Chapter 5 – Purchasing “The One”

You did it…You found the one! Now it’s time to submit an offer. In this section, we will discuss the different ways you can purchase a home, the process of submitting an offer, the importance of conducting home inspections, and what to expect during the closing process. 

 

Ways to Purchase a Home

• Pre-Construction

Involves the direct purchase of property from the developer before the property has been built. Floorplans, renderings, and finishes (e.g. type of floors, ceiling heights, etc.) are provided to prospective buyers, so they can make informed decisions about which property suits them best. Generally, pre-construction sales occur 3-5 years before the property will be ready to move into. 

 

To purchase pre-construction, a buyer makes regular contributions towards the purchase price of the property while it is being built. By the time the property is completed, the buyer usually has paid around 20% of the purchase price. The buyer must then close the property by paying the remaining balance to the developer, often through qualifying for a mortgage. 

 

Note that during the pre-construction phase, the buyer does not legally own the property – ownership of the property changes hands when the property closes, and all sums have been paid in full to the developer.

• Assignments

An assignment is purchasing a contract for a pre-construction property indirectly (not from the developer). Sometimes people who have purchased a pre-construction property, such as a condo, decide to sell the property before the property is completed. This is called an assignment. 

 

An assignment essentially involves the purchase of a contract – the Agreement of Purchase and Sale. This contract is sold in exchange for an agreed amount, usually the sums paid by the original purchaser plus any appreciation. In exchange for this payment, the new buyer assumes the Agreement of Purchase and Sale (APS) and therefore the pre-construction property. Upon completion of the property, the new buyer must close the property by paying the remaining balance to the developer, often by qualifying for a mortgage.

 

An assignment is similar to purchasing pre-construction except:

1. You are not purchasing directly from the developer; you are purchasing from a third party.
2. You often are paying more than you would have had you purchased directly from the developer at the beginning of pre-construction sales, due to market appreciation. However, as markets can fluctuate, this may not always be the case.

• New

Involves the purchase of a newly built property that has not been occupied before.

• Resale 

Involves the purchase of a pre-existing property that has been previously owned and occupied.

• For Sale by Owner

A form of resale where the owner of the property (the seller) is representing themselves in the real estate transaction, rather than hiring a real estate agent.

• Power of Sale

A form of resale where a bank is selling a foreclosed property.

 

A licensed real estate agent is a professional who can help simplify the process of purchasing your dream home, regardless of how you choose to purchase your property (pre-construction, resale, etc.)

 

An agent can help you find a home, tell you about the community, make an offer for you and negotiate the best deal. They can also help you find qualified professionals to fill the other positions on your home buying team, such as mortgage brokers, home inspectors, and lawyers. 

 

Visit our website at www.NestandCastle.com to find a local Nest & Castle Agent who can help you find your dream home at the best price.

 

Making an Offer

When you’ve found the right property and decide you want to submit an offer, you and your Nest & Castle Agent will sit down and put together a comprehensive offer to purchase. Our agents will take care of the entire process on your behalf, always acting in your best interest. 

 

While each offer to purchase is unique, to help you become more familiar with the content included in an offer to purchase we’ve listed below some common items that you can expect to see:

 

• Your legal name, the name of the seller, and the address of the property.
• The purchase price (the amount you are offering to pay).
• The amount of your deposit.
• Any extra items you want to be included in the purchase, such as window coverings or appliances.
• The closing date, which is the date you want to take possession of the home (usually 30 to 60 days after the agreement is signed for existing homes and longer for newly constructed homes).
• A request for a current land survey of the property.
• The date and time the offer expires.
• Any other conditions that must be met, such as a satisfactory home inspection or lender approval of your financing.

 

The offer to purchase will only become a legally binding contract once all the conditions have been met. 

 

When submitting an offer, you should expect to negotiate. There is often significant back-and-forth between the seller and buyer until a mutually beneficial agreement is made. Rest assured that Nest & Castle Agents will always act in your best interest and you can expect us to keep you up-to-date and informed throughout the entire process.

 

Home Inspections

We always strongly recommend having a licensed home inspector conduct a thorough home inspection of the property you wish to purchase. This protects you from purchasing a property that has defects that could prove to be very costly to repair, such as leaks and cracks in the foundation. Your Nest & Castle Agent can help connect you with a licensed home inspector to arrange for a professional home inspection. 

 

Closing

Once your offer to purchase has been accepted and all conditions of the offer have been satisfactorily met, you must close the property. The closing process is generally very straightforward and involves you sitting down to sign documents with your lawyer. 

 

Shortly before closing, your lawyer will contact you with specific instructions, including requests for documentation. You will need to bring these documents to your lawyer’s office (or email/fax them). Your lawyer will then prepare the closing documents and schedule an appointment for you to come in to sign the closing documents. Your lawyer will go over the Statement of Adjustments with you, a document that outlines exactly what is payable by you and what is payable by the seller. 

 

While the process is quite straightforward, there are some costs associated with closing the property. We’ve listed some below. You will need to have sufficient funds to cover these costs when closing the property.

 

Default Insurance

If your mortgage is considered a high-ratio mortgage, you will be required to obtain default insurance that protects the lender if a borrower defaults on their mortgage obligations. High-ratio mortgages are generally defined as mortgages where the purchaser’s down payment on the property is less than 20% of the purchase price. 

 

The most common default insurance is provided by the Canada Mortgage and Housing Corporation (CMHC). The premium for the insurance policy ranges between 0.6% and 4.50% of the mortgage amount and can be paid at the time of purchase or added to the principal amount of your mortgage. The borrower is responsible for the insurance premiums.

 

Levies and Taxes

Depending on the location of your property and the unique circumstances of the real estate transaction, you may have to pay HST/GST, land transfer taxes, development levies, and other fees. Your legal counsel will provide you with a statement of adjustments on closing that outlines exactly what your financial obligations are.

 

Legal Fees

To properly close your real estate transaction, it is strongly advised to seek legal counsel. Your lawyer or solicitor will go over the closing documents, provide you with a statement of adjustments, and ensure that your transaction is completed in your best interests and promptly. Legal fees vary widely depending on several factors, but generally budgeting around $1,500 for these services should be sufficient.

Once the closing process is complete, your lawyer will hand you the keys to your new property. 

The Closing Process

• Prepayment of a mortgage outside of the terms and conditions of
  your mortgage agreement will often result in penalties
• Lower interest rates compared to open mortgages
• A good option if you have no intentions to sell your home or
  move