Whether you’re selling your property privately, or you have hired a realtor, it’s a great idea to have a lawyer look over any contract that you are asked to sign, before you sign it. There is a lot at stake and it pays to get professional advice and/or a second opinion.
Sale Price and Deposit
Most of the time, a purchaser will negotiate the rough outline of a sale transaction with you, either directly or through realtors, and then the terms of the deal are put in writing. When an offer is presented to you, it typically has an expiry date on it. Unless you accept the terms of the offer as it is presented by that expiry date, the transaction evaporates – at least for the time being – and the buyer can walk away without owing you anything. That date is called the “irrevocable date”.
I usually recommend that a seller insisted upon a deposit equal to roughly 1% of the sale price, although the amount is usually rounded to the nearest $500.00 or $1000.00. If your property is listed with a real estate agent, the deposit is usually paid to the realtor, who holds it in a trust account until the transaction either closes or is abandoned. The deposit is considered partial payment of the purchase price, and its purpose is to provide some means of guaranteeing that the purchaser will go through with the transaction, because if the purchaser fails to perform their part of the agreement, then in most cases the deposit does not get returned to them and you, as seller, are entitled to it.
Rental Items and Changes
In addition to specifying the sale price and the date on which the buyer will take possession and pay their money, real estate sale agreements will describe what is included with the land and buildings, and what you as the seller will be entitled to or must remove before closing. The contract will deal with how rental items such as hot water tanks will be dealt with and will describe what types of assurances or guarantees you must provide to the purchaser. It will discuss what documents you have to supply to the buyer, such as a survey, or perhaps a septic use permit or an occupancy permit. And it will say how many visits to the property the purchasers are entitled to have.
At least half the time, you are going to want to make changes in the terms of what has been offered. Very often, these changes can be made by hand, and the changes are initialed. The changed offer then gets communicated to the purchaser for consideration, usually with its own irrevocable date. Once all of the changes have been settled on, a contract can be said to exist, and you and the purchaser now have a rulebook that will set out how you and they are going to deal with each other going forward.
Closing the Sale
Conditions such as those relating to the purchaser arranging financing and insurance, being satisfied with a home inspection, a condominium status certificate if applicable, and even the purchaser signing a deal to sell their existing residence, have deadlines to be met, and if any condition is not met or removed from the agreement by the deadline, your sale agreement is terminated and the purchaser can walk away without owing you anything. Much of the time, you, as a seller, don’t have to do anything in a formal way until all of those conditions have been removed from consideration.
Your lawyer will ask you for any paperwork you have on the property, including surveys, sworn statements, perhaps a report on your original purchase, a copy of your mortgage and a recent mortgage statement, and so on.
Your lawyer will arrange for utility accounts to be finalized on the closing date so that you will only have to pay bills for service up to the closing date. A word of caution is in order here, however: the seller must contact Enbridge Gas directly because that utility company will not accept any communications from anyone other than the customer themselves.
Your lawyer will contact your mortgage holder or line of credit issuer to order a statement of the amount which must be paid in return for removing the creditor’s security against the property. These statements typically describe the outstanding balance of the loan, an amount which will be owing for interest that will accumulate up to the day of closing, administrative fees, and in many cases, prepayment penalties. On the closing date, your lawyer will forward the necessary funds to the creditor, which then discharges the lien shortly after closing (the process is slightly different when the lienholder is a private individual).
Your lawyer needs to know what the municipal tax is, because the taxes are prorated to the closing date so that you will only be responsible for taxes up to the day before the closing date, and the buyer becomes responsible for taxes starting on the closing date and going forward. If you have paid more than your prorated share (which is usually because the tax installment amounts which are due before closing exceed your prorated share), the purchaser will owe you the difference. The reverse will be true if you have underpaid your prorated share. It is your lawyer’s job to do this calculation.
If there is a tenant in the property who will be remaining in possession after closing, your lawyer will need all of the details of the tenancy and will calculate the prorating of rent and prepaid rent deposits. If the tenant will not be staying in the property after closing, it will be your responsibility to ensure that the tenant is given the proper notice to vacate and to take steps to ensure that they do move out. This is not normally your lawyer’s responsibility.
Your lawyer will prepare a number of documents for you to sign before closing, including a transfer of ownership, various assurances to the purchaser and frequently a sworn statement as to certain issues such as your country of residence (this deals with an issue under the Canadian Federal Income Tax Act). Your lawyer will calculate the amount of money which will be available to you after paying the various bills out of the sale money. These include, for example, any real estate commission that is owing, the lawyer’s bill, the amount required to pay off any mortgage or line of credit or other lien, outstanding property taxes, and so on. The net proceeds of sale will be made available to you shortly after the transaction has been completed. Often, this is done on the day of closing itself, and my office attempts to deposit the funds directly into your bank account of choice, wherever possible.
You will need to provide your lawyer with a key to the property, so that the lawyer will be able to give that key to the purchaser or the purchaser’s lawyer after the transaction has been completed. Note that the purchaser does not get the key until they have paid their money and the house belongs to them.
On the day of closing itself, the lawyers for the seller and the purchaser exchange their money and documents and the key, and the purchaser’s lawyer registers the transfer of ownership. Typically, this happens in the afternoon. Since transfers can only be registered before 5:00 PM on weekdays, closings do not occur on weekends or statutory or civic holidays.
Note that you do not get your sale proceeds until after you have handed over the key and the transfer of ownership is registered. Lawyers often sign a document called a “document registration agreement”, which describes what each lawyer is to give to the other, and who will be registering what documents; and confirms that the purchaser does not get possession of the property until everything is done.
After the closing has been completed, your lawyer will send you a reporting letter including copies of the documents which you signed and a summary of how the transaction occurred; the lawyer’s bill and trust statement will also be included.