Buying A Home
You’re Planning to Buy a Home
Whether you’re thinking about buying your very first home, or this will be your 20th, it’s a big deal. For most people, their home is their single most valuable asset.
Here are some helpful hints and tips to make the process as enjoyable as it should be.
Taking the Plunge
You’ve taken a few weekends off to drive around and look for a new home for your family – but how do you begin to determine what you can afford?? In your search, a host of other questions confront you –
- How do I find out if there’s anything wrong with a house I pick?
- I have my down payment saved – how much more do I need?
- What should I look for in a home?
- Is HST included in the purchase price?
First Things First
There will be a number of professionals advising you on the investment process for your new family home – all with one single purpose – to work together to help you choose your investment wisely, and protect it for the future.
The first professional you will encounter is your real estate agent. The other two members of your investment team will be your mortgage lender and lawyer.
Understanding the resources that each has to offer will enable you to make the most of their expertise and make an otherwise intimidating process enjoyable.
Taking the first step – Before You Look
Your quest is not the first – many have gone before and many will come after – BUT your search is unique to you – so before you start, identify your priorities on a “needs” list. Do you need to be on a bus route or near schools for your young family? Try to keep this list separate from your “wish” list. Identifying your needs before falling in love with a home will provide your real estate professional with the necessary tools to help you to assess (before you look) how many of your needs will be met by a prospective home.
Now are you ready? Almost – before starting to look, find out what you can afford. Begin your shopping with a pre-approved mortgage under your belt from your mortgage lender – it will speed up your offer process, and establish your price range within which you should be looking. Ask your financial institution or real estate agent about the pre-approval process if you are unsure.
Choosing a Real Estate Professional
Using the services of an expert in any field is worthwhile. Real estate agency practice has undergone recent changes in Nova Scotia. The agent that you, as a buyer, deal with is presumed to be your agent, with your sole interests at heart. Under agency law, your agent still has an obligation to the seller, but in practice, your agent can advocate your interests first. There may be circumstances in which an agent has a dual role, that is, in practice, an obligation to advance the interests of more than one party. This relationship will be fully discussed with you by the real estate professional you decide will work for you.
The real estate agent you choose is a professional providing you with a personal service. You must feel confident in that service and that your best interests are being served. Ask your friends and neighbours for references or attend a home-buyers seminar offered by your local real estate office. Once you have found an agent that you feel comfortable with, allow that agent to work exclusively for you.
Finding Your Home
You think you’ve found the home that best suits your family – now what?
Now you begin the formal process of entering into a legal contract by preparing an offer to the seller on a standard form of Agreement of Purchase and Sale approved by your real estate association. Your real estate agent will advise you as to the standard clauses that are contained in that agreement, and advise you of the particular clauses to be added to the standard form that best suit the inquiries you want to carry out on the property before being legally bound to complete the transaction. For example: –
- If the property is serviced with a well you will want to conduct a water test to ensure it meets all health standards;
- You will likely wish to have a building inspection conducted to have those “objective” professional eyes assess the structural soundness of your prospective new home;
- Your mortgage lender will want an opportunity to ensure the home supports your purchase price – and you will want time to finalize your financial affairs.
- You may want to review a Property Condition Disclosure Statement, completed by the seller. Your agent will explain more fully this document which contains general information which the seller knows about their home from their period of ownership. It is important for a buyer to verify the information set out in this form, as it only relates to the particular knowledge of the seller, and is not warranted to be complete or absolute.
Until you are satisfied that your inquiries are complete, the contract is “conditional”.
Time is of the Essence
Your Agreement of Purchase and Sale will set out many time frames: time to get your financing, time for a building inspection or water tests time to arrange a building permit. All of these times will be set out by a certain number of days starting from the date the seller accepts your offer. Make a point of marking these deadline dates so they don’t go by unnoticed. Usually if a date goes by without notification to the contrary from the purchaser the seller is entitled to believe that the inquiry has been completed satisfactorily.
“Time is of the Essence” Deadlines
Water test by:
Building inspection by:
You and your Real Estate Lawyer
If the legal process has already begun you may ask “where is my lawyer”? Your lawyer is available to both you and your real estate agent at all stages of the process just described. Your agent, your lawyer and your mortgage lender will work together with you to ensure your concerns are addressed in the purchase process. Your lawyer’s role is to ensure that you are aware of your legal rights and obligations set out in the Agreement of Purchase and Sale, and to take you through the process of completing your purchase on the “closing date” – moving in day – without the “moving day blues”.
Your Lawyer’s Role – At the Outset
- If you contacted your lawyer before signing your Agreement of Purchase and Sale, your lawyer will respond to any specific concerns you may have, review generally the costs you will incur in closing the transaction, and provide an overview of the process of purchasing to ensure that any inquiries you wish to make are provided for as “conditions of your agreement”.
- If contacted during or after the agreement process your lawyer will review your Agreement of Purchase and Sale to ensure you are aware of all your rights and responsibilities contained in your contract.
- Once all the inquiries have been made in accordance with your agreement, your lawyer will start with the legal inquiries to be made on your behalf.
Your New Home has “Roots”
One of your lawyer’s functions is to ensure that you obtain clear title to your new home. The Province of Nova Scotia has enacted new legislation and acquired new technology to modernize our 250 year old Registry system. The new Land Registry Act introduced a new electronic property registry that identifies properties by parcel number and will completely change the way transactions involving real estate occur in Nova Scotia.
Before the new system, every time a parcel of land changed hands, a historic 40 year search of title was required to be repeated, because our registry system had no means to track the interests to a specific parcel of land. With the new system, there is a means of tracking all the interests in one parcel, and once in the new system, this historic search need never be done again. Once registered, every parcel of land will have a unique identifying number (Property identification or PID) and will also have a ‘parcel register’ in which all the characteristics of ownership and interests are to be reflected.
The government “assurance” that arises on registration in the new system for the core of ownership interests, is based on a lawyer’s opinion. Under the new system, titles that are based on squatters’ rights can attract the same guarantee as traditional titles, if evidence of occupation is sufficient to support certification by a lawyer. So, ask your lawyer to advise you as to the status of the property you have bought- whether it is registered yet in the new system, and what the characteristics are on your new ‘parcel register’.
Often once you’ve managed to negotiate the agreement for your new home (and maybe not quite for exactly the price you would have liked) you feel as if hundreds of hands are reaching into your pockets at the same time to see how empty they really are. Unanticipated expenses can be an overwhelming set back to an otherwise positive experience. Your real estate lawyer will review all the expenses relating to the closing of your purchase. A very rough rule of thumb is that your closing day expenses will be approximately 3 ½ to 4% of your purchase price. These must be paid on the closing date and are in addition to your down payment.
Examples of most expenses not included in your closing day costs are
- Utility hook-ups (power, phone, cable)
- Mortgage Application & Appraisal Fees
- Fire Insurance
- Home Building Inspections
- Water Tests
What follows is a worksheet for your transaction – and a description of the expenses you will incur for your closing.
Property Cost Estimate
|Deed Transfer Tax (_____ % – Municipality||$|
|Property Taxes ______ x ______ (months)||$|
|Oil (200 gals)||$|
|Registration of Deed and Mortgage||$|
|HST on Legal Fees & Disb.||$|
|HST on Purchase Price||$|
|Mortgage Tax Holdback||$|
|TOTAL CLOSING COSTS||$||(1)|
|Balance of Down Payment (down payment less deposit)||$||(2)|
|TOTAL REQUIRED ON CLOSING (1 + 2)||$||(3)|
|– Mortgage Fees||$|
|– Fire Insurance||$|
|Cable TV, Utilities||$|
The following is a description of the usual closing day costs associated with the purchase of your property. These will vary depending on the municipality, the financing to be placed on the property and whether the property is heated by fuel or electricity.
- Deed Transfer Tax – (called by some the “Welcome” tax) – Each Municipality has its own transfer tax. You should check with your solicitor for the percentage applicable to your purchase area.
- Location Certificate – This cost will vary as well but it is prudent to budget $750 plus HST
- Recording of Documents – $100 for a Deed and $100 for your Mortgage
- Title Search Fee – Approximately $35.00 for electronic title searching of the records at the Registry of Deeds.
- Legal Fees – Consult your real estate lawyer to obtain the costs for your particular transaction, including assisting you in completing your cost estimate worksheet.
- Legal Disbursements/Administration Fee – Including postage, photocopies, courier service long distance calls and fax – approximately – $85.00.
- HST must be charged on Legal Fees and Disbursements at the rate of 15%. Agency type fees (i.e. Registry of Deeds costs) are exempt.
- Fuel Oil Adjustment – based on a standard tank (200 gallons/909 litres) – cost per litre varies
- Interest Adjustment – Interest may be deducted from the mortgage cheque to cover the period from the closing date to your first payment date.
- Tax Adjustment – The Purchasers must pay their proportionate share of taxes from date of closing to next billing date. Taxes are billed in six month intervals in advance and are due in April and September/October of each year. The Purchasers are responsible for any taxes that the Vendor has prepaid for the period of time that the Purchasers will own the property.
- Tax Advance by Mortgage Company – If the next tax billing will arrive before enough funds are collected in your tax account at the mortgage company, monies to be set aside for taxes may be deducted from the mortgage cheque.
In the course of purchasing your new home, you will have many questions – some questions are asked of us so regularly, we thought we’d answer them before you ask.
If the property taxes included in the mortgage, why is there a tax adjustment as a closing cost?
On closing, the property taxes will be adjusted between you as a purchaser and the seller. If you have also arranged to pay your property taxes with your regular mortgage payments, the mortgage company will separate out the tax payment and place it in a special tax account to your credit. The money will accumulate over time so that there will be enough money collected to pay the next tax bill. Remember, taxes are billed twice a year. If your closing date is closer than six months from the next tax bill, there will not be sufficient time to accumulate a sufficient sum in the tax account at the mortgage company for payment of the bill. As a result, mortgage companies may ask for a lump sum of money from you on closing which will ensure they have enough in the tax account to pay the next tax bill. This amount is often referred to as a tax advance or tax holdback.
What is a location certificate and should I consider getting a new one?
A location certificate is one type of survey product prepared by a Nova Scotia Land Surveyor. Sometimes it is incorrectly referred to as a plot plan or survey. It is a diagram showing the location of the house on the land in relation to the boundaries of the land as described in your deed. A lawyer cannot give you any information as to whether the home you purchased is on the land that the owner is selling to you. The reason for this is that your lawyer can only search records at the Registry of Deeds which relate to the history of ownership on the land, or the “roots”. The deeds which relate to the property you are buying make no reference to any buildings on the land. That is the job of the surveyor. The surveyor visits the property to make sure the house you have contracted to purchase is wholly within the boundaries of the seller’s land, to make sure no one else’s home is located on the land you are purchasing and to show location of driveways, fences and other physical features which relate to the extent of ownership of the property.
Purchasers should be cautioned that the surveyor is not guaranteeing the length of the boundaries or exactly where they are located. If the purchaser wants that information, a boundary survey should be conducted. However, the cost of a boundary survey is greater than the cost of a location certificate.
The mortgage company requires the purchaser to obtain a location certificate because the mortgage company is loaning the money based on the value of the land and building. The mortgage company is therefore as anxious as you are to make sure the home you are buying is on the land described in the deed which you will receive from the seller.
If you rely on a location certificate prepared by a surveyor for someone other than yourself, (for example, a previous owner) you will have no recourse against that surveyor if a mistake is discovered at a later date. If the location certificate is not a recent one, it may not reflect changes which may have been made to the property or to a neighbouring property since it was prepared.
Therefore, it is always advisable to obtain a new location certificate, certified to you, as minimum protection. Your lawyer will arrange for the surveyor to attend the property to prepare the location certificate.
An alternative to securing a location certificate would be to consider a title insurance policy. Title insurance will insure over the possibility of someone else claiming a legal interest in your property. It can compensate against pre-existing municipal work orders, frauds, and forgeries which can affect the legal ownership of the property.
Mortgage lenders require an up to date survey of the property as a condition of the mortgage, or in the alternative, if there is no location certificate, they will accept in lieu of a location certificate.
To purchase a title insurance policy, ask your lawyer. The cost of the policy is a one-time premium and the policy protects your investment for as long as you own the policy. The cost of the policy varies based on the purchase price of your property. Ask, too, if there are any lawyer fees involved or if the cost is simply a disbursement.
What is “Migration”, the Land Registration System, and how does it affect the purchase and sale process?
Every transaction which transfers property ‘for value’ will trigger a requirement for the property to be registered into the new Land Registration system. Under the current standard language in agreements of purchase and sale, it is the responsibility of all sellers to “migrate” their property prior to sale. Only a lawyer authorized to work in the new Land Registration system is permitted to ‘migrate’ your property on your behalf. Ask your lawyer to review with you your ‘parcel register’ which will contain the details of the ownership rights, and other interests that affect your new property.
What about HST?
The standard form of Agreement of Purchase and Sale provides that any Harmonized Sales Tax payable on the property is added to the purchase price unless the contract states otherwise. HST is payable on new houses and substantially renovated houses and in some other situations. The standard form of agreement provides that if no HST is payable, the seller will provide you with a declaration to that effect on the closing date. HST is calculated at the rate of 13% of the purchase price before applicable rebates. If your purchase price includes HST and if you are assigning any applicable rebate to the builder, identify that portion of the purchase price that consists of HST in your agreement. If you are buying a home that has obviously been lived in and used, you need not be concerned about HST as an additional amount to be paid, but it may be prudent to declare your intent, that your price offered includes any HST that may be payable in connection with the transaction.
What are restrictive covenants and how will they affect my ownership?
Restrictive covenants, often called building restrictions, are conditions which attach to the property you are buying. Many subdivisions contain restrictive covenants which are a method of land use control. When a large tract of land is about to be subdivided for residential subdivision, the developer usually wants to ensure that the character of a subdivision is defined. The company will usually develop a scheme placing certain common restrictions on the use of the lots to ensure homogeneity of construction and hopefully preserve future value.
For example, a restrictive covenant may provide that:
- you can’t raise hogs, cattle or sheep on your property;
- the buildings constructed on the lots must be a minimum size; or
- the property may only be used as a single family residence and not for the purpose of any business or trade.
The developer often reserves the right to waive, alter or modify the restrictive covenants.
Once restrictive covenants are put in place by a developer they attach to the property or “run with the land”. If a restrictive covenant is breached by an owner, the remaining owners of the subdivision have the right to enforce the restrictive covenant. Although there may be similar municipal by-laws which also protect the owners, the restrictive covenants are private as between subdivision owners and can only be enforced by them.
Under the standard Agreement of Purchase and Sale, you cannot object to the existence of these restrictive covenants unless they materially affect your enjoyment of the property. Your lawyer will provide you with any restrictive covenants from the title sub-search, or if you are buying a new subdivision your agent will likely have a copy of the restrictive covenants that will be created with your purchase. Take time to review them to ensure you are satisfied that they will not unreasonably restrict your use of the property.
What happens on the closing date?
This is not intended to be a reference to the day on which you close all your bank accounts, rather, this is the day on which you pay for the property and take possession of it. Your lawyer will calculate the approximate amount you will need as soon as possible after you sign the agreement. The exact amount is available shortly before closing. The money required on closing day must be paid by a bank draft made payable to your lawyer’s firm “in trust”. The mortgage company will sent your mortgage funds directly to your lawyer, and so on the closing day, your lawyer will have all the funds required to purchase your property on your behalf. The cheque to pay the seller will be made by your lawyer to the seller’s lawyer once you have signed the mortgage to their closing documents. Your lawyer will write the cheques for payment of other closing expenses such as: Deed Transfer Tax, recording of the Deed and Mortgage at the Registry of Deeds and all other closing costs. Your lawyer records your Deed and the Mortgage at the Registry of Deeds after the closing and will report in due course to you and the mortgage company. You will receive your original Deed back from your lawyer once the Registry of Deeds has recorded it, kept a photocopy of it for permanent records and it has been microfilmed.
AND SO WITH KEYS IN HAND….
The movers have arrived, the power is connected and you have your keys in hand.
What if the home that you are buying is a condominium? Ownership of a condominium differs from ownership of a single family home. There are numerous questions that are asked of lawyers and agents alike about the differences between the purchase of a single family home and the purchase of a condominium. It may be helpful to those purchasers considering this type of ownership to understand some of these distinctions.
What am I buying?
Condominiums have been created by an act of the Legislature. The Condominium Act allows a person to own and occupy an air space. The condominium unit you are purchasing is described as the air space between the interior surfaces of the actual unit or townhouse.
The best way to describe the form of ownership is to say that you have exclusive ownership of the space within your unit (“air space”), and you have ownership in common with all of the other owners within the condominium building of the structure as a whole and the land on which the structure sits. As you can see, you are not buying land in the traditional sense.
What are “common elements”?
When you purchase a condominium you also acquire an interest (or a share) in the common elements and have a right to use certain of those common elements. Common elements in a condominium mean all of the property except the individual units, and therefore includes walkways, driveways, grassy areas, land under the unit and the roof, etc. Each owner may make reasonable use of these common elements subject to any restrictions placed on them by the condominium statute itself and the rules pertaining to usage created by the condominium corporation. Some owners may have exclusive use of those common elements that are specific to the use and enjoyment of their unit (i.e. balcony, patio, etc.)
What is a “condominium corporation”?
A condominium corporation is a company incorporated under the Condominium Act. When a purchaser buys a condominium, the purchaser becomes a member of that condominium corporation. The members of the corporation are all of the unit owners. The unit owners control the corporation, and the corporation in turn manages all of the assets of the corporation which basically consist of the land and buildings. A condominium corporation, as with any corporation, is managed by a Board of Directors which the unit owners elect. All of this information is available in the condominium “declaration” and “by-laws”.
What are the differences in the purchase process?
One of the first differences you will note is that the Agreement of Purchase and Sale form is unique to condominiums. There are special clauses in this agreement which will be explained to you by your real estate agent. You will have a fixed amount of time to review the corporate documents of the condominium corporation (“declaration, by-laws, common element rules”) before you are committed to buy the condominium unit. The agreement will include the condominium fee and reference to any exclusive use areas that go along with the unit.
What about insurance?
The type of insurance you will need for your unit differs as well from insurance on a single family dwelling. It will cover insurance for your unit as described in the declaration. The condominium corporation will have a blanket policy on the assets of the corporation. The type of insurance that you will require for your unit is termed a “condominium owners” package. Your insurance agent will be able to explain to you the detailed aspects of this coverage.
What is an “Estoppel Certificate”?
Under the Condominium Agreement of Purchase and Sale form, the seller agrees to supply to you a document termed an “Estoppel Certificate”. This is a document which clarifies for the purchaser the financial and legal status of the corporation. The purpose of this certificate is to give you information which is not readily available by viewing your prospective unit.
Your real estate agent and lawyer will both have further information with regard to the basics of condominium ownership.