The Notary Process of Buying Real Estate
So, you have decided to Buy a home. From a financial point of view, it’s probably the single biggest decision you will make in your lifetime. If you are a first time Buyer, likely the first question you will have is “Where do I start?” and, after, “How does a Notary Public fit in?” This page will guide you through the process of buying Real Estate step by step. Below are links directly to each topic, or feel free to read it from start to finish! If you have any questions about any part of the process, please feel free to contact us
- Having the Conversation
- Deciding to hire a Realtor
- Determining your Budget
- “Subject To” Conditions in Offer
- After the “Subject To” Conditions have been Satisfied
- Our Notaries Role in your Purchase
- Finalizing the Payment of your Purchase Price
The first thing to do is have a conversation with your family and try to determine what basic requirements you want in your new home. For example, what are the minimum number of bedrooms or bathrooms you want, is a garage needed, etc.
Once you have had that conversation, you have a choice to make. You can decide to look for a home alone, without guidance, or you can select a Realtor to help you. With any chore, job or task the advantage of having the assistance of a professional with experience is that it takes less effort (you do not have to reinvent the wheel), the process is more efficient (it takes less time) and the outcome or result is much better (you have a much better chance of getting what you want at the price you want to pay). Always remember that your Realtor is not paid by you, but by the Seller, and only if you are happy, that is when you buy. Most Buyers select a Realtor, a choice Farley Martin Notaries highly recommends.
If you do not know a Realtor, or are unsure how to find one to work with, just ask us. We will be happy to match you with one of our trusted real estate professionals.
Once you have selected a Realtor, and before you start looking at houses, another question needs to be answered: How much can you afford to pay for your new home? The money required to purchase a home is usually much more then most people have saved. Therefore, in most cases the price is paid in two parts – the cash that you have on hand plus the additional money that you borrow. Without knowing how much you can borrow, you can not know how much you can pay for a home, and without knowing that, looking for a new home will be like trying to see in the dark- you can try but it’s a waste of time.
Borrowing for a home is done by way of a mortgage. A mortgage is simply a loan which is secured against property. In order to find out how big a mortgage you can get and therefore what price range you can afford to buy in, you have to be qualified. Qualification is the process by which the mortgage company determines how much it is willing to lend you. There are many different types of mortgages, mortgage rates, payment plans and terms. How do you sort through it all? First, you may already have a relationship with a Bank, Credit Union or Mortgage Broker. If so, simply give them a call and they will lead you through the Qualification process. Your Realtor will generally ask at your first meeting if you have been qualified and by who. If you do not know where to start in finding a Mortgage Broker, Bank or Credit Union simply let us know and we can also put you in contact with one of our Trusted Mortgage Professionals.
Now you are ready to start looking for your new home with your Realtor. Your Realtor will use his or her knowledge of the market and match your needs as closely as possible to those homes currently for sale in your price range. Once a suitable home has been found your Realtor will prepare a written offer for the property, and negotiate the terms of the sale with Seller for you.
Most real estate offers are written with ‘subject to” conditions. These conditions are clauses in your offer which describe events or things that have to happen or have to be completed before you are legally committed to buy your new home. Some of the more common subject to conditions are: subject to financing, subject to a building inspection, subject to the Buyer’s Notary’s approval of the contract, subject to a review of the property’s legal title and subject to confirmation of the property’s ability to be insured.
“Subject To” Financing:
At this point in the process, you have already been qualified by your lender so why would you still make your offer subject to financing? The reason is because of the nature of the mortgage. The mortgage is a loan to you so you have to personally qualify, but it is also secured by the property, therefore, the property also must qualify. The lender does this by way of an appraisal of the property’s market value. This is important to keep in mind because the maximum amount of your mortgage is always a percentage of which ever of the two values is lower – the purchase price or the appraised market value. So, even if you were qualified personally by your lender for a million dollar mortgage if the market value of your home only supported a mortgage value of half a million dollars, that is all your lender could lend you.
“Subject To” Building Inspection:
Subject to a building inspection is straight forward. This provides you, the Buyer, the opportunity to have your new home’s condition inspected and any problems brought to your attention before you purchase it. Based upon the inspector’s report, you can either confidently move forward with the purchase, or negotiate with the Seller to have any problems dealt with before you buy, or if the report is unsatisfactory and no resolution can be found, you can move on to another home.
“Subject To” Review of the Contract by the Buyer’s Notary:
Subject to review of the contract by the Buyer’s Notary is just one of the areas where we can help. The old saying “that two sets of eyes is better then one” pretty must sums up the reason for this subject to. One of the most important jobs a Realtor performs, and one for which they are trained is that of preparing a legally binding Contract Of Purchase and Sale. When asked or required, we at Farley Martin Notaries, in concert with you and your Realtor, will review in detail your contract with an eye to ensuring that there are no issues which need to be addressed. We will ensure that any questions you have about the contract get answered, ensure that you are getting what you bargained for, and that your interests are properly represented and protected before you become legally obligated to buy your new home. Remember our only mandate at Farley Martin Notaries is to represent you and only you!
“Subject To” Review of the Property’s Legal Title:
All privately held land in British Columbia has a title with its own unique description (ie. Parcel Identifier Number, Lot Number… Plan Number). The word “title” itself conjures up an image of some old, dusty document, with various official seals on it, sitting on a shelf in a government office. In British Columbia, this is not quite the case. In the Land Title Office, titles are not in paper form but are electronic. This means that with proper computer access any one can get a copy of any title delivered via the their web browser.
All titles start by identifying the registered owner(s), and then list all those items which are currently legally registered on the property. These items can be divided into two basic categories: financial items such as mortgage, liens, judgements, etc., and non-financial items such as easements, rights-of ways, covenants, building schemes, etc. Financial items for the most part do not present a problem as standard contracts of Purchase and Sale prepared by Realtors have a provision that the Seller is responsible for paying and removing from title all financial items. With non-financial items however, the standard is that the Buyer accepts them being on the title and will buy the property with them in place. A lot of the time, these non financial items are written with confusing legal jargon, which makes them difficult to understand. Furthermore, the majority of them, to one extent or another, limit (sometimes severely) the Buyers’ use and enjoyment of a property. Consequently, it is always important that these items be identified, reviewed and throughly discussed with any Buyer prior to him or her becoming legally committed to purchase a property. This is why the subject to title review clause is so important. This is another area where we at Farley Martin Notaries can assist you – we can review what is found on title and discuss it with you, the buyer, to ensure you are fully informed of what is registered on title, and what it means to your enjoyment and right of use of the property.
Non-Financial Charges that Could Cause a Problem:
Here is an instance of where a non-financial item could cause a problem. A easement is a very common item or charge that shows up regularly on titles. An easement is a right that has been granted to one property owner to enter upon a portion of his neighbour’s property for access to do something, to maintain something or carry on some activity. Such a case might be where an owner’s water line crosses over the rear of his neighbour’s property so that it can be connected to the municipal water supply. In order to insure that not only the current owner but future owners would automatically have the same right an easement was registered on the title to the neighbour’s property.
Now, lets say a Buyer comes along and buys the neighbour’s property with the easement on it and does not check into it. The Buyer’s main reason for buying the property is because it has a large back yard which is perfect for a extension which the Buyer needs so that an additional bedroom can be added to the home. The Buyer begins construction on the extension, during which he not only encroaches on the easement area but he manages to dig up and cut the water line. At this point, the next door neighbour notices he has no water, realizes what has happened and complains. By not checking the location of the easement, the Buyer now faces a situation whereby not only can he not build his intended extension, but he also must pay for both the repair of the water line and the removal of that portion of the addition which encroaches on the easement area. A very costly mistake which could have been easily avoided by having the title properly reviewed.
“Subject To” Confirmation of Insurance:
The subject to confirmation of insurance clause is inserted to give the Buyer the opportunity to check with an insurance company to make certain that a insurance policy can be obtained for the property. Most properties are insurable, however, situations arise where there are problems. If there is a problem and the property cannot be insured, then the result in almost all cases is that the mortgage company will not lend any money. So, like the previously discussed issues, insurability should be dealt with prior to the Buyer becoming legally obligated to purchase a property. At Farley Martin Notaries, our advice to Buyers is to always include this clause in your contracts because “it’s always better to be safe than sorry.”
The time has now arrived for the Buyer to take the next step. All of the Buyers’ “subject to” conditions have been satisfied. Your Realtor will now prepare a document for the Buyer which will formally remove all the conditions so that the purchase can proceed straight to completion. The Buyer has now become legally committed to purchase the property. All the Buyers need do at this point, if it has not been done already, is to inform the mortgage lender and the Realtor that we are the Notaries who will be acting for him. From here on, we take care of everything.
About ten days to a week before the completion of the purchase, we will contact the Buyer to obtain the basic information required to complete the transfer and mortgage documents, and to set an appointment to meet so that the documents can be reviewed and signed. To expedite this process, feel free to use our secure online information submission form. Our office then sets about contacting various goverment and non-government offices to confirm and gather all the additional information required to complete the purchase, including any adjustment required for property transfer tax, municipal property taxes, water accounts, municipal utility accounts (if required), etc. At your appointment with one of our Notaries, all the documents with respect to the purchase of the property including the purchase monies, closing costs and adjustments are reviewed in detail. Any last minute questions the Buyer may have are answered, and the remaining steps in the purchase process are detailed and reviewed.
One day prior to the purchase, the Buyer deposits with our office, by certified cheque or bank draft, the balance of the purchase price plus closing costs. On the next day, the completion date, we first arrange for the deposit of the Buyers’ mortgage funds with the mortgage lender, register the transfer of the property into the Buyers’ name, register the Buyers’ mortgage, ensure arrangements are in place to pay out any existing financial items on the property and pay the Seller for the property.
Real Estate Terms, Tips & Advice
- Common Real Estate Definition
- Real Estate Explanations and Recommendations
- Completion Date and the Buyer’s Mortgage
- Dates and your Mortgage (Property Suites)
At its simplest the Completion Date in a real estate contract is the date the property is transferred and the money for the purchase is paid to the Seller by the Buyer.
In a real estate contract the adjustment date is the date that calculations for such items as property taxes, water accounts, rents, damage deposits, etc. are modified.
The Possession Date in a real estate contract is the date that the Buyer has the right to take possession of the property.
*Comments on Dates:
Check to make sure that the Completion Date is not a weekend or a holiday.
The Possession Date and the Adjustment Date generally should be the same day. The day the Buyer takes possession of the property is the day that he would expect to start to be charged for property taxes, water and so forth – not before.
When a home is being sold realtors generally recommend that sales contracts be written with the completion date at least 1 day before the possession date. This recommendation is made to avoid a situation where circumstances may cause a delay in the completion of the purchase and the Buyer has no place to move to. In addition this insures that the Seller gets the sale proceeds well in advance of giving up possession.
The Buyer or the Seller can, however, instruct their respective Realtor to have the purchase contract written with both completion and possession on the same day. From the Seller’s perspective the delay in possession makes sense. However, the Buyer must pay for a home, and in most cases begin to be charged interest on a mortgage, without having the benefit of living in it, With that being said, most completions do go smoothly though and having completion and possession on the same day is generally not an issue.
Please Note: In the final analysis, all dates in a real estate contract are a matter
of negotiation between the Buyer and the Seller.
- Unlike rent which you pay in advance interest on a mortgage is paid in arrears. When you pay rent on the 1st of a month you are paying in advance for the balance of that month. With a mortgage you do not pay interest when the mortgage starts, your first payment always occurs after. In other words you have to have use of the money first before you can be charged for it.
- Interest begins to be charged when the Mortgage is advanced on the Completion Date.
- In most cases mortgage payments are made on a monthly basis. Many lending institutions also offer additional payment options.
This gives the Buyer/Borrower the advantage of being able to enjoy their new home for a whole month without having to pay interest, and it allows extra time for the Buyer/Borrower to earn additional money to make the first payment. This advantage can be of even greater importance when the property being purchased has revenue – i.e. from a rental suite.
Most Buyers who purchase properties with a rental income require mortgage financing. Because of this fact a lot of thought should be given to the selection of the completion, adjustment and possession dates. The Buyer should remember that:
- It is in their best interest for the completion, adjustment date and possession date should be the same
- Rent is paid in advance and almost always paid on the 1st day of the month;
- The first mortgage payment is always due after the property is purchased (The completion date);
- The Adjustment Date is the day that any existing rents, damage deposits and damage deposit interest are adjusted.
With a little planning the Buyer can use this information to enjoy the previously mentioned advantages and also have the additional benefit of putting most of the first month’s rental payment in his pocket. This is how it works:
- The Buyer has a contract of purchase and sale draw by his Realtor on a property which has a two bedroom suite which rents for $1,000.00 per month, payable on the 1st day of each month.
- The Completion, Adjustment and Possession date are set for January 2nd.
- The Buyer requires mortgage financing to complete the purchase.
- The Buyer’s new mortgage which has monthly payments of $1,000.00 is to be funded on the Completion Date (January 2nd).
- Therefore the first payment would be due the 2nd day of the following month (February 2nd). Because the Completion Date is after the 1st of the month when the rent is due it is the Seller’s responsibility to collect it for the month of January.
- Further, as the Completion and Adjustment date are the same (January 2nd) and come after the Seller is to collected the rent, the rent must be adjusted between the Buyer and the Seller for the balance of the month of January.
- The results are twofold:
- First the Seller in effect has guaranteed the payment of the rent for January and has saved the Buyer the work of collecting it.
- Second the monies to be paid by the Buyer to purchase the property will be reduced as the Seller will be required to give a credit to the Buyer for the rent from January 2nd to January 31st in the amount of $967.75. These calculations are done by our office
- First the Seller in effect has guaranteed the payment of the rent for January and has saved the Buyer the work of collecting it.
- The results are twofold: