Alan provides legal services and advice to clients on residential and commercial real estate transactions. Please read below for information about Buying a Home, Title Insurance, Selling Your Home, and Government Plans for First Time Homebuyers.
Buying a Home
Before making an offer on a home, you should obtain pre-approval on a loan through a bank, mortgage company, or other lender. Obtaining a mortgage commitment from your financial institution helps give you an idea of how much you can borrow and how much money you need to contribute personally. The rates and terms vary slightly among institutions, so compare terms to get the best mortgage for you.
<< Click on these links to calculate your Land Transfer Tax and estimate legal fees on your transaction.
Once you receive a conditional commitment from the bank, you can contact a seller or builder directly or through an agent. Real estate agents charge a commission to the vendor on the sale of their home, a fee which is ultimately passed on to the purchaser by becoming part of the sale price, but a buyer does not pay an agent’s fees directly. Remember, a conditional mortgage approval is not final, so for your protection your offer must have financing as a condition.
An ‘Agreement of Purchase and Sale’ will be prepared by your lawyer, agent, or builder once you are ready to make an offer on a home. This contract sets out a number of important promises and representations made by the purchaser and vendor to each other. In addition, important information pertaining to the sale, including the selling price, the amount of your deposit, and the closing date (the date you move in) are listed in this contract. It is always recommended that your lawyer review an offer before you sign it and submit it. In some cases, contractors ask you to sign first and put a clause in the agreement giving the purchaser three to five days to have their lawyer review the agreement before the agreement becomes binding.
The deposit you pay is negotiable between you and the vendor, but is commonly between $1000.00 and $3000.00. It is intended to evidence the serious intent of the offer. If you have signed an agreement and then fail to complete the purchase, you could forfeit the deposit to the vendor if the default is caused by you. You may also be liable for damages if the vendor cannot sell the house for the same price you had offered. You can avoid this by including in the contract a specific date that the deposit will be returned without interest or deduction if certain prerequisites are not met by the vendor. You should not make a deposit without having your lawyer review the contract first.
You should request in the contract an up to date survey from the vendor. If the vendor is unable to provide you with one, you may have to pay to have an up to date building location plan of survey prepared for you. This may cost up to $1000.00 or more. Since preparing a new survey is costly, and since the lender may request an up to date survey, and since the vendor often only has an older survey on hand, title insurance is now accepted in most cases as a substitute for the up to date survey.
After you and the vendor have signed the contract, you should take a signed copy of it to your lawyer. Your lawyer will have to conduct searches on such matters as title, zoning, building code compliance, taxes and hydro arrears. Title insurance is a frequently relied upon substitute for searches in these areas and is generally less expensive to obtain. In addition to the cost of these searches, you will also have to pay your lawyer’s fees and also expenses known as disbursements, such as deed and mortgage registration fees. Land Transfer Tax, based on a specific formula and is slightly less than 1% of the purchase price, is usually the largest single disbursement incurred in a purchase.
Your purchase will be conducted by electronic registration if it is a property within the City of Ottawa. Some rural jurisdictions have not yet converted. After closing, your lawyer or the firm real estate clerk will contact you and give you the keys to your new home. Since this will most often be in the late afternoon of the closing date, it is not good practice to plan your move into your new home before the end of the closing day or on the day following.
Should you have any questions about buying a new home, please
contact Alan J. Clausi, Barrister & Solicitor, at McLeod Clermont
in Ottawa at 225-0037, who would be happy to discuss with you
your plans.
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Title Insurance
Title insurance is an insurance policy you buy when you purchase your home to protect you from a loss that might arise after you become the owner, if the causes of this loss are detected after you become the owner, and are related to issues that could be a cloud on your title or prevent you from having good marketable title when you want to sell.
Title insurance is a recent arrival on the scene when you consider
how real estate purchases have been handled historically in Ontario. Generally, the way most transactions were done up until the mid 1990’s was that a lawyer did detailed searches not only of title but also of all of the often peripheral areas that could give rise to a cloud to the title of the property. These included zoning, building standards and compliance, survey compliance, utilities structures, property taxes, property development, agreement compliances, work orders, easements, etc. Each of these separate searches required a cheque
to be sent with a requisition for a report to respective third parties, who in turn would reply, often not for some time. This procedure is
a full certification procedure and is still the most thorough way to know what you are buying.
Title insurance companies, however, offer an insurance protection against you sustaining an economic loss if something goes wrong after you have closed your purchase if the loss arises because of a problem in any of the above areas that traditionally would be searched but are not because a title insurance policy is bought instead. Using title insurance is less expensive than doing a full certification on closing, and in many cases allows you to close because you can’t get a response to a requisition in time for closing.
A lawyer’s search will result in evidence that clear title will pass
to the purchaser upon closing. This is so because the rules presently require that a lawyer certify title only to the title insurance company before the title insurance policy may be issued. Title insurance
provides for compensation to be paid to the purchaser in the event that a defect on title is later discovered, resulting in damages to the purchaser. Usually, the title insurance covers a defect which would
not be possible to discover prior to closing. Also, some types of title insurance also insure you against a possible error by your lawyer resulting in a title defect. The boundaries that establish the kinds of claims title insurance companies acknowledge are covered by a policy and are changing daily. This is primarily because the experience with title insurance is relatively new in Ontario as discussed above.
For most transactions, title insurance can be purchased for around $185.00. In situations where a search will cost more than this amount, or where an up to date survey is not available and preparing a new survey is too costly, title insurance is highly recommended. Title insurance is therefore a simple, inexpensive, quick, and effective method of providing additional protection against a defect and is a useful tool to help you close a transaction that time limits or survey costs might otherwise prevent you from closing. However, when an out-dated survey is relied on and a purchaser is covered by a title insurance policy, purchasers should note that their lawyer cannot provide an opinion on survey-related events affecting title, such as encroachments, which could have been discovered if an up to date survey had been made.
Should you have any questions about title insurance, please contact Alan J. Clausi, Barrister & Solicitor, at McLeod Clermont in Ottawa
at 225-0037.
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Selling Your Home
If you choose to list your home for sale with an agent, a good practice is to choose one who is familiar with the type of home you own and your neighbourhood. The real estate agent will perform an appraisal on the home by looking at selling prices of homes comparable to yours. Instead, you may pay for a formal appraisal of your home for a more accurate listing price. Such appraisals are also useful tools if your object is to create evidence of value for tax purposes.
If you list privately, you may want to advertise in the newspaper or on the Internet. A simple sign in your front yard may also be surprisingly effective if the market is right. If you choose an agent’s help, your agent will also help you establish your asking price. You will have to sign a listing agreement. This legally binding agreement gives the real estate broker for whom the agent works the authority to list your home (or land) for sale on the Multiple Listing Service (MLS) and the right to a commission. The commission payable is a percentage of your sale price and is subject to GST. Homes usually sell faster when listed with the MLS, but with higher commissions paid to agents, as opposed to when restrictions are placed on the listing, such as permitting a private or single agency listing.
Listing agreements are usually valid for 60 or 90 day terms and are renewable if both parties agree. Commissions are payable to the agency for all sales completed during this period. However, if you sell your home after this period, or if you find a buyer privately after the listing has expired, if the buyer was first introduced to your home through the listing agent’s efforts, you are still liable for a commission for a period of time after the listing expired. The length of time varies with the different company’s agreements. It is advisable to get a deposit from the purchaser which is sufficient to pay the broker’s commission, although it is customary for buyers to pay deposits of $1000 to $3000 with an offer or upon acceptance. It is highly recommended you take the time to read the listing agreement before you sign it.
If an offer is made on your home, your agent usually prepares an Agreement of Purchase and Sale. This document becomes a contract if the offer is submitted to the Vendor and accepted. This contract between the buyer and vendor describes the property and lists the promises and representations made between the parties including the selling price, deposit amount, and closing date. Never accept this agreement without having your lawyer review it first.
Your lawyer will represent your interest throughout the sale process, and will keep you informed through the transaction. You will meet with your lawyer a short time before the transaction closes to sign documents and deliver keys to your lawyer. On the closing day you will pick up a cheque from your lawyer and your lawyer will be delivering cheques to pay out your mortgage balance and any other liabilities that have to be paid off.
Should you have any questions about selling your home, please
contact Alan J. Clausi, Barrister & Solicitor, at McLeod Clermont in Ottawa at 225-0037, who would be happy to discuss with you your plans.
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Government Programs for First Time Home Buyers
1. RRSP Program
First time buyers may use this federal plan to withdraw up to $20,000 tax free from their own RRSP and apply it towards the purchase of a home.
In order to apply:
-you must be an RRSP holder;
-you must be a resident of Canada at the time of withdrawal;
-you must be a first time home buyer or someone who has not owned and occupied a home as their principal residence within the last 5 years;
-you must complete a T-1036 Form in order to withdraw the RRSP funds from your institution; and
-you may only withdraw the funds after you have entered into a valid agreement to purchase a home.
Any funds you wish to withdraw under the program must have been in your RRSP for at least 90 days. You can even make a contribution to your RRSP early in the year before the RRSP deadline. In other words, you can make a contribution to your RRSP, receive a tax refund, and 90 days later withdraw that same contribution for use in buying a home under the program.
Once you have applied the RRSP funds to the purchase of your home, you are required to pay back the RRSP over a maximum of 15 years. A minimum of 1/15 of the amount withdrawn must be deposited back into your RRSP in each of the 15 years following your home purchase. You may also repay the withdrawal amount in larger and more regular installments. However, if you fail to repay the minimum amount required in any given year, then that amount will be included in your taxable income for that particular year during which you missed a repayment to your RRSP.
2. Land Transfer Tax Refund for
First Time Home Buyers of New Homes
First time home buyers entering into an agreement to buy newly
constructed homes after March 31, 1999 are eligible for an instant refund of their Land Transfer Tax paid up to $2,000 per home.
In order to apply:
-you must be a first time buyer;
-you must be purchasing a new home;
-you must enter into an Agreement of Purchase and Sale; and
-you must register the conveyance at a Land Registry Office
upon
closing.
If your spouse owned a home before you were married, you will
qualify for half the rebate. If your spouse owned a home at any time while you were married, you will be disqualified from claiming the rebate. You will be disqualified even if you are a common law spouse under the Family Law Act. (That definition applies if you were living together for three years, or if you have a child together.)
When you register the transfer of the property, the Land Registry
Office will provide you on closing with a credit. Otherwise, you may later request a rebate through an application to the Ministry of
Finance.
CAUTION: These plans are enacted by statute or regulation by various governments. They are generally specific to be in effect for a period of time and the respective governments extend and change plans periodically. It is prudent to verify the conditions in effect with your respective fund managers.
Should you have any questions about these and other programs
available to homebuyers, please contact Alan J. Clausi,
Barrister & Solicitor, at McLeod Clermont in Ottawa at 225-0037.
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