construction: anywhere from just a design on a page, to partially completed. Choosing between these options is very much a matter of the buyer’s time frame (a home that’s under construction won’t be suitable for someone who is looking to move in quickly), need for personalization, and even cost.

Resale Home

A resale home is any home that has been previously lived in, which can mean a ‘nearly-new’ home of just a couple of years, or a historic home a century old.

One of the obvious benefits of a resale home is the charm of old hardwood floors, vintage fixtures and the fine craftsmanship that marked the architecture of earlier eras. A wide variety of architectural styles can be found in resale homes, spanning decades and various movements, offering a great deal of options to the buyer. These details can make a resale home stand out dramatically in comparison to today’s ‘cookie-cutter’ new homes.

Previously owned homes are usually less expensive up front than newly built homes, and more spacious too, as home lots were larger in the past than in today’s increasingly crowded environment. Inside, fixtures and major appliances are usually included in the sale of the home. Extras like fireplaces, landscaping, swimming pools or finished basements may also already be in place, as well as the accumulated improvements of years, that may not increase the home’s market value significantly but can add greatly to its living value.

Fixer-uppers are included in the resale category, an older home in need of extensive updating or repair, offering a reduced sales price to those willing to invest the time and effort to improve and/or personalize it. This can offer a great opportunity to dramatically increase the equity in your home. If there are any major problems with a resale home, a home inspection will usually detect them, giving the buyer a chance to reconsider, or to use as bargaining chips when it comes to the final sales price.

Resale homes also tend to be in established neighbourhoods, with mature trees and gardens, paved driveways, fenced yards and distinctive personalities. The neighbourhood’s amenities are also usually in place, unlike new development communities: schools, shops, parks, etc. There is a chance to walk around and get a feel for the area, to talk with potential neighbours, become a part of an existing community instead of one that is under construction.

On the financial side, resale home prices tend to be more flexible; a canny buyer can usually negotiate downward from the list price, whereas new home prices tend to be fairly fixed. Resale homes also tend to appreciate over the long term, especially where improvements and updates are made.

Most importantly for buyers of resale homes, they are not subject to the sales tax levied on new constructions. This can add up to thousands of dollars in savings.

New Home

A new home is one that has never been lived in, and can either be recently finished, under construction or pre-construction.

Buying a pre-construction home offers the opportunity to buy into a new development at early-bird prices, which can appreciate considerably as the project takes shape. Buyers may also have options as to which features they wish to choose, and control over options like layout, number of storeys, number of bathrooms, and any extras that they might want to have built in, or choose to finish themselves. This can offer some flexibility in what is usually fairly rigid pricing.

The buyer will want to carefully look into the builder’s history, reputation and previous developments before putting down a deposit. Much of the new home’s value will depend on the quality of the construction, the builder’s ability to complete the entire development and sell all the units.

This can mean a new home purchase requires a lot of planning ahead, months or even years. Pre-construction prices tend to rise as various elements are completed, which can add equity to earlier purchases, but a buyer should keep in mind that the new home may not be possible to sell at a profit until the builder has sold off all the units; otherwise the buyer and the builder will be in competition. This means a buyer should be ready to commit to the new home for some time after moving in..

Pre-construction usually only offers a blueprint of the home, and in some cases a model home, so buyers should be very careful in assessing exactly what’s included in the price, and what’s not. It may be that the price includes only the bare bones of the building, without a finished driveway, basement, fixtures, balcony, lawn, fencing, etc; these may all cost extra from the builder, or fall to the buyer.

New homes tend to be built to modern standards and preferences, with better insulation, energy-efficient appliances and construction (meaning lower utility bills and greater comfort), and modern conveniences such as lavish bathrooms, spacious storage space, main-level laundry rooms (as opposed to the traditional basement laundry room), open-style kitchens and social areas.

For many new home buyers, the allure lies in the finished product: a ready-to-move-in, modern, clean home, decorated to the buyer’s taste, and assured low maintenance. New homes usually come with a one-year builder’s Home Warranty, and major systems may be covered for up to two years. The buyer may also purchase extended warranty coverage at a modest price.

 
Resale Home
New Home
Pros
  • varied architectural styles to choose from
  • bigger home lots
  • established neighbourhoods with character
  • easier to negotiate price
  • usually includes extras such as fixtures, curtains, fencing, finished driveways, fireplaces, etc
  • can increase equity through improvements
  • can buy a fixer-upper at lower cost
  • move-in ready
  • low maintenance; major systems won’t need updating/repair for years
  • home builder’s warranty covers you for the first year
  • more energy-efficient, lower utilities
  • modern styling and technology
  • more control over decor, layout, style
  • neighbours tend to be in same demographic
Cons
  • may need extensive updating
  • more maintenance from the outset
  • may not be move-in ready
  • usually has fewer modern conveniences such as walk-in closet, large master bedroom and bath
  • less energy-efficient, higher utility bills
  • less control over style and decor
  • may have hazardous materials such as asbestos or lead paint
  • may be more expensive initially
  • potential for ongoing surrounding construction
  • extras such as fixtures, paved driveway, landscaping, finished basement, may not be included
  • neighbourhood amenities may not be in place yet
  • Sales tax applicable in most provinces/territories
  • major problems may not be immediately evident until foundations settle
  • may not be able to resell at a profit until builder has finished selling all units

 

The People You Will Need

There are several people that you will need during the process of buying a home, some necessary, others optional. Below we will review what role each of these professionals play in the purchase of a home.

Real Estate Agent

Why you need a real estate agent

Many buyers choose to take on the services of a professional real estate agent to help them find and assess a home, and negotiate and close the sale. This can be for a variety of reasons – lack of time to do the legwork themselves, the preference of professional guidance through a complicated process, the additional resources a real estate agent brings to the table, or simply having a seasoned negotiator to haggle over the final price. Historically, residential real estate agents represented only the seller, but in the last couple of decades, more and more buyers have been retaining the services of agents to represent their own interests.

Realtor vs FSBO: Homebuyers have the option to undertake the process of finding, bidding on and closing the sale of a property on their own, without the assistance of a real estate professional. This can avoid the pitfalls of signing exclusive contracts, and relieve the buyer of the burden of paying the commission fee if they find a home that is being sold without a real estate agent – "for sale by owner", or FSBO. An FSBO sale pays no commissions, and can save both the buyer and the seller money. However, a homebuyer should be prepared to put in the time and effort, and consult closely with a real estate attorney throughout the process, to ensure they find the right home, at the right place, and close the deal successfully.

What to expect from a real estate agent

A buyer’s real estate professional :

  • offers valuable insights into market conditions
  • provides powerful search tools to find the right home for you
  • has experience in negotiating the final price and any extras that can be included
  • saves you time and effort
  • puts you in touch with other reliable professionals throughout the process
  • and ensures that no part of the process is overlooked.

Real estate agents generally charge a commission fee for their services, that is usually paid by the seller and split with the seller’s agent. This means the buyer does not pay directly for the services of an agent; however, because the seller knows that his or her total profit is going to be reduced by the commission, the sales price may be somewhat inflated to account for that fee.

Unlike a seller, a home buyer is free to work with several real estate agents, to increase their options. However, some buyer agents may ask you to sign an Exclusive Buyer Agency Agreement (EBAA). This means that you agree to use their services exclusively in purchasing a home; it may also include stipulations that you are responsible for paying the commission fee, if none is available from the seller (for example, a seller who choose to sell FSBO – For Sale By Owner – won’t have a listing agent, and may not offer any commission at all. If you want to buy this home, you will be on the hook for the extra 3%). The agreement may also propose a flat fee for services rendered, in the absence of a commission.

Choosing whether to sign an EBAA is controversial, even among real estate agents. Signing an exclusive agreement may bring you more zealous service, guaranteeing to the agent that any efforts they put in will indeed by rewarded in the end, rather than risking that a buyer might bypass the agent at the last minute, after all the legwork has been done. However it may also limit you in your search for the perfect home; if you should find the right home on your own, for example, you would still be required to use the agent to close the deal under the terms of your agreement. If you find an FSBO home on your own, this could mean you still have to pay the agent’s commission, even though you found the property.

Dual Agency: In some cases, you may find that your agent is showing you a property that is listed by their own brokerage. This is known as ‘dual agency’ or ‘multiple representation’, and a dual agent must obtain the written consent of both buyer and seller to proceed in a limited fashion: in this situation the agent cannot discuss the motivation to sell or buy, either party’s financial situation or any other factors that may influence the negotiations.

While entirely legal in some provinces, and governed by strict rules of confidentiality, it can create a conflict of interest for both parties. This is because the agent is committed to getting the seller the highest possible price, while getting the buyer the lowest possible price – at the same time. However, there is one advantage to the agent that can work in both parties’ favour: the agent (or brokerage) does not need to split the commission fee with another agent. Therefore, in cases of dual representation, the seller might ask that the agent (or brokerage) take a reduced total fee (but still better than a split fee) that allows the seller to keep more money in his pocket, without the buyer having to put it there directly. Otherwise, be wary of dual agency agreements, as you may not be getting the best representation.

How to find a real estate agent

Real estate agents tend to be familiar with specific areas, so once you have a clear notion of which neighbourhoods you are interested in, look for local real estate offices in that neighbourhood.

Ask potential agents about their track record: what is their average sales price, compared to the original list price? Do they usually manage to knock a couple of percentage points off the listed price? Look for an agent who averages below 99% the list price – the lower the ratio, the better they are at negotiating a good price for you. You may also want to consider choosing an agent that exclusively represents buyers; this means there is no potential for conflict of interest, and their sole job is to help their clients find the right homes, at the right price.

The Canadian Real Estate Association‘s database site, the Multiple Listing Service, contains a searchable database of designated realtors in your area.

The Real Estate Institute of Canada also has an excellent searchable database of its members across various categories, including buyer/seller representation, condo specialists, asset management, property management and more.

Lender/Mortgage Broker

Why you need a lender or mortgage broker

Unless you have the money to purchase your home outright, you will likely need financing to help you meet the full purchase price, and therefore the services of a mortgage lender or broker to secure you the money to buy a home.

A mortgage lender provides financing directly, and will often have staff of their own to help you determine the right mortgage for your needs and process your application. Mortgage lenders include banks, credit unions, trusts, coops, and private lenders. There are approximately 140 active mortgage lenders in Canada today.

A mortgage broker, on the hand, helps you shop around for the right mortgage among a variety of lenders, and because of sales volume, business contacts and experience, may be able to find you a better rate or better terms for your mortgage than you, as a consumer, may find on your own.

What to expect from a lender or mortgage broker

Your lender will assess your financial situation and help you determine how much you can afford for a mortgage, and what kind of a mortgage is best for you. Make sure they clearly explain the terms and conditions of the proposed mortgage, why those work for you, and what to expect over the life of the mortgage term, and at renewal time.

It’s recommended to shop around for a good rate, either with your own bank, credit union or trust; or with a mortgage broker than can shop around for you with Canada’s numerous lenders. Mortgage interest rates can be negotiated, and if you have an outstanding credit rating, a good history with your lender, or a strong portfolio of assets, don’t be afraid to ask for discounts on posted rates. Conversely, if you have a poor or no credit history, difficulty proving income (self-employed, for example) or little money for a down payment, your lender or mortgage broker can discuss options to help you toward your dream of home ownership.

How to find a lender or mortgage broker

The Canada Mortgage and Housing Company has a list of approved mortgage lenders in Canada currently active under the National Housing Act.

The Canadian Association of Accredited Mortgage Professionals has a searchable database of residential and commercial mortgage specialists.

Lawyer/Notary

Why you need a lawyer or notary

A real estate lawyer (notary in Quebec) is an essential player in the purchase of a home. Whether you choose to use the services of a real estate agent or prefer to sell your property independently, a real estate lawyer will be involved in several steps of the process. A real estate lawyer safeguards your interests by drawing up and reviewing legal documents, making sure the property you are considering is free and clear of any legal encumbrances, and performing the legal transfer of money, title, etc.

What to expect from a lawyer or notary

A lawyer/notary will:

Where to find a lawyer or notary

There are several ways of finding a real estate lawyer in your neighbourhood. The Canadian Law List has listings of lawyers by region, name, field of practice, and more. The Law Society of Upper Canada also offers directory of practicing lawyers and paralegals, as well as a referral service that will direct you to lawyer in the desired field of practice who will provide a 30-minute free consultation.

In Quebec, you can find a notary through the Chambre des Notaires du Québec (French only).

Home Inspector

Why you need a home inspector

A home inspector is another optional professional you may choose to call on when you are ready to buy a home. Whether it’s a resale home or a brand new construction, a home inspection can help identify any existing or potential problems that may pose a risk to safety or health, or that might require extensive repairs or renovations. This can protect you and your family from harm, and ensure you can negotiate your final price in light of any expensive issues that might exist. Based on their findings, the home inspector will outline existing and potential problems, may recommend repairs or replacements of various elements, or recommend further specialized inspection.

What to expect from a home inspector

An inspector will perform a thorough visual inspection of the following major systems of a home:

  • Foundation
  • Interior and exterior
  • Roof
  • Windows and doors
  • Plumbing and electrical systems
  • Heating and air conditioning systems
  • Any environmental hazards (such a mold)

At the end of the inspection you will be provided with a written report on each major system, within 24 hours.

New Home Inspection: If you are buying a new home and require a pre-delivery inspection as part of the sales contract, be sure to contact your builder ahead of time about bringing in a home inspector, as they may have restrictions on who can enter the property prior to its sale.

How to find a home inspector

Currently, only British Columbia requires licensing to become a professional home inspector, so it is important to contact your provincial home inspection association to find a registered home inspector that has completed the certification process. Don’t be afraid to ask for references.

The Canadian Association of Home and Property Inspectors (CAHPI) offers listings of certified or professional home inspectors by province.

Provincial Associations:

Insurance Broker

Why you need an insurance broker

Whether a new home or a resale home, if you have a mortgage your lender will require you to have property insurance to cover the home’s value in case of fire or other catastrophe. You may also consider additional property insurance to protect the contents of your home in case of theft, for example; mortgage life insurance, to cover your mortgage payments in case of death or disability; or title insurance to protect you against losses related to the property’s title or ownership..

As with mortgages, home insurance coverage can be obtained directly from the insurance provider or via an insurance broker. The advantage to a broker is that they are able to help you select from a wide array of insurance products through various companies, rather than being limited to the products of a single insurance provider. Through business contacts, high sales volume and experience, they may be able to provide you with more and better options than you as a consumer may find on your own.

What to expect from an Insurance Broker

Your insurance broker can help you find the right insurance products for your needs. You may opt for the minimum insurance required by your mortgage lender, or choose broader coverage to include your home’s contents, and personal liability in case of injury on your premises. The insurance broker will help to determine the coverage amount for the replacement or reconstruction cost of your home, rather than just the purchase price.

How to find an insurance broker

The Insurance Broker’s Association of Canada has a searchable database of 30,000 insurance brokers across Canada. The Insurance Bureau of Canada has excellent information on home insurance, as well as an ‘ask the expert’ section.

Appraiser

Why you need a property appraiser

A professional appraiser will look at criteria such as local conditions, similar homes nearby, the home itself, to estimate its current market value. Your mortgage lender may require a property appraisal to ensure the home’s value matches that of the mortgage for which it acts as security. You may also choose to use the services of a property appraiser if you are buying a home without a real estate agent, to help you evaluate a fair offer price and to ensure you aren’t overpaying.

What to expect from a property appraiser

A property appraiser will examine the property’s physical characteristics, the neighbourhood, proximity to amenities (for example, schools, parks, transportation) and detractors (such as an airport, garbage dump, etc), and then use any or all of three methods to assess the home’s value: by a direct comparison to the selling and listing prices of similar properties in the neighbourhood, determining how much income the property can produce (where applicable), and the cost of a new building and land similar to the property, minus depreciation.

How to find a property appraiser

The Appraisal Institute of Canada offers a searchable database of designated appraisers, by province and by specialty. The Canadian Personal Property Appraisers Group also has a searchable database of accredited appraisers, according to location and field of specialty.

Land Surveyor

Why you need a land surveyor

You may need a land survey in order to obtain a mortgage, or if the existing land survey is out of date. An up to date land survey will ensure that all the structures you may believe are included with your purchase actually lay within the property’s boundaries, and may reveal whether other people might have access to/use of your property through right-of-way easements (such as municipal access to utilities, or a neighbour’s right to cross through your property to access their own).

What to expect from a land surveyor

You should only use the services a licensed land surveyor, as they are the only ones qualified to provide the plans/reports that will become part of the property’s public record (title, deed). They will measure the property’s exact size and location in space, any easements, roadways, etc., and provide a real property report, which will include the following elements:

  • the property’s municipal address
  • the legal description of the property
  • the dimensions and locations of property boundaries
  • the location of any structures relative to the property’s boundaries
  • the location of adjacent roads, properties and other thoroughfares
  • any easements relating to the property’s land itself, such as right-of-way or roadways
  • the location and kind of survey markers used to demarcate the property’s boundaries
  • the name of the person requesting the survey
  • a surveyor’s certificate

How to find a land surveyor

The Canadian Council of Land Surveyors has the complete list of provincial surveyors’ associations, each of which has a searchable database of local land surveyors.

Getting Financing

Unless you have the money to buy a home outright (and even those who have the money to do so, may find it a wiser financial move to get financing anyhow), before you can start shopping for a new home you will begin the process of obtaining a mortgage. While you can’t complete a mortgage application until you have a signed sales agreement, there are steps you can take to make sure that you will receive the approval you need.

Mortgage pre-approval

Most lenders will offer mortgage pre-approvals, which essentially determine how much financing you can reasonably obtain, given your credit standing, down payment, income and current debt load. The pre-approval offer usually includes a guaranteed rate, for up to three months on average, which allows you to shop around with a clear budget in mind, and with the assurance that if rates go up (which in addition to costing you more money in the long run, will also affect how much of a mortgage you qualify for), you can still obtain the guaranteed interest rate. If rates go down during that time, lenders will usually give you the lower rate.

Having a pre-approval offer gives you more than just peace of mind while house-hunting; showing that you can come up with the necessary financing lends weight to any offers of purchase you make, showing the seller that you can follow through on your offer. Some sellers will not consider a buyer that has been pre-approved, for fear of wasting time with an offer that may fall through; others will ask that the buyer obtain a pre-approval through a lender of their choice, to make sure that they are dealing with a serious client.

What to do if you have poor credit?
Applicants with poor credit histories/ratings, with small down payments, may need to take time to rehabilitate their credit before they will qualify for the necessary financing. Another option is to ask a relative in good financial standing to co-sign the mortgage loan. This makes them liable for the loan if you default on your payments.

Down Payment

While there are ways to obtain a mortgage effectively without a down payment, this can be expensive and restrictive. Most residential mortgages in Canada require a minimum of a 5% down payment, and for all mortgages with less than a 20% down payment, mortgage loan insurance is mandatory.

Your down payment must be from your personal savings, or a gift from an immediate relative, in order to qualify. It cannot be borrowed money.

Home Buyer’s Plan: Drawing Against your RRSPs

The government of Canada’s Home Buyer’s Plan allows first-time and disabled homebuyers to withdraw money from the Registered Retirement Savings Plan to make a down payment. The maximum withdrawal amount is $25,000, and must be repaid annually over a period of 15 years.

Additional Costs

The expenses of buying a home go well beyond the purchase price, and you will need to budget for them. If you do not have enough savings to cover both the down payment and the additional costs, you may need to apply for a slightly larger mortgage to cover them.

Some mortgages offer ‘cash-back’ incentives for just such purposes, or are considered ‘all-inclusive’; speak to your lender or your mortgage broker to find the right mortgage for your scenario. Keep in mind that budgeting for these costs may force you to opt for a less expensive home than you might otherwise aim for, given your mortgage pre-approval amount.

Closing costs

The buyer is generally responsible for covering the closing costs of the sale. On average, a buyer should budget 1.5-4% of the home’s price for closing costs. This means that on a $400,000 home, closing costs can amount to as much as $16,000. Closing costs include:

  • Land Transfer Tax: This tax is imposed on a property when it changes owners. The tax rate varies depending on the property’s location, but averages between 0.5-2% of the property’s assessed value. This means that a $250,000 home, taxable at 1%, will incur a land transfer tax of $2,500.
  • Lawyer/Notary Fees: Fees for a real estate lawyer (notary in Quebec) can range between $1000-$2500 fees, for performing title searches, drawing up contracts, holding funds in escrow, title transfers and other legal details of the sale.
  • Home Inspection: A home inspection is recommended to a buyer prior to closing the sale, to ensure there are no serious problems with the property, or to adjust the offer price accordingly if there are. A home inspection can range from $150-500.
  • Closing Adjustments: Depending on the time of year, you may be required to repay the seller (on a pro-rated basis) any pre-paid portions of municipal taxes, utilities or condo maintenance fees. These can vary considerably, so be sure to budget at least $1000 ahead of time.
  • Appraisal: You will need to have the property appraised prior to finalizing the sale to ensure the sales price does not exceed the home’s value, for mortgage purposes. Fees generally range from $250-500.
  • Land Survey: You may need to obtain an updated survey of the property for mortgage purposes. Surveys range from about $1000-$2000, depending on the property and the type of terrain.
  • Title Insurance: You may choose to get title insurance to protect yourself against any legal problems relating to ownership of the land, including property boundaries, identity theft, clerical errors, title fraud, or existing liens against the property. Some lenders will accept title insurance in lieu of a land survey. The cost of title insurance varies according to the property’s value, and is payable as a one-time premium.
  • GST/HST: If you are buying a newly built home, federal and provincial taxes such as the GST/HST may be applicable depending on your province. Some rebates currently exist in British Columbia and Ontario for homes below a threshold value. Taxes may also be applicable on lawyer’s fees, real estate commissions and other professional fees..
  • Estoppel Certificate: If you are purchasing a condominium, you will need an estoppel certificate describing the condominium corporation’s financial and legal details. This costs $100 on average.
  • Property Insurance: You may be required by your mortgage lender to obtain fire insurance to cover the replacement cost of the house. Premiums will vary, but may cost up to $1000 annually
  • Mortgage Interest Adjustment: If your mortgage payments begin on a date other than the closing date, you will be responsible for paying the interest accrued during that interim period.
  • Mortgage Loan Insurance Premiums: If your down payment is less than 20% of the purchase price, you will require mortgage loan insurance through either Genworth Financial or the Canada Mortgage and Housing Company. Mortgage premiums vary depending on the mortgage amount, down payment amount and mortgage term, but can range from 0.5-7% of the total mortgage.

Other expenses

In addition to standard closing costs, you will need to set aside money for other sizeable expenses related to buying and moving into a new home, such as:

  • Moving costs: call around for estimates from local moving companies, so you can plan ahead. Specialty items such as pianos may require specialty movers.
  • Appliances: your new home may not have all the desired appliances, and some may need updating.
  • Renovations or repairs: if you are planning to buy a ‘fixer-upper‘, set your budget for renovations, and make sure you discuss your plans with your mortgage broker, as you may be able to roll the costs of improvement into your mortgage, up to 95% of the home’s value after renovations.
  • Condominium fees: if you are purchasing a condo, you may be required to pay your annual or monthly fee up front.
  • Service connection fees: some utility companies may require you to pay a connection fee, such as for internet.
  • Septic tank: if your new home operates on a septic tank, you may need to have it cleaned and/or inspected before you move in.
  • Well water testing: if your new home draws from a well, you may need to have the water tested prior to moving in.
  • Fixtures, window treatments, carpeting: the sales contract may not include some of these items. Read the fine print carefully to assess what you will need to have installed yourself.

Getting A Little Back: The Home Buyer’s Tax Credit
As of 2009, the government of Canada implemented the Homebuyer’s Tax Credit (HBTC), offering a tax credit to first-time and disabled homebuyers. In order to qualify as a first-time homebuyer, neither you nor your spouse/common-law partner must have owned a home in the past 4 years. The credit amount will vary depending on the rate applied in a given year; in 2009, the maximum tax credit amount was $750.

Finding your Dream Home

Where to look

Once the budget is established, the mortgage pre-approval is in place, and you have hired the professionals you need to get started, it’s time to start looking for properties.

Online Resources

A good place to start is Realtor.ca, a multiple listings service (MLS) database of properties for sale by the Canadian Real Estate Association. This MLS database is searchable by area, price, and home features. Until recently, this database only included properties that were represented by qualified real estate agents, however property owners can now list their properties on MLS for a flat fee, opening it up to some For Sale By Owner properties.

Other databases also exist to showcase properties for sale across the country, including PropertySold.ca, which lists both FSBO and realtor-represented properties.

In Person

Finally, it’s always a good idea to drive around the neighbourhoods you would like to live in, and look for open house signs; sometimes a house may sell itself better in person, than through pictures, and often times the location, layout of the property or other surrounding factors can offset minor flaws that might deter you from looking further than the online listing.

If you are looking to buy a new or pre-construction home, browse through developers’ websites, and visit the construction sites to look at model homes. Newspapers and real estate publications will list both resale and new homes.

Your Real Estate Agent

If you have retained the services of a real estate agent to help you buy your home, they will likely walk you through some or all of these options. You can let them bring you a list of potential properties to look at, or search in tandem with them.

Buyer Representation Agreement: If you are using the services of a real estate agent, you may have to sign a buyer representation agreement outlining the terms of your relationship with the agent (exclusive representation, commission fees, length of contract). Keep in mind that your contract may stipulate they are entitled to a commission fee no matter if you or they find the property you end up buying. If the property is FSBO, you may be responsible for paying the commission fee yourself.

Evaluating Potential Homes

Keep a Checklist

If you are looking at more than two or three homes, you can quickly lose track of the details of each. Most homes for sale may come with a seller’s sheet, identifying the house’s main features, but can bring along copies of your original checklist to check off important details of your own, to write comments and impressions, and identify any pluses or drawbacks that could make or break the sale.

Write down as much as you can as you go through each house, especially anything that you might identify as a potential problem. Whether it’s evidence of water damage on a wall, a faint speckling of mold in a basement, outdated fixtures, old appliances, a derelict garage, a crumbling walkway or chipped porcelain in the bathtub, these are problems you won’t want to overlook, as you may one day inherit them. More importantly, they can also be used as bargaining tools when it comes time to negotiate the sales price.

Some items to consider:

  • Renovations/repairs: Will this property require any extensive renovations? Is this a project you are willing to undertake? Will local zoning laws permit the kinds of renovations you are considering?
  • Future considerations: Does this property meet your family’s needs today? What about in five years?
  • Seasonal effects: Try to think about the property seasonally. If you are viewing it in summer, imagine what winter will entail; for example, a corner lot means double the sidewalk to shovel. If you have back problems, this may mean additional costs to pay someone to clear it.
  • Night and day: A home’s immediate surroundings may seem serene during the day, but what about at night? Perhaps there’s a local pub nearby that could mean noise. Or if you see it on a weekend, what about a weekday? Perhaps a quiet street becomes a busy thoroughfare during rush hour.
  • Energy Efficiency: Pay attention to the home’s energy efficiency, as poor efficiency can translate into higher utility bills. Old windows, poor insulation, old appliances (including the furnace), can all be indications of poor heat/cold retention and high-energy consumption.
  • Condo regulations: If you’re looking at a condominium (which can be in any format – detached, semi-detached, townhouse, apartment or loft) look carefully at the homeowner’s association’s rules and regulations. There may be strict limits on the kinds of changes you can make to your unit, including colour schema, outdoor extras such as a hot tub or swimming pool, noise curfews, etc. Make sure that these are rules that fit your lifestyle, that you can comfortably adhere to, before taking the next step.
Helpful Hint: Limit the number of properties you see each day. Depending on how full your day is outside of house-hunting, you may only be able to critically evaluate 2-3 properties at a time. Even with a cleared schedule, it’s not recommended to see more than 5-7 in one day. You want to have a clear head and a sharp eye for this process; don’t overload yourself.

Making an Offer

Once you’ve found the property that fits the bill, it’s time to draw up an offer of purchase. If you have a real estate agent, they can help you draft the offer; if you are drafting it yourself, you can buy a purchase offer template on LegalDeeds.com, according to province, or your real estate lawyer can provide you with one. Have your lawyer review the contract before submitting it, to make sure it is accurate and complete.

Your offer of purchase will include:

Date of the offer

Buyer’s name, address and contact information
The buyer can be the beneficiary of the transaction, or a trustee acting on behalf of the beneficiary. In the case of making a purchase through a corporation, the buyer should be a director or officer of the corporation.

Property’s civic address, description and location:

The civic address will in most cases be the property’s street address. Canada Post has published guidelines on the correct ordering of the elements (street number, street name, city, postal code). Some rural addresses may not be obvious; contact the local municipal office to determine the property’s address, if the seller has not provided it.

The description includes which side of the street the property is situated on, its dimensions, and legal description.

Purchase price
The purchase price must be clearly stated, and if written out, you (and your lawyer) must ensure the numerals match the written version exactly. 

The purchase price may change considerably over the course of negotiations; the final purchase price is listed on the statement of adjustments, if it varies from the original offer.

Deposit amount
A deposit amount is usually held in trust by the seller’s brokerage or real estate lawyer. This amount is usually made large enough to cover the real estate commissions, and is credited against the purchase price at the time of closing. The deposit is refundable only if the sale fails through no fault of the buyer. The buyer may request that it be held in an interest-bearing account, with the interest payable to the buyer after the sale is finalized..

Completion/closing date
This is the date of the title transfer from seller to buyer.

Adjustment date
This is the date you will become responsible for payment of utilities, property taxes, etc. It’s usually the same date as the completion date.

Requisition date
This is the date all searches (title search, zoning regulation compliance, existence of liens) on the property must be completed, and the last day the buyer’s lawyer can request that any problems with the title be resolved.

Possession date
This is the date you take possession of the house – the seller will have vacated the premises and you can move in. This can be different than the completion/adjustment date if so desired by both parties; for example, if the sale was bumped up to take advantage of a tax incentive about to expire, without either party being ready to move out or in. Because this is likely to be moving day for both you and the seller, try to avoid setting the possession date near the beginning or end of the month, as these tend to be the busiest moving days.

Included/excluded items
Items in a house for sale fall into two categories, chattels and fixtures. Chattels are considered moveable property, like furniture or appliances, while fixtures are permanent features of the house, such as a water heater or lighting fixtures. Fixtures are normally considered to be included.

If you and the seller have negotiated any chattels to be included with the house (such as a patio set, or above-ground swimming pool) then those should be clearly listed here.

Conditions
The offer may be contingent on a variety of conditions to be fulfilled, such as obtaining financing approval, assuming the seller’s existing mortgage, completing a satisfactory home inspection or property survey, or any other requirements you may see fit to stipulate before the sale can be completed. A common condition makes the sale contingent on the seller being the legal and registered owner of the property to be purchased, to protect the buyer from fraud. The seller will likely set their own conditions as well, such as making the sale contingent on their successful purchase of another home, or the description of any tenancies to be assumed by the buyer on closing.

Offer’s expiry date and time:
Since your purchase offer, once accepted, is legally binding, you can set it to expire within a certain period. This ensures you are not prevented from making another (potentially binding) offer on a different property, should the seller delay in responding. The offer’s validity can extend from just a few hours, to days, to weeks, if so desired.

Common Conditions: most offers of purchases will stipulate that the offer is conditional on a home inspection (or estoppel certificate for condominium buyers), a property appraisal and lender approval of the mortgage; these protect both you and the seller from any nasty surprises.

Negotiations

Once you’ve put in an offer of purchase, you may receive a counter-offer from the seller with changes to any one of the variables contained in the offer: price, items included/excluded, closing date, contingency clauses, etc. Your real estate lawyer and agent will help you review the offer to make sure you fully understand the implications of any of the changes, and help you decide whether the terms are agreeable to you. If you are not satisfied with any of the terms, you may present your own counter-offer. All of these counter-offers are generally subject to strict time frames, and may expire within hours or days, depending on your situation and the seller’s.

Negotiating Price

Negotiating price can be the most difficult part of the offer. Thousands of dollars usually lie in the balance, and both you and the seller have vested interests in getting the other party to concede on price. It’s important to have a good idea going in as to the fair market value of the home you are interested in buying, as well as the value of any chattels thrown in. Other conditions may sweeten the pot for you, such as a quick sale, or the seller’s offer to assume the closing costs (by doing so, the higher sales price adds the closing costs to your mortgage loan; which may be attractive to those buyers who don’t have a lot of money up front). Overall, arriving at a final price can require a lot of give and take, and in the end, may not be possible.

In order to conduct a satisfactory negotiation and walk away with a deal you are happy with, here are some things to keep in mind:

  • Start Low: Most price negotiations wind up somewhere in the middle, so it’s a good idea to set your first offer price a little lower than what you expect to pay. As a rule of thumb (though this can vary in extreme market conditions), you would expect to pay about 5% below list price – sellers also know this, and set their list price accordingly – so your initial offer may start around 7-10% below list. Be careful not to go too low, though; "low-ball" offers, as they’re known, can set a negative tone to the negotiations and may result in the seller refusing to consider your offer at all.
  • Understand the Market: knowing where the market stands can help you decide what bargaining chips you hold when it comes to negotiating price. In a buyer’s market, sellers will have to compete with a lot of other sellers to get your business, which gives you the upper hand in dictating terms. In a seller’s market, however, you may be competing with a lot of other buyers for a limited supply of properties for sale, and so you might have to concede terms or find ways to sweeten your offer in order to get the sale. Your real estate agent will be able to give you sound advice about the market’s ‘temperature’, and reading local real estate columns will help you to get a sense of the local market.
  • Money on the Table: a serious offer is best backed up by evidence of the money to follow through on the deal. Include your mortgage pre-approval letter with the offer, and consider increasing your deposit amount if you want to give your offer more credibility.
  • Be Willing to Accept Other Incentives: if the seller won’t budge on price, maybe there are other concessions that will make the counter-offer more palatable to you, such as making repairs, throwing in appliances or covering closing costs. Don’t be afraid to ask; all of these things can save you thousands in the long run, even if the list price is higher than you’d hoped.
  • Not Every Deal is Successful: if there is too wide a gap between what you can afford (or are willing) to pay and the seller’s bottom line, or if other conditions such as the closing date just don’t work for one party, then it may simply be that a deal can’t be worked out. Be prepared to walk away if you must.
Time is of the Essence: The longer a home has been on the market, the more leverage you have as a buyer. However, be careful to ensure there is not a reason for the property’s unpopularity – do your homework, and make any offers conditional on a home inspection.

Finalizing the Offer of Purchase

Once negotiations have successfully concluded, and your offer has been signed and accepted (or you have signed the counteroffer) it becomes a legally binding contract, subject to the conditions/contingency clauses outlined in the offer. This contractual obligation is the reason why it is so important you put in place any conditions that might prohibit you from paying for or taking possession of the property; otherwise you and the seller could find yourselves embroiled in a legal quagmire.

The obligation comes into effect once the conditions of the offer have been fulfilled, which may include some of the following:

  • Home Inspection: having the home inspected for any significant problems is the responsibility of the buyer, and a satisfactory report is usually set as a condition of the offer of purchase.
  • Securing Your Financing: while a mortgage pre-approval will have established what kind of financing you qualify for, your mortgage lender will still need a copy of the property listing and the signed offer of purchase in order to complete the financing approval. The lender will have the property appraised to make sure it is worth enough to secure the mortgage financing needed – overpaying for a property may result in being denied mortgage financing.
  • Repairs: you will need to review any completed repairs you might have stipulated the seller complete as part of the offer of purchase
  • Purchase/Sale of New Property: you and/or the seller may have made the offer of purchase contingent on buying/selling another property; depending on the state of the market, home sales take place in a long daisy chain of buyers and sellers, as vacating a home usually means moving into a new one.

Closing on the Purchase of Your New Home

Depending on the closing day agreed upon by you and the seller, you may have anywhere from a few days to months to take possession of your new property. Generally, this is also the day the seller vacates the premises and you are free to move in. There are a few things you should plan for in the time remaining, so that closing day is as hassle-free as possible.

Moving

Planning well ahead for a major move will reduce the stress of the move, ensure that nothing is lost or damaged along the way, and that unpacking is as easy and streamlined as possible. You will want to book your movers well in advance, as availability can be limited on short notice. Weekends tend to be especially busy moving days, so it pays to reserve your slot weeks ahead of time, where possible.

Finding a Mover

Referrals are always a good way to find a mover; ask friends or family for a recommendation. Make sure if you have any speciality items, such as a piano, that the mover is qualified to handle it; otherwise you may need to hire a separate mover for that item, or find a company that can handle the whole job.

Get a detailed quote from the mover; usually they will charge based on the number of storeys in the home, number of staircases, number of rooms, and any speciality items. They may need to pay a visit to give an exact quote. Ask for references.

Packing

You may choose to pack up your household yourself, or have the movers do it for you. If you are packing yourself, get organized with colour labels for each destination room, and prioritize items you will want to unpack first. Keep your valuables, including jewelry and important documents, aside to move personally – these should not go into the moving truck. Start early with as many items as possible, such as off-season clothes, books, and other non-essentials.

Insurance

Your homeowner’s insurance may cover your belongings during the move; contact your insurance company to see whether you are covered, and to what extent. You may need to request additional insurance from the movers.

Utilities

Contact your utility companies and let them know when to terminate or transfer your services, including electricity, gas, internet, telephone, cable.

Mail Forwarding

Contact your banks, credit card companies, employers, accountants, magazine subscriptions, etc. to advise them of your impending address change. Contact the post office and ask them to forward your mail as the moving date, as well, in case there is anyone you overlook.

Helpful Hint: Keep all your moving expense receipts, including packing materials, insurance and movers costs. These can be tax-deductible.

Closing Day

On this day, your real estate lawyer will finalize transfer of ownership and funds. You will need to be on hand to sign documents and take receive the keys to your new home.

Items to be finalized include:

  • Completing sale of your previous property (if applicable)
  • Completing the title search
  • Receiving mortgage funds/sales proceeds, and any remaining balance toward the purchase of the property
  • Disbursing payment to seller
  • Registering the land transfer/transfer of title
  • Providing you with the deed and keys to the home

Closing Costs

At this point you will be responsible for paying out all the remaining closing costs, including your lawyer’s fees, real estate agent commissions, land transfer tax, etc.

Possession

Congratulations! You are now ready to take possession of your new home.

 

Homebuyer’s Glossary

  • amortization: the number of years over which your mortgage is to be repaid; typically range from 6 months to 35 years
  • assets: a belonging of value or generating value, such as car, property, savings, business, investments, etc.
  • credit history: the history of your loan repayments, contained in your credit file
  • credit rating: credit reporting companies assign ratings based on your credit history which can affect your eligibility to receive new credit
  • credit report: you can obtain a report that details your lending history from Canada’s credit reporting agencies, Equifax and Transunion
  • deed: legal document that assigns ownership of property, and serves to transfer title of property from seller to buyer
  • easement: the legal right of a third party to make use of a property, such as access roads, underground utility lines; it can also restrict the property owner, such as building up to block a neighbour’s view.
  • equity: the portion of your home’s value you own outright, over and above any mortgages and debts secured by the home
  • escrow: as relates to your deposit, the funds are held securely by a third party (usually the seller’s real estate brokerage, or either party’s real estate lawyer) until the conditions of the offer of purchase are fulfilled.
  • home warranty: new homes in Canada include mandatory home warranties, which protect the buyer against defects in the construction, delays in completion or other potential problems; warranty programs vary provincially
  • interest rate: mortgage interest rates can be calculated as fixed (meaning the rate stays the same throughout your mortgage term) or variable (meaning the rate fluctuates throughout your mortgage term); rates are set by lenders.
  • liability: any debt or financial obligation that must be paid
  • list price: the seller’s asking price for a property; usually the starting point for negotiations
  • listing agent: the real estate agent representing the seller
  • market value: the estimated price a property would fetch in the current market
  • mortgage term: the length of time for which your interest rate and mortgage terms are valid; generally range from six months to five years
  • mortgage renewal: when the mortgage term elapses, your mortgage agreement must be renewed at current interest rates
  • statement of adjustments: part of the offer of purchase, indicating the balance of funds due by the buyer after all adjustments
  • title search: research tracing the ownership of a real property in order to ascertain it is free and clear of legal encumbrance
  • title transfer: assigning control or ownership of real property from one person to another
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Canada Real Estate News

Real estate news in Canada including buy and sell information, local market updates, guides, tips for Canadians in the real estate market.