UNDERSTANDING THE REAL ESTATE PURCHASING PROCEDURES IN CANADA
1. GETTING PRE-APPROVED BEFORE SHOPPING
It’s a good idea to speak with your lender or mortgage broker to discuss your needs and get mortgage pre-approval. Pre-approval means that your lender commits to giving you a mortgage up to a specified amount, at certain terms and conditions, including the interest rate. This commitment will be valid for a specific period, usually up to 90 days. Pre-approval doesn’t lock you into the mortgage. You are still free to pursue other arrangements. That way, you know exactly how much you can spend.
2. MANDATORY DOCUMENTS
There are several mandatory documents that need to be utilized in the purchase procedure. Some need to be completed in advance of the offer being written to ensure that your rights are fully understood before entering into any offers to purchase property or enter into a real estate transaction in Saskatchewan.
I. Agency Disclosure Form – This document explains the three different types of agencies that exist in Saskatchewan with regard to real estate transactions.
a) Buyer’s Agency - In Buyer's Agency, a real estate company (brokerage) represents only the interests of the Buyer. Buyer's Agency can be established by working with a REALTOR® or by a written contract between the buyer and the brokerage called an Exclusive Buyer's Brokerage Contract. The Exclusive Buyer's Brokerage Contract will explain exactly what the buyer instructs the Buyer's Brokerage to do, what services the Buyer's Brokerage will provide to the buyer, who will pay for those services and what obligations the buyer will have.
In Buyer's Agency, it is the buyer who can expect the REALTOR® to:
*obey the buyer's instructions on the Exclusive Buyer's Brokerage Contract and all lawful instructions of the buyer;
* represent the buyer's best interests;
* fully disclose known facts which might influence the buyer's decision;
*maintain the confidentiality of personal and financial information discussed with the buyer even after the Exclusive Buyer's Brokerage Contract expires;
* safeguard the buyer's documents and money; and exercise reasonable care and diligence.
b) Seller’s Agency - In Seller's Agency, a real estate company represents only the interests of the seller. Sellers typically hire a real estate company to sell their property by signing a "listing" agreement (now called the Exclusive Seller's Brokerage Contract). This is the Contract which establishes the formal agency relationship between the seller and the real estate brokerage. The Exclusive Seller's Brokerage Contract will explain exactly what the seller instructs the Seller's Brokerage to do, what services the Seller's Brokerage will provide to the seller, who will pay for those services and what obligations the seller will have.
c) Limited Dual Agency - Dual Agency occurs when the same REALTOR® acts for both the buyer and the seller on the sale of a property. It also occurs when different REALTORS® work for the buyer and seller if those REALTORS® are employed by the same real estate company (brokerage) even if they work at different branch offices of that brokerage.
When dual agency occurs, the brokerage's duties of confidentiality and loyalty to the seller conflict with the same duties to the buyer. Therefore, the Association of Saskatchewan REALTORS® has proposed certain rules and limitations to deal with dual agency situations. The limitations of dual agency are:
* That the REALTOR® will not disclose that the buyer will pay a price or agree to terms other than those contained in the offer, or that the seller will accept a price or terms other than those contained in the Exclusive Seller's Brokerage Contract.
* That the REALTOR® will not disclose the motivation of the buyer to buy or the seller to sell unless authorized by the buyer or seller.
* That the REALTOR® will not represent the interest of either the buyer or the seller to the advantage of one over the other.
* That the REALTOR® will not disclose personal or financial information of either the buyer or the seller unless authorized in writing.
* That the REALTOR® shall disclose to the buyer all material defects about the physical condition of the property known to the REALTOR®.
II. Ancillary Services in the Purchase of Real Estate – Form # 910
This list of services is not all-inclusive, but includes the more common reports or inspections usually requested (buyers may request any additional service that they require).
The service or services that are chosen are the buyer's decision. Your real estate agent can write a condition, or conditions, in the Contract of Purchase and Sale to allow for sufficient time to complete all requested inspections and/or reports. It is understood that in most instances the buyer is responsible to pay, when required, for the inspection and/or report to be completed.
III. Residential Contract of Purchase and Sale – Form #100
This is the actual document that the offer to purchase is drafted on. If accepted it will become the contract for sale document. It is not uncommon for the buyer and seller to go back and forth on price or other issues before both parties agree to a final contract of sale. There are time limits imposed by the buyer and seller on these negotiations to insure fairness to all parties involved.
IV. Counter Offer to a Contract of Purchase and Sale – Form # 200
This document is utilized to make permanent changes in the Residential Contract of Purchase and Sale and acts as an agreed upon amendment to the contract once signed by both the buyer and seller. Basically, any changes to the original offer are recorded and agreed upon in writing here. This document usually is exercised the same day as the offer is negotiated.
V. Limited Dual Agency Acknowledgement Form – Form # 204
It is mandatory that it be disclosed to the buyer and seller in advance if one of the following three scenarios may be entered into. We will go over your options and rights with you in great detail before any decisions with regard to purchase are tendered.
This document is only utilized when –
a) the same salesperson is acting for both the Buyer and Seller;
b) different salespersons operating out of the same branch office of the Brokerage are acting for both the Buyer and Seller;
c) different salespersons operating out of different branch offices of the Brokerage are acting for both the Buyer and Seller.
VI. Notice to Remove Conditions on a Residential Contract of Purchase and Sale –Form # 803
This document is drafted after all of the seller’s due diligence has been exercised and conditions have been met. This means that after you are done investigating and confident in the purchase that we address all the conditions that we placed on the sale one by one and remove them as being satisfied. This is written up on this form and signed by the buyer making the sale final and binding. It usually can take up to two weeks to have all of the due diligence and inspections completed. If after completion and receipt of this document by the seller, the buyer wishes to not complete the transaction, the buyer’s initial deposit may be lost to the seller.
WHAT IS AGENCY?
3. MAKING THE OFFER
Once you’ve found the property that fits your budget, the next step is making an “Offer to Purchase”. A “Residential Contract of Purchase and Sale”, form #100, is the document that is utilized for the offer process. It’s appropriate to engage the services of a lawyer to research the title (property ownership) and prepare all final documentation. You’ll also need legal assistance for a property transfer if your Offer to Purchase is accepted.
Your Offer to Purchase is likely to include:
■ the purchase price offered.
■ the amount of the deposit.
■ Extra items such as window coverings, refrigerator, stove, washer and dryer that you might want to negotiate into the purchase price (also called chattels).
■ the closing day (date you take possession of the home) – usually 30 to 60 days from the date of agreement.
■ a request for a current land survey of the property.
■ the date when the offer becomes null and void.
■ any other conditions that go with the offer, including approval of “mortgage financing” and a “home inspection”.
Expect to negotiate. The process of making an of
4. DEPOSITS
The deposit is the amount of money that a buyer is willing to put down to indicate a serious interest in the property. Your deposit is always held in trust by your lawyer or brokerage firm for your protection. This means that your people have your money held in a trust account, not the seller. This initial deposit (usually ten thousand dollars), which acts as consideration, forms part of the total purchase price. If both parties come to an agreement and the buyer refuses to complete the transaction after all conditions are removed and the sale is finalized, the seller may seek to go after the deposit as compensation once the agreed upon possession date has passed or the buyer notifies the seller or the seller’s lawyer in writing.
If the buyer’s offer to purchase is not accepted or agreed to via further negotiations, the buyer’s initial deposit will be returned to the buyer.
When purchasing revenue property in Canada, non-Canadian citizens who wish to utilize a mortgage for financing are almost always required to put 35% down on the property. This amount is forwarded to the buyer’s lawyer or lending institution shortly before possession is taken on the property. The initial deposit (consideration) in the offer to purchase is also included in the total 35%. We have our own foreign mortgage specialists who you will be in contact with well before any of these steps are entered into during the Pre-Approval stage at the beginning of the process.
5. HOME INSPECTION
It is common practice to make your purchase conditional on the home passing a professional home inspection. For a fee ($300 and up), a registered inspector will make a detailed inspection of the property. When you receive the home inspection report, you and your real estate agent will have to discuss how required repairs, if any, may affect the sale price that was agreed upon.
6. CLOSING COSTS
Your lawyer or notary will ensure that money is transferred to the seller, along with any additional money the seller has prepaid on the home, such as heating expenses or property taxes. Usually, you pay the lawyer at this time. Make sure to include in your initial home purchase budget all costs associated with closing the sale. These costs, which include lawyer and land transfer taxes, may be from 3% to 4% of the home’s selling price.