WHAT DOES MY LAWYER DO?

In a real estate purchase, your lawyer performs many valuable services. The first way your lawyer can help is to discuss the transaction with you in advance, and to estimate for you all of the costs of the purchase. These costs include not only legal fees, but the Land Transfer Tax, a survey, and mortgage administration, as well as registration costs and disbursements. Many of these costs are not obvious, and yet they can add up to a substantial amount. If you are not fully aware of these until the time for closing, you can receive a very unpleasant surprise!

The next time your lawyer can help in your real estate purchase is when you are ready to put in an Offer to Purchase. Most real estate agents act primarily for the vendor. While they mean well and must treat you fairly, their prime duty is to get the highest possible price for the property. Your lawyer has only your interest at heart, and can give you impartial expert advice.

Once you have an accepted Agreement of Purchase and Sale, your lawyer’s services really begin. The primary concern of your lawyer is to make sure that you get what you have bargained for. Your lawyer will ensure that the lovely home you are about to purchase neither is subject to someone else’s debts, nor is about to be sold for arrears of taxes, nor has the neighbour’s garage encroaching on your backyard, nor that the fences are not on the lot lines. It is the lawyer’s job to research the property and to make certain that when you later sell the home, you can do so without problems.

In addition, your lawyer will prepare documents — such as your mortgage and financial statements — and check the other lawyer’s documents — such as the deed — to ensure that all is correct and ready for your closing.

Before closing, your lawyer will meet with you to go over in detail the financial arrangements, and to tell you precisely how much money will be required. Only then will your lawyer have you sign the documents.

On the day of closing, your lawyer will go to the Registry Office with your money, the mortgage funds and the documents. The title search will be updated to ensure that no changes that affect your ownership have occurred since the first search. If all is well, the funds are exchanged for a deed and a key. When the documents are registered, the key is released to you and then your hard work starts, moving boxes and unpacking.

After the deal closes, your lawyer will prepare and send to you a full report, setting out all the financial and legal details and enclosing a copy of the deed and mortgage for your records. You will also receive a certificate of title, where the lawyer takes financial responsibility if certain problems arise in the future.

It sounds like a lot of work and it is. It is also very important work, to ensure that your happy home is undisturbed by legal troubles while you own it, and later when you sell it.


MORTGAGE CONSIDERATIONS

Arranging a mortgage, particularly the first time, can be a difficult job. The first decision is the term (or length of time before the mortgage must again be renegotiated).

The lending institution will offer you a choice, typically as short as six months or as long as five years. The interest rates vary with the term, and the payment amount will depend upon the amortization (how long it will take to pay it off).

Which choices you make will depend upon your own financial abilities and priorities. If your cash flow is very limited, then your prime consideration is to ensure the monthly payments are as low as possible. Accordingly, the best mortgage for you is the one with the lowest interest rate and longest amortization period. This combination results in the smallest monthly cost to service your mortgage.

However, perhaps your priority is to obtain the maximum protection from variations in interest rates. You have some flexibility of payment, and can afford to pay more than the lowest monthly payment. Your concern is that you may not be able to afford the mortgage or keep your house if you are unlucky enough to be forced to renew when interest rates have increased substantially. Then the best mortgage for you is the one that provides an interest rate and monthly payment that you can afford now, and that is locked in for the longest available term before renegotiation.

The top goal for others may be to pay off the mortgage within the shortest possible time. This would be appropriate if retirement and consequent reduction in income is near, or if the priority is to obtain the lowest possible mortgage cost.

Some mortgages allow you to have your cake and eat it too. You can take a mortgage with a short term and a low interest rate, but when you think that rates may soon rise, you can convert the mortgage into a longer term. This will still have a relatively low rate of interest, but because it is longer term, you will be protected against rising interest rates.

The payment period is also significant. Most mortgages permit you to pay monthly, semi-monthly, bi-weekly, or weekly. The more frequently you make payments, the quicker the mortgage will be paid off, and with the least interest cost.

Prepayment provisions are very important. The ability to adjust your payment amount, or to make lump sum payments against the principal, or to double up a payment if you can afford to, are all very powerful tools to reduce your mortgage cost. Such arrangements will permit you to alter your payments to your best advantage if your circumstances change.

Obviously, these factors usually do not exist in isolation from one another. You normally must blend your wish to have a low total mortgage cost with the limitations on how much you can afford to put toward mortgage payments.

Achieving the ideal balance of mortgage provision may seem complicated, but the results are well worth the effort. Your lawyer and lender will assist you in ensuring that the mortgage you choose is the best possible with regard to your risk tolerance, objectives and means.


HIDDEN REAL ESTATE COSTS

Buying your first home is a very exciting process, but it can also be stressful. One of the best ways to ensure that no unpleasant surprises occur is to find out early in the process what you can expect to pay for the various costs involved.

Some of these costs are obvious, others are less so. The Land Transfer Tax is substantial. You can estimate it by multiplying the purchase price by 1 per cent, then subtracting $275. Thus, if you were to buy a house for $100 000, the tax would be $725. This tax must be paid at the time of closing. If you were not aware of this, you would be scrambling at the last minute to find the money, as the deed will not be registered without it!

Another significant cost is that of a location survey. Lending institutions require this before they advance the mortgage funds. The real estate Agreement requires vendors to provide a survey free if they have one. If no survey exists, or if it is obsolete or too old, you must obtain one. They cost between $500 and $1000.

Since virtually everyone will be obtaining a mortgage, the mortgage appraisal and administration cost must be taken into account. These typically range from $150 to $250. Sometimes, mortgage lenders will waive the fees to persuade you to take the mortgage with them, so shop around before deciding on any one lending institution.

It is necessary to obtain an insurance package to protect against risk of fire or other loss. The premiums will depend upon the extent and type of coverage you arrange, but the policy must be in place before the purchase can be completed.

If your dream home is heated by fuel oil, then you will be buying a full tank of oil in addition to the purchase price. Presently, this costs about $350.

The cost of registering the deed and mortgage now totals $100. In addition to this, to obtain execution certificates, tax, zoning and work order certificates, survey compliance certificates, etc., you should count upon about another $200 in disbursements.

It is easy to see that these “hidden” costs can add up to a considerable sum. This is not intended as a deterrent to a homebuyer, but rather to make your planning more predictable and certain. If you know about the various costs ahead of time, you can anticipate them and provide for them.

The wisest course is to speak to your lawyer early in the process, and to have him or her specify the legal fees, disbursement costs, land transfer taxes, etc. This will ensure that you can concentrate on fun, not funds!

WHY YOU NEED A SURVEY

People buying and selling real estate often hear about surveys. It is not always made clear that there are different kinds of surveys for different purposes.

The ones most relevant to consumer real estate purchases are lot surveys, and location surveys.

Lot surveys fix the location of the property in relation to other properties. Usually, they show where the survey posts are, what the dimensions of the property are, and will contain technical information about the property.

Location surveys show the outline of the buildings and structures within the lot lines. They will also generally illustrate the location of fences and the distances between the structure and the lot line. The existence of a current location survey is normally necessary to the completion of a typical home purchase and sale.

The reason location surveys are so important is that they disclose information critical to the security of the title to the property.

The survey will discover if the house is located wholly within the lot lines, or partly on the neighbour’s land. It will determine whether the neighbour’s garage encroaches onto the property lines, or if the lines conflict with the municipal zoning bylaws. The surveyor will check to see if the fences are on the line between the properties or on one neighbour’s side. These issues may substantially affect the value of the property. Obviously, if your house is built on property owned by your neighbour, you have a big problem!

If his garage encroaches on your land, there may be costs involved to address the problem. If the zoning bylaws have been contravened, then applications for minor variance must be made to the municipality. Incorrect placement of fences often leads to disputes and litigation.

These are reasons why it it of advantage to real estate purchasers, for their own safety, to ensure that location surveys are obtained before they pay their money to the vendor.

If problems are disclosed, then there are usually ways to deal with them, but at the vendors’ expense.

In most cases, the purchasers are not given a choice about obtaining a location survey. Their mortgage company insists upon one before the mortgage money is advanced.

The standard form of Agreement of Purchase and Sale provides that if the vendors have a survey in their possession or control, it must be provided free to the purchasers. If there is none, then it is the purchasers’ responsibility to obtain it at their cost.

Remember, the type of survey required by the nortgage company is a location survey. The vendors may promise to provide “a survey,” but if it is a lot survey only, a location survey will still be needed. If this is only realized at the last minute, then difficulties will arise. Make sure the Agreement is specific about what type of survey is available.


CONDITIONAL OFFERS

Despite the very favourable climate for home buyers, few have enough money in the bank to purchase the house outright. For almost all purchasers, a mortgage will be necessary. For this reason, offers presented to the home seller will usually contain a mortgage condition.

How should the seller react when a conditional offer is presented? Not by blaming the agent for bringing an offer that is not straight cash. The seller should expect to encounter conditional offers as part of the normal real estate process, and be prepared to protect him- or herself legally.

The first thing is to be sure that the details of the mortgage required are specified in the offer. If, for example, the offer is made conditional upon obtaining “suitable financing,” the seller may be vulnerable. Unscrupulous purchasers may tie up a property for a week or so, while other houses are checked out. If nothing better turns up, then the condition may be removed and the sale takes place. But if the purchaser finds a more attractive house, or simply changes his mind, then he states that no “suitable” financing was obtained. The purchaser can then walk away, even though he or she was approved for an ordinary mortgage. To avoid this, the seller should ensure that any mortgage condition sets out definite and realistic principal amounts, interest rates, amortization periods, etc. Then the buyer must remove the financing condition if the mortgage requested is approved.

Another concern for the seller is the time required to obtain approval. Normally, this will be in the range of seven to ten days. However, what if a better offer is presented during that period? Sellers hate to lose the opportunity to accept a cash offer because the property is tied up with a conditional offer. One approach would be to write into the agreement a clause that gives the purchaser 48 hours to remove the conditions if a better offer is received. While attractive to the seller, this is unlikely to be agreeable to the purchaser. The buyers have to pay a substantial sum to the mortgage lender for administration and appraisal to commence the approval process. They will be naturally unwilling to spend up to $235 to do this, and then risk throwing it away on 48 hours notice.

Another approach for the seller is to include a clause that if an attractive offer is presented during the financing condition period, then the seller can accept the second offer. This is done in such a way that if the first purchaser is not approved, the second agreement takes effect immediately. The seller knows that the house is sold, if not to the first conditional purchaser, then to the second unconditional one.

Conditional offers are a fact of life in the real estate market. Sellers should know about them and be prepared for them. The best way to prepare yourself is to obtain advice from a trusted realtor or lawyer in advance, so that you can respond to such offers safely and properly.