Buying a Home? Here Are 5 Common Head Scratchers and Our Tailored Advice
Buying a Home? Here’s Some Important Things You Should Know
1. Offers and counteroffers
Be weary of offers, and counteroffers.
The vendor will list a home at an offer price (listed price). If the buyer offers to purchase the property at the listed price with no conditions, the vendor will accept, forming a legally binding agreement. Be weary that your offer to purchase is not a mere inquiry; if accepted you will be forced to act on the agreement and purchase the home.
All offers have an acceptance date. If the offer is not accepted by the acceptance date the offer is void and the deal is dead.
Where the offer is less than the listed price or contains conditions such as inspection or mortgage financing, and the Vendor replies with a counteroffer, the initial buyer’s offer is void. That is, if the buyer refuses the Vendor’s counteroffer, the Buyer cannot rely on its initial offer.
Each offer and counter offer creates a new agreement under law. If an offer is not accepted under its specified terms and conditions, then that offer is void and all previous offers are void. If an offer or counteroffer is accepted however, it forms a legally binding agreement.
Pro tip: Don’t play around with offers! Only offer what you can actually afford or conditions that you can meet.
When an offer to purchase is made, the purchaser usually gives the seller a deposit toward the purchase price. The deposit assures the seller that the purchaser intends to complete the deal if the offer is accepted.
The term “deposit” should not be confused with the term “down payment” as they are not the same thing. A down payment includes the amount paid as a deposit. A down payment is the total of all the money paid by the purchaser less the value of the mortgage. Together, a down payment and the mortgage amount will equal the purchase price.
For new homes, the deposit is usually payable directly to the builder, and held in trust by the builder’s lawyer. Because of the risk that the buyer may lose the deposit, the Ontario government enacted the Ontario New Home Warranties Plan Act which is administered through Tarion.
The Plan insures deposits of up-to $40,000 on new homes. Deposits paid for condominium units are protected by Tarion up-to a maximum of $20,000. If the builder fails to complete construction of your home and files for bankruptcy, you can make a claim against the Plan to recover your deposit.
Pro tip: Don’t pay more than $40,000 in deposit for a new build, or it will not be insured if the builder goes bankrupt!
If you are buying a new house, an inspection is not required. However, it is strongly advisable. Get the inspection! Professional home inspectors will thoroughly check the home for defects and assess what kinds of repairs may be required in upcoming years. To have a right to conduct a home inspection, you must include a specific written provision into the offer to purchase.
If you purchase a property conditional on receiving a satisfactory home inspection and the inspection reveals problems, you will have a legal right to terminate the contract.
The importance of an inspection is based on the common law doctrine of caveat emptor which means ‘buyers beware’ in Latin. The law makes no assurances that what your buying satisfies a certain quality. Your newly purchased home can crumble one day after closing, and you will have no right of action to sue the Vendor. You are purchasing the home ‘as is’.
However, if the Vendor took active steps to conceal a patent defect (which is a defect that cannot be concealed to the eye) then you may have a right of action against the Vendor.
In all cases, it is important to obtain an inspection before closing. If you discover latent or patent defects after closing, the Courts will not award you damages against the Vendor because you failed to exercise your due diligence and inspect the property before closing.
Pro tip: Get the home inspection!
Clients often ask, do I need to obtain a survey? The answer is it depends, but probably not. A survey is a detailed drawing of a property, including the exact dimensions of the land and the location of any buildings, fences, driveways, and adjacent roads. It will also show easements or rights-of-way which utility companies or others may have over the property.
A survey can be very important to a purchaser because it will help make sure that the size of the property stated on the listing is accurate, that the buildings do not encroach onto an adjoining property and that the house meets the municipal set back requirements.
If you are obtaining a mortgage, your financing institution will most likely require that you obtain or possess a survey.
However, if you are obtaining title insurance, lenders will forgo this requirement for a survey and instead rely on the title insurance policy.
Title insurance policies are approximately $500 (depending on value of the property), are a one-time payment and cover you for the entire duration in which you own the house. Surveys on the other hand, cost approximately $2,000 to obtain. Therefore from a cost perspective, you are better served obtaining a title insurance policy instead of ordering a new survey.
In some cases however, even if you purchase title insurance, you may still want a survey. This depends on the type and size of the property. You may still want to ensure that a proposed new fence is being built in the right place, or if you want to build a new structure, that the set back laws are being complied with. If you plan on carrying out substantial renovations involving the movement of buildings on the property or installing a new fence or hedge line, you will want to obtain a survey.
Pro tip: If you have future plans for the property, obtain a survey!
5. Title Insurance
Insuring the ownership of our property is just as important as insuring your property and its contents from physical loss or damage. Title insurance protects the buyer’s ownership interest against losses incurred as a result of undetected or unknown defects that affect the buyer’s registered interest in the title to the property.
Title insurance will also include covered risks for certain “off-title” matters such as real property tax arrears of the seller. Usually, these covered risks must exist as of the policy date, but be unknown to the insured. Most importantly, title insurance will cover mortgage fraud which is now rampant in Canada. Mortgage fraud occurs where a fraud artist steals the identity of a legitimate home owner. They use the stolen identity to obtain mortgage financing from a bank or lender for hundreds of thousands of dollars. A mortgage is essentially, a loan secured by the title of your home as collateral. The fraud artist then defaults on the mortgage payments, and the bank comes to foreclose on your home.
Title insurance is a one-time premium payable at the time of purchase, and it insures the ownership interest in the property for as long as the insured owns the property
Title insurance covers you for the following items:
- Existing liens against the title
- Violations of municipal zoning by-laws
- Setback violations
- Outstanding municipal utility charges, provided such charges form a lien on title
- Existing work orders
- Lack of legal access to the property
- Unmarketability of the land due to adverse matters that would have been revealed by an up-to-date survey/real property report/building location certificate
- Fraud, forgery and false impersonation to the extent they affect the validity of the insured’s interest in title
Take note however that title insurance is not a home warranty product. It does not guarantee that the house and other improvements located on the property are well built. Nor does it guarantee that there are no defects that will need repair (e.g., leaking roof, foundation issues). Title insurance insures your title to the property only, which means your ownership interest and matters that affect quality of title such as open work orders and encumbrances.
Pro tip: Always obtain title insurance for your property
Buying a home can be complex. A good real estate lawyer should walk you through the process and explain important items to you such as obtaining a survey and title insurance for your property. If you are purchasing a property and would like assistance in respect of the above, or have other questions you want answered, feel free to contact us.
Shira Kalfa – Owner. BA, JD
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.
© Kalfa Law, 2018