Hi everyone! Alex Berezovsky here…
Today I want to share with you an article that answers one of the most common questions about Canada.
The question is:
How To Buy Real Estate in Canada?
Canada is probably the most beautiful country in the world and frequently nears the top of the UN quality of life tables (Human Development Index). Aside from that, Canada is a major destination for immigrants. All of these highly skilled and qualified people need accommodation when they land, thus the demand for good quality rental housing is high and likely to remain so well into the future.
Finding a Property
At present the majority of real estate transactions are brokered by realtors. All licensed realtors have access to the Multiple Listing System (MLS). MLS is a huge database of homes for sale across Canada. The advantage of MLS is that every realtor can search the listings of every other, thus saving an immense amount of time and shoe leather.
In addition to realtor listed properties a growing number of owners are choosing to market their homes directly, thus saving on realtor commission. Often the commission savings are partially passed on in the form of a lower asking price. The downside is a greater degree of expertise and work on the part of seller or buyer. Anyway, if you’re looking for real estate in Canada the “For Sale By Owner” (FSBO) listings are worth checking out.
It is important to look at actual sold property prices rather than just asking prices in deciding whether to make an offer. Sold prices represent the amount people are actually willing to pay for particular properties rather than what sellers hope to obtain. Realtors should be able to provide this information, alternatively see the Royal LePage Survey of Canadian House Prices.
For strata properties (see below) be sure to check the strata by-laws for any restrictions on rentals, pets, other rulings. It would not be good to purchase a unit for rental and then to discover and owners-only by-law.
The Strata System
Most apartments and condominiums and many townhouses are run under a strata system. Essentially, this means unit owners form a kind of corporation for purposes of managing and maintaining the complex as a whole. The number of strata members can range from a handful, to hundreds or more in the case of large condominiums.
Members of the strata periodically elect a strata council from their number. Basically, the strata council forms the “government” of the complex, arranging maintenance contracts, making and amending by-laws, applying sanctions to offenders etc. Major issues are determined by the strata as a whole.
Two types of management are in effect for strata properties, self-managed and professionally managed. Professional management is likely to cost more in terms of management fees but basically means the task has been delegated and individual owners can sit back and forget about it. Self-management is cheaper but requires more hands-on activity from individual strata members, eg notices will appear periodically requesting volunteers for this or that. NB in the case of large stratas the costs of professional management will not be significantly higher as they will be spread across a larger number of units. If you’re not into watering lawns or painting communal areas you may prefer to go for a professional management.
Using a Realtor
In Canada realtors must be qualified and licensed by the provincial real estate association. As with any profession the quality of individuals varies, but all should have basic competency and adhere to their association’s code of conduct. For sellers, realtor commission is not cheap, often in the region of 7% on the first $100,000, and 3% on the rest. However, for buyers, realtor services are free (being paid for by the seller.
It is common for both seller and buyer to use a (different) realtor. As stated above buyer’s realtors are free to the buyer (their fees are paid from the selling realtor’s commission). A buyer’s realtor will have access to all MLS listings and will be able to show you properties listed by any number of selling agents. The buyer’s realtor will help you write an offer, and should work for the buyer in any negotiations.
It’s important to choose a realtor with knowledge of the locality where you want to purchase. Personal recommendation is a good indicator. Otherwise select two or three realtors offering services for buyers from the numerous free real estate listings papers. Give them a call and choose the one you feel you can best work with. Buyers don’t usually sign contracts with realtors, so if you aren’t getting the level of attention you feel you should don’t be afraid to change.
Making an Offer
After viewing a property that you decide you’d like to own, the next step is to make a formal offer to the seller. If you’re using a realtor they should be able to help with this. Basically the offer says how much you’re willing to pay for the property and the dates on which you wish to complete the transaction and obtain possession (NB the possession date is usually one day after completion).
The offer usually also consists of a number of conditions, eg being subject to a satisfactory inspection, receiving and approving copies of strata minutes and accounts, obtaining finance, selling your current home etc. You can add whatever conditions you like, but the more conditions you have, and the more demanding they are, the more likely the seller is to reject your offer - particularly if you are hoping for a significant reduction. Of course, the fewer conditions you include, the more likely the seller is to a substantial drop in price.
If you are considering a strata controlled property be sure to make sight and approval of strata minutes, accounts and by-laws a condition of your offer. One thing to check is that the strata ha sufficient contingency funds in its accounts. This is money to be used in the event of major works being needed such as roof repairs.
One way of avoiding a finance condition is to speak to lenders beforehand enquiring how much finance is available. You should be able to obtain an agreement in principle, but a lender will usually wish to carry out a valuation on the property to ensure the security of their capital.
The seller will accept the offer, reject it, or propose a counter offer (eg a price between your offer and the asking price). They may also seek to vary some terms of the offer, eg the completion and possession dates.
Once an offer has been accepted the buyer should endeavor to remove his/her conditions.
You will most likely want to have the property professionally inspected before finalizing your offer. The best way to find an inspector is on personal recommendation, failing that you should ensure their qualification for the task, eg by their membership of a reputable body such as the Canadian Association of Home & Property Inspectors.
The inspection will almost certainly throw up some issues with your intended purchase. Don’t be alarmed; these may just indicate your chosen inspector is doing his job properly. Hopefully the issues are minor ones, but if major problems are brought to light you have several options:
Ascertain costs of making good the problem(s) and revise your offer accordingly. Put the onus on the seller to make good the problem(s), with the requirement they provide evidence and guarantees for the work carried out. Walk away from the deal. Provided your offer was properly written you can freely do so. A bad inspection report can lead to a lost deal, but is way better than later finding you’ve bought a turkey.
Finalizing the Purchase
Once the inspection report has been approved and the other conditions met the offer to buy is finalized. At this point a deposit is payable and the offer becomes binding. If you change your mind you will lose the deposit and can also be sued.
Once your offer is accepted and all conditions have been met you will need to engage a lawyer to handle the conveyancing, ie the transfer of title from seller to buyer. Once again, personal recommendation is a valuable indicator. Failing that, speak to a number of lawyers to obtain quotations. Don’t necessarily go for the cheapest, but consider also how efficiently your enquiry was dealt with.
In addition to transferring title the lawyer will also calculate the amount payable on completion. This may include adjustments for property taxes, utilities and mortgage interest, and any applicable land transfer tax.
You will need to ensure transfer of utilities before completion, and would also be sensible to arrange insurance for your new property.
Johnny Finnis is editor of personalmoneymanagement101.com a simple and unbiased introduction to finance and investment for ordinary people to make the most of their money. Have your say on our blog
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