Last year was a big year for new home buyers in Revelstoke. With low interest rates, people are eager to get into the market, a trend that will likely continue. I frequently have people come into my office who are a little unsure about the home purchasing process — and fair enough! There’s a lot at stake, and it’s something most people will only do a coule of times in their life. This article should help provide a little insight into the legal mechanics of the purchasing process.
1. Before you make an offer
Ensure that you have had a thorough look at the disclosure statement for the property. Inspect the property thoroughly for obvious defects. If there is something that you could have easily seen on inspection and don’t discover it until you move in (for example, an obvious water problem or eroding retaining walls), the sellers will not be responsible. Also ensure that you have looked at the title to the property to see if there are any covenants that may affect your use of the property. If there are any notations on the title, your realtor will be able to provide you with a copy of any registered agreement or document that is registered. These could be things like right-of-ways to your neighbours or BC Hydro.
If you have specific plans for the property, for example, building a swimming pool or a legal suite, be sure to discuss those plan with your realtor (if you have one). You will also want to look into the city bylaws. If you have concerns, it’s a good idea to see a lawyer prior to entering the contract.
2. Making an offer
For a contract relating to land to be binding, there are a few requirements:
- There needs to be an offer in writing;
- The offer needs to be accepted in writing; and
- The contract must describe the property, the parties to the transaction, and the price.
Courts have been fairly liberal in interpreting what will amount to a contract, so don’t get drunk and sign a contract to sell your house on a bar napkin.
When making your offer you will need to consider your ideal closing dates, what you would like to be included in the purchase (a snowblower? drapery? the oven?) and include that in the contract. Be wary with things like vehicles or larger items, as you may need a separate contract of purchase and sale to deal with those.
The “offer” generally takes the form of a full contract signed by the prospective buyers. The sellers will review and either a. make a counter offer, b. reject the offer, or c. accept the offer. Once you have a contract signed by both parties, the contract has been formed.
3. Paying deposits
Most real estate contracts will provide for two deposits: an initial deposit payable by the buyer upon the seller’s acceptance (or within 24 hours of acceptance), and a second deposit once the “subjects” of the contracts have been removed. Generally, the deposits will be held in a realtor’s trust account until the deal has completed. If you are not using a realtor in your transaction, consider speaking to a lawyer or notary about having funds held in trust.
4. Obtain a home inspection and finalize financing
Find a reputable home inspector to look at the property for you and review the inspection report carefully.
Your mortgage company will likely want to do a separate appraisal of the property, and unfortunately the charge for that will likely fall to you. Once that process has been completed, you will need to sign final documents with your bank or broker.
5. Subject Removal
Until the so-called “subjects” have been removed from a contract, the contract is not necessarily binding. Generally, realtors will word their contracts so that completion is subject to the buyer obtaining financing and a satisfactory home inspection. It is up to the buyer to determine whether or not the home inspection and financing arrangements are satisfactory. Frequently, the home inspection will lead to further negotiations in price or further obligations on the seller.
If the seller thinks that you haven’t made diligent efforts to satisfy the conditions of the contract, they may try to keep your first deposit, but generally if the deal has fallen through but the parties have acted in good faith, you will be entitled to the return of your initial deposit. Once subjects have been removed, however, you will likely not be entitled to the return of your deposit.
6. Getting a lawyer or notary
Once subjects have been removed, the deal is binding. Generally, at this stage, your realtor’s office will send the contract to your appointed lawyer or notary. Your lawyer or notary will review the contract and prepare documents for completion.
If you are going to get a mortgage, you will need to let your lawyer or notary know the name of your mortgage company. Your mortgage broker or will then forward your mortgage terms to your lawyer or notary.
7. Document Preparation
Your lawyer or notary will need some information from you in order to prepare your closing documents and Property Transfer Tax (“PTT”) forms. They will get in touch and want to know who your insurer is, your full name, contact information, and your social insurance number if you will be looking for a PTT exemption (if you are a first time home buyer, for example).
The buyer’s lawyer or notary prepares the bulk of the documents for both sides of the transaction. This includes transfer documents, the mortgage registration, various consents, and the statement of adjustments for the property. They will factor in the taxes for the year, any rent payments or damage deposits, and any outstanding charges on the property.
First of all, ensure that you are going to be available in the week leading up to your transaction. I’ve had transactions nearly fall apart because the purchaser forgot to mention they would be on holiday in some remote location prior to the closing date! If for some reason you need to be away, let your lawyer or notary know well in advance.
When you come in to sign with your notary or lawyer, you will need to bring ID. Mortgage companies frequently require two pieces of government ID, so ensure that you are prepared. Your lawyer or notary will also ask you to bring in a bank draft with the remainder of the funds required to complete the transaction. This will include your down payment, a credit or debit for property taxes and utilities (whether it is a credit or debit will depend on the time of year), the cost of obtaining title insurance if your mortgage company requires it, and your lawyer or notary’s fees. They will hold this money in their trust account until closing.
One your paperwork is signed, and the seller’s paperwork has been signed, your lawyer or notary will prepare the documents for registration. They will request that your mortgage company wire funds directly to their trust account for closing.
On the day of closing, your lawyer or notary will gather all the funds required to complete the transaction. This will include mortgage proceeds, your deposit, and sometimes funds held from the realtor (if the deposit was in excess of the commission payable on the transaction). Once they have all of the funds, they will register the transaction electronically in the Land Title Office. Once the transaction has been submitted for registration the Land Title Office, they will pay out the sale proceeds to the seller’s lawyer.
After closing, the seller’s lawyer pays out and discharges the seller’s existing mortgage and any charges on title. As a new owner, you will need to ensure that you pay your taxes when they come due; one option is to speak to the city about paying taxes in monthly installments. Other than that, you’re set to enjoy your new house!