Buying and Selling a Home

A buyer must first consider whether s/he can afford to buy a home. Financial institutions suggest that no more than 30% of gross annual income be spent on the purchase of a home. For instance, a person earning a gross income of $1,500.00 per month, should not spend more than $450.00 per month on a mortgage payment and taxes.

EXPENSES OF PURCHASING A HOME:
1. DOWN-PAYMENT: If a mortgage is required to finance part of the purchase price of a home, buyer(s) usually need to put at least 5% of the purchase price down. Generally, banks or credit unions find it unacceptable to lend money to make the down-payment.

2. TAXES: It may be necessary to reimburse the seller of the property for taxes paid for that part of the year when the buyer owns the property. For example, if the buyer takes possession on October 1st and the taxes have been paid in full for the year, s/he will have to repay the seller for the taxes for October, November, and December.

3. PROPERTY INSURANCE: In order to obtain a mortgage, the property and buildings must be insured.

4. APPRAISAL: The bank or credit may require an appraisal of the property, before approving the mortgage. Generally, the buyer has to pay for the cost of the appraisal.

5. MORTGAGE APPROVAL FEE: If applying for a high-risk mortgage, the lender may require payment of a fee to process the application for a mortgage.

6. SURVEYOR’S CERTIFICATE: A survey indicates the exact boundaries of the property and the buildings on it, and is often a requirement of the lending institution.

7. LEGAL FEES: The legal aspects of the purchase will involve fees and disbursements incurred by your lawyer, Land Title costs, GST, and PST.

8. OTHER possible expenses may include: life insurance on the mortgage; repair work; furnace inspection; appliances; moving expenses; and, utility deposits and hook-up charges.

FINANCING
1. MORTGAGE: A mortgage is a loan of money from a lending institution such as a bank, credit union or trust company.

2. ASSUMPTION OF EXISTING MORTGAGE: It is sometimes possible for buyers to assume the seller’s existing mortgage, depending upon the terms and conditions of the seller’s mortgage contract with his lender.

3. SECOND MORTGAGE: A second or third mortgage is available, if there is sufficient equity in the property. Equity is the difference between the value of the property and the amount owing on a mortgage.

TERMINOLOGY

1. AGREEMENT OF SALE: A binding contract whereby the seller retains title to the property until the purchaser pays the full purchase price. Standard terms include:

a. Possession date
b. Conditions applicable to sale including: subject to obtaining financing; subject to approval by a third party (such as a spouse); subject to sale of a current residence; or, subject to a satisfactory building, furnace, or wiring inspection.
c. Deposit whish is normally held in trust by the realtors or lawyers until the Agreement is completed.
d. Chattels or other property which may be included in the sale, such as: appliances, sheds, garage door openers.

2. AMORTIZATION PERIOD: Length of time it will take to repay fully the mortgage money to the lender.

3. CAVEAT: A warning or notice, registered at Land Titles Office, that a third party has an interest in that property.

4. CLOSED MORTGAGE: A mortgage which does not permit early payment or additional payments, except those allowed

in the mortgage. If additional payments are made, it is often in conjunction with payment of a penalty.

5. CMHC MORTGAGE: When a borrower makes a down-payment of less than 25%, the mortgage is considered a high-risk mortgage and the borrower must apply for a CMHC mortgage.

6. CONVENTIONAL MORTGAGE: A loan available when the borrower makes a minimum down-payment of 25%.

7. EQUITY: The difference between the market value of the property and any money still owing against the property.

8. FORECLOSURE: An action to collect money owing under a mortgage or to take title of a mortgaged property. If a borrower defaults on payments, the lender may initiate foreclosure proceedings.

9. LIEN: A claim registered against the title to secure payment for work done in relation to the property.

10. MORTGAGEE: The financial institution, usually a bank or credit union, that lends the mortgage money.

11. MORTGAGE LIFE INSURANCE: To ensure the balance owing on the mortgage will be paid out in the event that the property owner(s) die(s).

12. MORTGAGOR: The borrower of mortgage money, usually the owner or buyer of the property.

13. OPEN MORTGAGE: A mortgage which allows additional payments or early payout of the borrowed funds without penalty.

14. TERMS OF A MORTGAGE: The length of time a mortgage runs before it must be renewed.

SELLING REAL ESTATE
When using the services of a real estate agency, a Listing Agreement is signed. The Listing Agreement is a binding contract between a seller and a real estate agency and give the agency authority to sell the property on certain conditions. The contract provides that the real estate agency receives a commission upon sale of the property. Normally, the commission is a percentage of the purchase price received.

There are two types of standard Listing Agreements: Multiple Listing Agreement (MLS) and an Exclusive Listing Agreement (ELA). An MLS listing is the most common type and it authorizes one real estate agency to use the service of other agencies in the area to sell the property. The advantage of an MLS is that the property is made known to more prospective purchasers. An ELA authorizes only one real estate agency to control who sees the property. The advantage of an ELA is that the commission rate is normally lower than under an MLS Agreement. The disadvantage is that fewer prospective buyers may be reached.

PRIVATE SALES
It is possible to sell property without using the services of a real estate agency, although such agencies may be best able to market the property. If a private sale, the seller must solicit, screen and negotiate with prospective buyers. Furthermore, the seller is responsible for preparing and drafting documents relating to the sale. The seller should seek legal advice prior to signing any document to ensure the document reflects the desires and interests of the seller and is legally sound.

CAN I CHANGE MY MIND?
The terms and conditions included in an Agreement for Sale will bind both parties and can be difficult to change once both purchaser and vendor have signed the Agreement. In the event that one party refuses to comply with the terms of the Agreement for Sale, legal remedies may be available to the injured party.

If your have any other questions or concerns, please contact one of our knowledgeable and experienced solicitors. We will gladly help you with every detail of your real estate transaction.