This article contains information about purchasing residential properties which are not new. For further information on other types of properties, please visit the following pages:
The Basics of Buying a Home
We understand that purchasing a home is a big deal. Homes cost a lot of money and there are an awful lot of moving parts to the picture. You’ve probably invested a lot of time and energy in choosing the property that you want. Take a few minutes to read through this and hopefully, you will get a better understanding of how it all works.
After you have found a house, whether it’s a detached house, a townhouse or a condominium, and whether it’s new or used, urban or rural, you need to sign the purchase contract (the “Agreement of Purchase and Sale”). This agreement becomes the rule book for what you are entitled to get, what you have to do, and what the seller has to do. In Ontario, generally speaking, people are free to make whatever bargains they wish. And the general rule is, buyer beware. Therefore, it’s really important that, unless you have had a good real estate agent assist you in drafting the agreement, you have a lawyer do it.
If someone else is drafting the contract, it’s a great idea to have a lawyer review it when it’s still in the offer stage – in other words, before the seller has accepted it and before any changes which are agreed upon are all initialed. Real estate lawyers are experienced at making sure you understand the nuances of these agreements so that you will know what you have agreed to do and to accept.
Usually, the agreement will contain conditions that must be satisfied before things proceed.
For example, there may be conditions concerning arranging acceptable financing, satisfaction with the results of a home inspection by a professional home inspector, arranging satisfactory insurance, and resolving other issues that are so important to you that you would not wish to buy the property otherwise. In most cases, these conditions must be waived or met in order for the agreement to remain in effect.
Most often, the lawyer will not begin their work until after the agreement is signed and after any conditions have been met or waived. In this way, the lawyer isn’t spending a lot of time and money (which you have to pay for) before it is certain that the transaction is going to move past the conditional stage.
Once the agreement is unconditional, the lawyer begins the work of examining the legal title, verifying the amount of the municipal taxes and whether or not they are paid up to date, and reviewing other issues.
Note that your lawyer does not conduct a physical inspection of the property and does not order physical tests, such as soil tests, water potability, or the condition of a septic system. Only the legal records are examined.
Your lawyer will also arrange for utility accounts to be finalized on the closing date, and for the bills to be sent to the seller, so you won’t be stuck paying for them. Hot water rentals are also switched to your name, as long as the lawyer has enough information to do that. Some third party rentals (such as with Reliance) involve assignment forms and require the consent of the rental company, which are not always sent to the lawyer. Enbridge, for example, will not communicate with lawyers at all.
At this point, it’s a good idea to explain why your lawyer will perform some inquiries and not others.
If the lawyer has a current, up-to-date survey of the property, the lawyer can use that survey to get a lot of information from the municipal zoning and building officials. These officials will be asked to comment on whether or not the structures on the property are located far enough away from the lot lines so as to conform to the zoning requirements, and whether a building permit and an occupancy permit were issued for those structures if they need one. Violations of the zoning bylaws and the building code are serious matters and, in general, need to be cleared up before you can buy the house.
What if there isn’t a survey? Ontario law does not say that a seller must provide one. Most Agreements of Purchase and Sale do not require a seller to provide any survey other than what they happen to have already.
The short answer is that, in most cases, your lawyer arranges for a policy of title insurance, which will protect the mortgage lender, and you, to some extent, against the risk that there may be a problem with zoning or the building code which can’t be discovered without a survey. You can read more about title insurance here.
Your lawyer will send the seller’s lawyer a letter describing the results of the lawyer’s inquiries and explaining what your lawyer needs to see done, such as discharging mortgages, removing liens, paying tax arrears, and so on. There is a deadline for this. It’s called the “Requisitions Date”. It’s usually contained in a section in the agreement entitled “Title Search”. These inquiries take time, and so it’s important that your lawyer has enough time to get them done after the conditions are met, and before the requisitions date.
If your lawyer decides that there is a problem so serious that it can’t be fixed, or which the seller is not willing or able to fix, then the contract is abandoned and you get your deposit back. You will not be responsible for any of the seller’s costs, but you will be responsible for your own.
At the same time that your lawyer is doing all that due diligence, your mortgage lender is probably preparing to send paperwork to your lawyer describing the terms of your financing and asking the lawyer to prepare a mortgage to secure the loan against the property. This means that the lawyer will be the lawyer for the lender as well as for you. This works only as long as you and the lender agree on everything. If something changes, so that, for example, you no longer qualify for the loan due to a change in your employment, or the amount of money you have available for your down payment, or the lawyer discovers something seriously wrong with the house which the seller can’t or won’t fix, the lender will probably cancel the financing arrangements. Your lawyer must tell the lender everything.
The seller’s lawyer prepares a statement – a type of balance sheet – which calculates how much money has to be paid on the day that the transaction finally closes. This is called a “Statement of Adjustments”. The most common adjustments are an allowance for the deposit which you have already paid, and the prorating of municipal taxes. Sometimes, there are other adjustments, such as the cost of a full tank of fuel oil or propane.
Once your lawyer knows what the adjustments are going to be, and knows how much loan money will be available to be spent on the house, the lawyer can calculate how much money you will need to provide to the lawyer in order to close the deal. This amount will also include the lawyer’s own costs: fees, out-of-pocket expenses, HST, a title insurance premium, and Land Transfer Tax.
You can find a widget that helps you to calculate that tax here.
The lawyer will have a number of documents for you to sign before the transaction can be completed. These include an authorization for the lawyer to electronically sign and register the transfer of ownership, a direction to the seller about how you want your name shown on the title documents, any documents required by the mortgage lender, as well as other documents.
In order to prevent fraud, I always prefer that my clients come to my office in person to sign the documents and produce identification. If you can’t come to my office, then I will generally need you to go to another law office for the purpose of signing and production of identity documents; that law office will then send the signed paperwork to me.
The Closing Date
On the closing date, the mortgage lender will send the mortgage money directly to your lawyer. Your lawyer will arrange to give the seller’s lawyer the title direction and the amount of money specified on the Statement of Adjustments. The seller’s lawyer will have already sent the title transfer document (which is technically called a “Transfer”; it’s no longer called a Deed); other documents and the keys are usually delivered directly to your lawyer’s office. Once your lawyer registers the Transfer and the mortgage, you can get the key and start moving in.
The timing of when you get possession isn’t spelled out in the agreement, other than for a vague statement which says that the agreement will be completed by no later than 6:00 PM. The law does not provide much help either. My own view is that, in general, the seller does not have to have everything out of the house until then, even if the Transfer is registered at 10 o’clock in the morning, but I always encourage buyers to be patient; I also strongly suggest that sellers do everything they can to get everything out of the property as quickly as possible, but at the same time, I recommend that buyers not arrange to have anything delivered to the house until after 6:00 PM.
It’s a good idea to make sure that the agreement contains a right to a final inspection. You don’t automatically have this right. Make sure you go over the entire property and all parts of the house, testing appliances, lights, and so on to make sure that they still work. Since the general rule is buyer beware, it’s important that you identify any new problems so that your lawyer can try to get the seller to fix them at no cost to you.
As you can see, this is a simplified overview of the process. There are subtle but important differences between buying an existing home, a home in an urban area, a rural property, a brand new home from a builder, or a condominium. There are even some types of properties which are hybrids of freehold ownership and condominiums.