Buying Pre-Owned Home

Purchase Price and Deposit

Deciding upon the purchase price for a pre-owned home will depend on a combination of factors; one of the most important is its location. The home’s location will have an impact on the value of the home both now and in the future. For example, suppose you were to choose between two homes – one that was on the middle of a quiet street and the other on a corner lot of a busy street. The house in the center of the quiet street may have a greater value. However, should you decide that you do not mind the traffic on the corner lot you may be able to reduce the offering price accordingly for the home. Further, a home located in a thriving and vibrant community may have more value than a home in an area where local businesses are failing, the roads are uncared for and the schools are on the decline.

Other factors that may play a role in the purchase price of a pre-owned home include the number of homes available, both in general and within that particular neighbourhood; the recent history and asking price of the other comparable homes in the area; unique selling features such as a pool or a fireplace; the general condition of the property and its surrounding area; the immediacy of your need to purchase and the vendor’s need to sell. In general, most vendors set their asking price higher than they’re actually willing to settle for, so be prepared to bargain. Check the business section of the newspaper for general information on the local housing market or discuss it with a realtor or your banker.

Before a final agreement is reached, you and the vendor will likely go through a series of negotiations over the price and/or other selling conditions. It is not uncommon for the vendor to respond to your preliminary offer with a counter offer, detailing specific changes. You, in turn, are free to either present your own counter offer or to withdraw your original offer entirely. This process continues until either an agreement is reached or one of the parties withdraws from the negotiations.

It is customary for the purchaser to make a deposit with the offer as evidence of good faith. While there is no rule on the amount to be submitted as a deposit, the amount is often viewed as a reflection of the seriousness of the purchaser. However, caution must be made for those considering a large deposit. If the owner accepts your offer and you later choose to cancel it, you stand to both forfeit your deposit and, depending on the circumstances, have legal action brought against you by the vendor.

Agreement of Purchase and Sale

Once you have found the home that best suits your needs and your budget, the next step is to have an Agreement of Purchase and Sale ("APS") drawn up. The APS is a contract used to purchase your new home and contains all of the terms and conditions of the purchase. As this is a legally binding document, it should never be made on impulse or under pressure. The most common form of the APS for residential real estate transactions is the pre-printed Ontario Real Estate Association ("OREA") form. This form has been adopted by every real estate board in the Province of Ontario. Given the generality of the form, it would be advisable to have a lawyer discuss the agreement with you prior to signing so that they may draft additional clauses or make amendments to the form to accommodate local requirements as well as address your needs not expressed within the document. In so doing, your lawyer can ensure that the agreement properly represents and protects your interests.

The agreement should clearly outline all terms and conditions of the sale including, among other details, the following:

the parties to the transaction;
the proposed purchase price;
the property subject to the agreement;
items included or excluded in the purchase price (i.e. appliances, draperies, etc.);
items located within the home that are rented;
the deposit made by the purchaser;
closing date for the sale of the property and vacant possession;
date of occupancy;
any conditions attached to the sale (i.e. satisfactory house inspection, mortgage approval, sale of an existing home, etc.); and
any specific obligations to be fulfilled by the vendor between the closing date and the date of occupancy (i.e. repair and/or painting of areas structurally altered by the vendor upon vacating the premises).

The entering into a purchase or sale of a house is the largest transaction most people will make in their lifetimes. Be certain to review the agreement in detail. Ask questions if you need clarification and make sure that you understand exactly what it is you're signing.

Sale Closing Costs and Additional Fees

Initial costs associated with the actual purchase of a home can add up surprisingly quickly. It is important to consider the following costs so there may not be an unwelcome surprise on closing.

Utility and Property Tax Adjustments
These costs are payable, usually through the lawyer, when the sale is closed. Depending upon the scheduling of the vendor’s property tax and utility bill payments, the vendor may or may not incur these costs. If the vendor prepays these expenses then the purchaser can be expected to refund the difference to the vendor on closing. However, if the vendor does not pay these expenses in advance, the vendor will be required to pay the purchaser any amounts accrued prior to the possession date. The exact amount will be calculated by the lawyers involved with the sale of the home.
Mortgage Prepayment or Discharge Fees
The vendor should be forewarned that if they plan to pay off any mortgage on the property to be sold with its sale proceeds, the vendor’s bank may charge a fee for closing the mortgage account and a penalty fee if it is paid off early.
Inspection Fee
It is recommended the purchaser have an inspection performed by a professional building inspector before the offer to purchase is formalized. The inspection may bring to light areas where repairs or maintenance are required and serves to assure the purchaser that the house is structurally sound. Usually, the inspector will provide the purchaser with a written report. However, the purchaser should ask for one if the inspector did not do so voluntarily.
Interest Adjustment Costs
Interest adjustment dates can be a dramatically reduce your cash flow so please take note of your lender's policy. Most lenders expect the first mortgage payment one month after closing the purchase. However, if your closing date is during the middle of the month, some lenders expect the first payment at the beginning of the next month, two weeks before you would normally expect. In the alternative, the lenders may charge a pro-rated interest to make up the difference. When arranging your mortgage, ask how interest is collected up to the interest adjustment date. By asking the right questions, you can avoid a cash-flow crisis on closing.
Land Transfer Tax
Land transfer tax is calculated on the purchase price for the land and buildings, and is paid by the purchaser. Currently, the rate of land transfer tax is 1/2 of one percent on the first $55,000.00, an additional 1 percent on the amount between $55,000.00 and $250,000.00, and an additional 1 1/2 percent on the balance of the purchase price over and above the $250,000.00 threshold. Where the property contains one or two single family dwellings and the purchase price exceeds $400,000.00, the tax is 2 percent on the excess.

There are several ways in which you may qualify for a refund of the land transfer tax paid. Consult with your lawyer to see whether you can qualify for such refund.
Property Insurance
All homes must have adequate insurance coverage against fire and other risks of loss, theft and liability. Your mortgage lender requires that you provide your lawyer with proof that your insurance is in place by the closing date.
Moving Costs
Whether the move into your new home is a do-it-yourself affair or you hire movers, there will be costs involved. If you plan to move during the peak spring/summer months, you should contact the service provider two to three months in advance if possible.