Buying a Home
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This script covers buying a house. If you’re buying a condominium or townhouse, also check script 407, called “Buying a Condominium”.
Should you have a lawyer?
A house is often the most expensive thing you’ll ever buy, and buying a house is complicated. The potential for disaster is great, and one mistake can cost a lot. As well, there are risks in real estate, and when buying or selling, you must be careful. For example, people can:
- use a false identity to pretend they are the true owner of a property and sign documents fraudulently.
- sell the same property through back-to-back transactions to falsely inflate the asking price of the property.
These are just two examples of many possible types of real estate fraud. To protect yourself, you should use a lawyer instead of trying to buy or sell a home yourself.
Be careful—there are many other costs besides the purchase price
There are many extra costs when you buy a house. One is the property purchase tax (or PPT), though you may not have to pay this tax if this is your first home. For more information, call the Property Transfer Tax office of the BC government in Victoria, at 250.387.0604. Outside Victoria, call Enquiry BC at 604.660.2421 in Vancouver and 1.800.663.7867 elsewhere in BC and ask for the Property Transfer Tax office. Or check the website, at www.fin.gov.bc.ca/rev.htm. Click on “Individuals”, then on “Property Taxes” and finally on “Property Transfer Tax”.
Also, both Goods and Services Tax (GST) and Provincial Sales Tax (PST) apply to most legal fees and to other costs involved in the process of selling or buying a home. Further, both taxes apply to the sale of residential property. For GST, a tax of 5% applies to the purchase price of all newly-constructed or substantially renovated homes. For PST, a tax of 1% on the first $200,000 of the property’s fair market value and 2% on the remaining fair market value.
In British Columbia, you may have to pay several thousand dollars in taxes, legal fees, and for other services above and beyond the purchase price. Before you make an offer to buy a house, decide if you can afford both the purchase price plus all the other costs.
Do you need a realtor? Who pays the realtor?
You may decide to look for a house yourself or you may use a professional to help you. If you decide to use an agent, pick one that you trust and who you’re comfortable with. The seller pays both real estate agents, the one for the seller and the one for the buyer. If there’s no sale, there’s usually no commission paid to the agent. If you don’t use an agent, good places to start looking for houses are local newspapers and the multiple listing website at [ttp://www.mls.ca www.mls.ca].
You have to make a written offer
If you find a house you want to buy, you have to make a written offer to buy it. Oral agreements for land may not be valid. The realtor provides the form, usually from the local real estate board. This form is called a contract of purchase and sale. Read it carefully, because this contract is legally binding. If there’s anything in it that you don’t like or doesn’t apply, cross it out with a pen, then initial the change and get the seller to initial the change as well.
What should you include in the offer?
- Give the seller a time limit to accept your offer—normally a day or two. If the seller doesn’t accept it by then, your offer expires, allowing you to contract with someone else.
- If there are things in the house you want the seller to include in the price—such as appliances, curtains, mirrors or chandeliers—add a sentence that the purchase price includes these items and make sure each item is listed. Consult script 405 for a description of “fixtures” and how they affect the purchase or sale of a house.
- You might want to make your offer conditional on the house passing an inspection by a professional building inspector. Use a “subject to” clause to do this—a lawyer can help you with the wording. While the seller usually gives you a “Disclosure Statement” listing any potential problems the seller knows about, you might still want your own inspector.
- If you have to sell your own home before you can buy the new one, make your offer conditional on selling your current house by a date that you set.
- If you need a mortgage, make your offer “subject to” (or conditional on) getting satisfactory financing, even if the bank has already “pre-approved” a mortgage amount.
- Include a statement saying the offer is “subject to” your lawyer’s approval, so your lawyer can check the offer before it becomes a binding contract.
How much should you pay as a deposit?
When you make an offer, you’ll have to make a deposit, which you’ll want to keep as low as possible. The normal deposit is 5% to 10% of the purchase price, which should be paid to the realtor in trust, not directly to the seller.
What if the seller makes a counteroffer?
The seller may accept your offer, or may cross out some of your terms and add new ones. Once the seller changes your offer in any way, it becomes a new offer by the seller known as a “counteroffer.” The counteroffer cancels your original offer. You must then decide if you want to accept the counteroffer or make a counteroffer of your own to the buyer. You do not have to accept a counteroffer.
What do you need to get a mortgage?
As soon as you and the seller have signed an offer or counter-offer, you should begin the process of obtaining mortgage, if you require one. Shop around to get the best terms, and promptly give the mortgage company any documents and information it needs. Usually, a mortgage company will need an appraisal of the house before it promises to give you the mortgage. Often, this appraisal will be done at your own expense. The mortgage company may need a survey certificate showing that the house is within the property boundaries, or “title insurance”, before the date when the property transfers from the seller to you and you become the owner, known as the “completion date”.
Once you’ve arranged your financing, ask the mortgage company to give you a written commitment letter promising to give you the mortgage. The lawyer preparing your mortgage can often perform your legal work for the purchase as well.
What about title searches and insurance?
Your lawyer is able to do a title search. The search will show the registered owner of the property and any charges, such as mortgages, liens, or easements, registered against it. Any existing mortgages and liens will have to be paid off by the seller before you buy the house.
Also, talk to your lawyer about when you should get fire and liability insurance on the house and how much you should get. The mortgage company will require proof of this insurance.
When do you remove the “subject-to” clauses?
When you’re satisfied with the results of the subject-to clauses or conditions—for example, the house inspection is fine and you’ve arranged a satisfactory mortgage—you should give written notice to the seller that you’re removing the conditions. Once you do this, the offer or counter-offer becomes a legally binding contract. If you can’t meet the conditions and don’t remove them, the contract ends and you don’t have to buy the house.
What is the “statement of adjustments”?
Before the completion date, your lawyer will give you a document called the statement of adjustments. This document shows all money coming in and going out. It covers things that you and the seller share, such as property tax. The most important figure for you is the amount you need by the completion date. This is the money you have to pay, in addition to your mortgage.
How do you finish the purchase?
Normally, your lawyer prepares the transfer documents and sends them to the seller’s lawyer. The seller signs the documents and the seller’s lawyer returns them to your lawyer. Then, when your lawyer has your money and the letter promising the mortgage amount, your lawyer registers the transfer documents and the mortgage with the Land Title Office. When the Land Title Office confirms the registration, and the mortgage company has given your lawyer the mortgage money, your lawyer gives the money to the seller’s lawyer. The realtor usually gives you the keys to the house once the registration is finished.
More information
Read the booklet called “Buying a Home in BC Information Booklet” prepared by the Real Estate Council of British Columbia. For a free copy, call them in Vancouver at 604.683.9664 or toll-free 1.877.683.9664 elsewhere in BC. Or go to their website at www.recbc.ca and click on “Consumer Info” and then “Publications”. For more information on mortgages, check script 408, called “Mortgages and Financing a House Purchase”.
[updated April 2015]
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