Newsletter: From the Desk of Wayne Lessard

Courtesy of  Law Society of Upper Canada (Ontario)

Purchasing a Home

The main part of the offer, of course, is the purchase price. When you are figuring out how much you can offer, don't forget to allow yourself something for extras. You will have legal fees and land transfer tax, as well as insurance and adjustments to the purchase price for reality taxes, fuel oil, water rates and other miscellaneous items. It's usually wise to leave yourself several thousand dollars extra.

The form on which you make your offer will usually be the one provided by the local real estate board but there may be several different so called "standard" forms. Read it carefully, because you will be bound by every word. If there is anything you don't like, or that doesn't apply, cross it out. If there are any items in the house you want included in the price, such as appliances, curtains, mirrors or chandeliers, write them in.

When buying a house you will be required to make a deposit. Keep the deposit as low as possible because circumstances may arise in which you will be unable to purchase the house which you agreed to buy. In those circumstances you will then usually forfeit your deposit to the vendor. The normal deposit is approximately five to six percent of the purchase price. However, in a falling market vendors tend to ask for higher deposits. This is done to ensure that the deal will be completed. Regardless of the size of your deposit - large or small - you should ask for interest on your deposit. Be aware that if you fail to complete the transaction without lawful excuse or reason, then the vendor is entitled to resell the house. If the vendor resells the house for less than you had agreed to pay, because the value of the house has fallen or other reasonable circumstances have intervened, then you may get sued for the difference between what you had agreed to pay, and what the vendor received on the resale. Accordingly, you could lose more than just your deposit.

Unless you have cash in the bank, you will probably want to make your offer subject to financing. This condition, as it's called, must be written in on the form, and must be worded carefully.

Also, insert in the agreement a clause that the deposit is to be returned it the purchaser elects not to remove the condition. The condition with respect to obtaining financing should stipulate the interest rate, the principal amount and the monthly payments of the mortgage that you require. If you haven't discussed this ahead of time with your lawyer, you may want to add a clause making the offer subject to your lawyer's approval. The owner may not agree with these clauses and you may be better off clearing up these points in advance.

It may be that you are asking the seller of the house to carry some of the financing by taking a mortgage back. These terms will also form part of your offer.

Finally, you will have to give the vendor a time limit, within which he has to accept your offer or the deal's off. Give only a day or so, in normal circumstances.

Your offer may come back with some of your terms scratched out and others inserted. The vendor may have, for example, increased the total purchase price. This then becomes his counter-offer. If you accept it within his time limit, you have a new deal. If you do not accept the counter-offer, there is no deal but this does not prevent you from making another offer to the vendor. You will both have to initial the changes.

If you are taking out a new mortgage, you will have to get busy immediately after the offer is accepted and line that up. Shop around to bet the best terms and be quick to provide the lender with any documentation and information that is required.

Usually, an institutional lender will require an appraisal of the home to ensure the purchase price is close to the fair market value of the property. Your institutional lender should advise you prior to you committing to take the mortgage whether an appraisal is necessary and what the cost of it will be.

Prior to making your offer, you should ask to see a copy of the survey of the property. If the survey is up-to-date, it will indicate the dimensions of the property, the location of buildings and fences and other man-made objects on the lot and vice-versa and whether the property is subject to any easements or rights of way in favour of neighbours or others such as Bell Canada or suppliers. Try and make the survey part of your offer by attaching it to the offer, having it initialled by yourself and the vendor and having the offer make reference to the survey of the property as being attached to it.

Most lenders will require an up-to-date survey before providing you with a mortgage loan. If you have the survey in advance of applying for the mortgage you may be able to get the lender's approval of the form of survey you present and then you need not be concerned that you will have to obtain a new survey at your expense in order to obtain the mortgage. If you have to get a new survey, depending on the nature and extent of the work, the cost can run from several hundred dollars to several thousand dollars. Fees for surveys are determined on an individual basis relating to the time required for research and the survey. You should be able to get an estimate of the fees before engaging a surveyor.

Once you have made arrangements to obtain mortgage financing, whether from an institutional lender or otherwise, make sure you get a written commitment letter from the lender well in advance of your closing date.

If possible, have your lawyer review the offer before you sign it. If this is not possible, then at the very least contact your lawyer and discuss the offer over the phone. Your Lawyer should be familiar with the standard real estate board forms, and will be able to provide you with advice. If you have not been able to have your lawyer review the offer before it is accepted, then you must forward a copy to your lawyer as soon as it is all signed because there is much for the lawyer to do before moving day and there are time limits in the offer restricting the amount of time your lawyer can do them. If the lawyer does not have sufficient time to complete all the required search, you could be seriously prejudiced.

If you are buying a new home, you will usually be asked to sign the builder's form of agreement of purchase and sale. You are strongly advised to have your lawyer review the builder's form of agreement of purchase and sale prior to signing it as no two builders' forms are alike and the forms differ substantially from the real estate board forms. In addition, the builder's agreements of purchase and sale are lengthy and often strongly weighted in favour of the builder. Whenever you buy a home, and in particular a new home, make sure the offer deals with the Goods and Services Tax ("GST"). If the G.S.T. is not applicable, the offer should contain the vendor's written representation that this is so. If it is applicable, the offer should stipulate who will be paying it.

Have your lawyer check over the agreement before you remove any of the conditions. His advice will be very important, but it will only be useful if he sees you before the conditions are removed.

Removing conditions should normally be done with your lawyer present. It normally involved amending the agreement by deleting the conditions or drawing up a new document which both you and the vendor sign stating that any conditions are now removed. Once all the conditions are withdrawn, you have a binding agreement to purchase.

New homes purchased in Ontario, from a builder or developer, are covered by the Ontario New Home Warranty Plan. With respect to all homes enrolled in the Warranty Program after December 31st, 1990, the warranty covers all defects in materials and construction for a period of one (1) year after the date upon which the home is completed for possession, and certain items such as basement leakage and Ontario Building Code violations with respect to safety and health for a two (2) year period and major structural defects for seven (7) years following completion for possession. Prior to moving day, your lawyer will make sure that your house is covered under the warranty plan and you, in the presence of a representative of the builder, will make an inspection of the house. It is important that the inspection be done carefully and all apparent defects or omissions be listed on the certificate of completion. Quite often the builder's agreement of purchase and sale provides that the cost of enrolling the house under the New Home Warranty Plan will be added to the purchase price. The enrolment fee will be between $200.00 and $300.00, but will vary depending on the purchase price of your home. You should try and determine the amount of the enrolment fee as soon as possible as it may be an added expense that you will have to come up with on closing.