Re-Printed from The Canadian Real Estate Association (CREA)

Buying/Selling Homes: About buy / sell homes

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 Maybe you're buying a home for the first time. Or maybe you're selling your old home to move up to something new. Whatever the reason, the buying and selling of a home is a big event. It's an intricate process involving many specialists. One of these specialists is a REALTOR, whose job it is to make the transfer of property as easy as possible.

But not all licensed or registered brokers or salespeople are REALTORS. The term REALTOR is a trademark identifying real estate licensees in Canada who are members of The Canadian Real Estate Association (CREA). REALTORS adhere to a strict Code of Ethics and Standards of Business Practice. The code of ethics is a firm set of rules, describing what kind of performance you have a right to expect from a REALTOR. It's your guarantee of professional conduct and the best in service.

Your Very First Decision

That's why many buyers and sellers turn to a REALTOR. As a member of their local real estate board, REALTORS have their finger on the pulse of the housing market and are in daily contact with buyers potentially interested in your home.

You can trust a REALTOR to protect your interests and to look after details. And all the while, you're an active partner in the process, working with a REALTOR, every step of the way. So the more you know about buying and selling homes, the better your working relationship with a REALTOR.

As you read this material, you'll see there's no great mystery to buying or selling a home: just a lot of hard work. We'll take some of the worry out of the process; and, at the same time, build your understanding of how a REALTOR performs a key service.

When you list your property through a REALTOR on your local board's MLS® system, its details automatically go into that board's MLS® catalogue or listing sheet. Most boards maintain MLS® computer databases, accessible via PCs. REALTORS can use these systems to conduct computer searches of properties for prospective buyers.

The Multiple Listing Service® has been called the strongest real estate marketing device in the world. For example, in 1995, 262,553 homes worth nearly $40 billion were sold through MLS® systems.

For Whom Does a REALTOR Work?

A REALTOR must disclose to you in writing, who exactly he or she represents in any real estate deal involving you. A REALTOR may represent you as a buyer or a seller; he or she may also represent both buyer and seller in the same transaction. But because all REALTORS are guided by a stringent Code of Ethics and Standards of Business Practice, a REALTOR will always treat you fairly.

 Client or Customer?

The difference between receiving information and services from an agent and being represented by an agent is the difference between being a customer and a client. If the REALTOR represents you, you are a client. An agent owes his or her client the duties of utmost care, integrity, confidentiality and loyalty. If you are simply provided valuable information and assistance, you are a customer.

All REALTORS are obliged to treat both clients and customers honestly and fairly. The REALTOR must:

o        respond honestly and accurately to your questions about the property;

o        disclose information about the property which he or she knows or reasonably ought to know;

o        promptly present all offers to the seller; and,

o        market the property without regard to race, creed, sex, handicap, religion or national origin.

In some provinces, including Quebec, notaries perform the same role in the real estate transaction as lawyers do in other provinces. If you have any questions, check with a REALTOR.

 Completing a
Listing Agreement

What is a Listing Agreement?

o        It is a contract between you and the brokerage company that the agent represents.

o        It is a framework for subsequent forms and negotiations.

It's important the agreement accurately reflects your property and clearly spells out the rights and obligations of all parties and what is included and what is not included in the deal.

What happens?

o        Both you and the listing agent sign the listing agreement and each receive a copy.

o        The agreement binds both parties to its terms and conditions.

Whether or not you wish your lawyer to review the agreement, you should in any case let him or her know that you're selling your home.

The Fine Print

Generally, in the agreement:

o        you appoint the brokerage company as your agent and give its representatives the authority to find a purchaser;

o        the duration of the agreement is indicated; and,

o        the compensation is set out (Generally, you pay this only upon closing or when the house changes hands).

The agreement also:

o        sets out the listing price; and,

o        describes the property you are selling - lot size, building size, building style and materials, floor areas, heating/cooling systems, room sizes and descriptions.

Here you decide what you are taking with you and what you are leaving with the house. Generally, unless stated otherwise, fixtures remain with the property, while chattels -- things which are movable -- aren't included in the sale. If necessary, what stays and what goes are listed under "inclusions" or "exclusions."

And finally, the agreement gives the financial details:

- mortgage balance;
- monthly payments;
- due dates for all mortgages;
- annual property taxes; and,
- any easements, rights of way, liens or charges against the property.

Types of Listings

Open Listing: The authority to sell the property is given to one or more REALTORS. You also have the right to sell the house yourself, without having to pay a fee for service, and without dealing with the appointed REALTOR(S).

Exclusive Listing: You appoint one firm to act as your agent in the sale of your house. This firm usually has the sole, irrevocable and exclusive right to sell your house for a given period of time.

MLS® Listing: This is a type of exclusive listing, allowing the REALTOR to work with other REALTORS through your local board's MLS® system and give your property maximum exposure. This type of cooperative effort may result in the listing agent sharing the commission with the selling agent.

What is the MLS® System?

The MLS® system is a cooperative listing service operated by your local real estate board. Your property --and other properties-- are listed on it.

How can the MLS® System Help Sell My Home?

Complete details of your home are sent to all the REALTORS in your area, usually within 48 hours, via modern technology;

Your property gains more exposure, because it reaches the majority of the real estate professionals in your community; and,

Through mls.ca, the national MLS® Internet website, participating local real estate boards can advertise their listings to potential buyers across the country and around the world.

  Setting the Asking Price

Although you may have an idea of how much your house is worth, it's important to have your home valued by a professional on its own merits. Be careful not to price yourself too high or too low. If it's too high, there's no sale; too low and you lose on your investment.

Marketing Your Home

Open Houses

There are two types:

- An agent's open house, where sales representatives from the listing company will be invited to view your house. If you have signed an MLS® agreement, other REALTORS may also be invited. Remember, each of these REALTORS may have a prospective buyer.

- A public open house, where members of the public are invited to walk through your home and have a look. It's an efficient way to show your home to many potential buyers at once. The listing agent will act as host, answering any questions.

You and your listing agent will pick the time and date for an open house. In order to give the agent access to your home, you may wish to keep a key at his or her office, or in a lockbox. It's a good idea to:

- leave before the open house begins and to return after it ends; and,

- put away any valuables in secure locations.

But you may wish to stay behind. If you do stay, be sure to:

- keep out of the way;

- don't make excuses -- this only draws attention to the house's faults;

- turn off any TVs or radios to let the agent and the buyer talk in peace;

- if you have a dog, put it outside or otherwise restrain it... pets intimidate some people; and,

- politely direct to the listing agent anyone wishing to discuss with you terms or price.

Needless to say, clean counts with open houses. A general rule is that clean, uncluttered and well-lit spaces look larger and more attractive. People will naturally want to buy a house that is clean and well cared for.

Other Tools

Your agent also has other tools at his or her disposal:

The "For Sale" sign on your front lawn. This is how most buyers find homes. Your lawn sign is a "silent salesperson," constantly telling everyone that your home is for sale.

Advertising your home in the real estate section of your local newspaper or in your local real estate board publication. Even though your home may not be shown in every issue, you can count on your agent to always suggest your property to buyers who are looking for a home like yours.

Renewing the Listing

Sometimes a home doesn't sell right away. Avoid the urge to pull your home off the market... be persistent! Generally, there are three reasons why a home may not sell as fast as others:

- location
- condition
- price.

Naturally, you can't change your home's location, but you can fix the condition of your home and you can, of course, adjust your price. Throughout the listing process, you need to be constantly comparing your asking price against those of similar properties in your area. It may be time to adjust the price of your home.

Review your selling strategy regularly with your listing agent:

Is your house being shown regularly?

Are you receiving the feedback from prospective buyers?

Are you in touch with the marketplace?

Is your property competing well? If not, what else can you do?

The Offer

The offer outlines:

- how much the buyer is willing to pay;
- when the buyer would like to take possession;
- any conditions attached to the offer; and,
- when the offer expires.

As an act of good faith, the buyer will make a deposit with the offer. A good deposit will often show the buyer's sincerity.

Along with this, the buyer may:

o        attempt to "low ball" you, and submit an offer much lower than your asking price; or,

o        attach conditions to the offer.

You don't have to accept the offer. You may wish to make a counter offer that comes part-way to meeting the offer's conditions. The counter offer is one more step along the way to negotiating the final terms and conditions of the sale.

The offer, once signed by everyone, is a binding contract. Make sure you understand and agree to all of the terms in the document. You may want to have it reviewed by your lawyer before signing.

Before Closing

If necessary, and if the buyer makes it a condition of sale, you may be asked to:

16. provide a current survey, or a "real property report," showing the location of the house is on the property owned by you and that there are no encroachments;

17. prove that you have title to the property (the buyer's lawyer will check this out when he or she conducts a title search to see if there are any liens on the property, easements, rights of way or height restrictions); and,

18. provide a health inspection certificate, if there is a septic system, stating the system meets local standards.

The buyer may also make the purchase conditional on an inspection by a qualified engineer. You may be asked by the buyer to cover this cost.

Closing the Sale

On or before closing day, this is what happens:

o        the lawyers representing you and the buyer will set up a trust account for the money coming from the sale and will pay off any mortgages you owe on the property. After these are paid, you will receive any money you have coming from the sale;

o        you must deliver the property deed or transfer documents, mortgage details and keys to your lawyer. Your lawyer will register the mortgage discharge and transfer the deed at closing; and,

o        your lawyer will ensure that you receive compensation for prepaid expenses such as, property taxes, electrical or gas bills, or if applicable, any heating oil left in your tank.

Some lenders will make it possible for your mortgage to be portable, so you can take your mortgage with you when you move to your new home.

Finally, two things to remember:

o        the capital gain from selling your home is tax exempt. This means the profits from selling your home are not taxable; and,

o        protect your investment and the deal by keeping your insurance policies in force up until the date of closing.

Here, your responsibilities under the listing agreement end. You'll have paid your listing agent the agreed-upon compensation. This can be done by your lawyer who can arrange the payment from the proceeds of the sale.

What Do You Want?

Begin by listing your needs:

- living requirements (i.e. how many bedrooms);
- family size;
- what you're bringing with you from your old house;
- how close to schools, shopping and other services;
- the size of down payment you can afford; and,
- price range.

It's important to be realistic when you're thinking about a down payment and setting a price range. You don't want to be saddled with something you can't afford. At this stage, it's a good idea to talk things over with a real estate sales professional.

What's Out There?

The marketplace offers both resale homes and new homes. However, since this document deals with resale homes, we will concentrate on them. (If you're interested in a new home, talk with your salesperson.)

Resale homes may be protected by a warranty offered by the vendor.

Resale homes are more likely to be in established neighbourhoods, close to amenities and have mature trees and gardens.

Remember, however, a resale home has been lived in. It has been exposed to the elements for a number of years. The house may have experienced some degree of shrinkage and settling.

Quick Service with the MLS® System

Most boards have their MLS® systems on computer. By sitting down at a keyboard, the REALTOR can key in your needs, choice of neighbourhoods and price range and immediately come up with a list of suitable properties. Some computer systems are more extensive than others. Some even show a photograph of the house, complete with interior views. Also common are MLS® catalogues, which provide additional information about each property, along with its photograph. Both computer systems and catalogues are updated regularly.

As we said earlier, you can also view MLS® listing advertisements via the national Internet website, mls.ca (You can reach it at aboutmls.html). It features area maps, colour photographs of available properties and has e-mail links to the listing REALTORS, along with their profiles.

Touring a House

When you visit a house, consider these points:

- What type of wiring does the house have? Does the electrical panel use fuses or circuit breakers?

- What type of heating system does it use?

- What about the roof and foundations?

- What about the plumbing?

- What about power outlets? Different appliances, and power tools use different types.

There are other things to look at, as well. If you don't have time or don't feel comfortable doing it, home inspection services are available for a reasonable fee.

Making an Offer

In the offer, you are:

- saying how much you're willing to pay;
- suggesting a closing date;
- proposing a set of conditions; and,
- stating when the offer expires.

At this time you'll present a deposit, along with your offer. An appropriate deposit will show your good faith to the seller. The seller's agent is bound by law to bring all offers to the seller's attention.

After your offer is accepted and all the conditions are met, the offer becomes binding on both sides. If you walk away from the deal at that point, you may lose your deposit. You may also be sued for damages. Therefore, make sure you understand and agree with all of the terms of the offer before signing.

Conditions

Most offers carry some kind of conditions which have to be met before the sale is complete. Some common types of conditions are:

o        you getting a suitable mortgage (include the amount, interest rates and any other figures you feel important);

o        you selling your current home (the seller may continue to look for a buyer, but will give you the right of first refusal);

o        the seller providing a current survey, or a "real property report," showing the location of the house on the property owned by the seller and that there are no encroachments;

o        the seller having title to the property (your lawyer will check this out when he or she conducts a title search to see if there are any liens on the property, easements, rights of way or height restrictions);

o        if there is a septic system, the seller should have a health inspection certificate, stating the system meets local standards;

o        if you still have any doubts about the home's safety and construction, you may wish to make the purchase conditional on an inspection by a qualified engineer; and,

o        any inclusions (we've talked about this earlier -- basically, what stays and what goes).

The seller may counter your offer, by changing the conditions, price or both. Look at the counter offer in terms of what you're looking for in a new home: how does it fit in? And you can, of course, always counter the counter offer.

The Mortgage

A quick way to see how much you can afford is to use the gross debt-service formula (GDS). Here, the Principal, Interest and Taxes (PIT) on your mortgage loan should not exceed 30 per cent of your gross income. Increasingly, financial institutions will factor energy costs into the PIT formula, moving the rule of thumb GDS from 30 to 32 per cent.

You can work it out in reverse: multiply the monthly payment on principal, interest and taxes (include any condominium maintenance fees) by 40. So if your monthly payment for these items is $1,000, you'll need a gross annual income of at least $40,000. Discuss your mortgage limit and different types of mortgages with your salesperson before you begin seriously looking for a new home.

There are several different types of mortgages:

• Pre-approved Mortgages: Pre-approval means that you as a buyer, have qualified in advance for a mortgage of X dollars, contingent upon the lender approving the property. Many financial institutions offer pre-approved mortgages, with your interest rate guaranteed not to rise for a certain period.
• Conventional Mortgages: Most banks and trust companies offer standard loans using the property as security and require you to make a monthly blended payment including principal and interest. Conventional mortgages require at least 25 per cent of the purchase price as a down payment.
• High-ratio Mortgages: If your down payment is less than 25 per cent, you may still qualify for a mortgage, but you will need mortgage insurance. Canada Mortgage and Housing Corporation (CMHC), a federal crown corporation, and GE Capital Mortgage Insurance Company, a private company, provide insurance for high-ratio mortgages.
• Vendor Take-Back Mortgages: The seller underwrites part of the purchase, as a loan to be repaid by the buyer. These are often used as second mortgages, to bridge any gaps or to make the property more attractive to the buyer. In some provinces, the seller may also transfer the mortgage to the buyer.
• Open and Closed Mortgages: Open mortgages allow you to make extra payments on the principal, reducing your borrowing costs. Because of this flexibility, interest rates for open mortgages are a little higher. Closed mortgages have no flexibility; you must wait until the term is up to pay your mortgage. However, interest rates for these mortgages are generally lower. In the middle, are the partially open mortgages that have some of the characteristics of both open and closed mortgages.

Just as there is a range of mortgage types, there is also range of repayment schedules. As well as the traditional monthly payment plan, there are now semi monthly, biweekly and even weekly payment schedules. Accelerated repayment options speed up the process even more, paying down the mortgage faster and spending less on interest charges. You may also opt for a shorter amortization period, or mortgage "life". It raises your monthly payments in the short-term, but saves you in the long-term, on the interest you pay.

Note: Through mls.ca, browsers can now automatically calculate their estimated mortgage payments on listings. Simply find your desired property and click "Calculate Now!" to find out what your estimated monthly mortgage payment is on that particular listing.

Those Extra Expenses

You should plan on a few extra expenses. In some provinces, you may have to pay a land transfer tax (a sales tax on property). You may also have to pay:

- a mortgage broker's fee (as much as one per cent on the principal);

- an appraisal fee;

- surveying costs (if the seller couldn't come up with a current survey); and,

- a high-ratio mortgage insurance premium.

You also face a possible interest adjustment. Mortgages are normally calculated from the first of each month: if your closing date is the same as the beginning of your mortgage, there will be no adjustment. However, if your closing date is July and you move in on June 15, those last 15 days are the interest adjustment period. Your lender will expect you to cover the cost of the interest during that time.

You'll also have to reimburse the seller for the unused portion of any prepaid property taxes or utility bills. As well, you must also pay any legal fees, and, if applicable, any REALTOR fees. Be prepared to furnish proof to your lender that you have insured your new house... that will cost, as well.

  Closing

Before the house can formally change hands, there are still a few things to do. Here's what to expect on or before closing day:

• your lawyer and the seller's lawyer will arrange to transfer title of the property from the seller to you;
• the mortgage money will be transferred to your lawyer's trust account, and then to the seller; and,
• your lawyer will bill you all additional expenses -- land transfer taxes and any outstanding legal fees.

At this time, be sure to:

• check with your lawyer that everything is as stated in the offer-to-purchase; and,
• make a pre-possession walk-through with the agent. Is everything in good condition? Is everything you wanted there?

Once you're satisfied and the keys to the front door are in your hands, there's nothing else to say...

Except, welcome home.

In addition to what is written here, there are good sources of information on how to buy/sell a home from the provincial real estate associations and financial institutions.

The comments contained on this site are for information purposes only and do not constitute legal advice. Procedures and laws vary from region to region.