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Sale Of Existing House

Resale of existing property when purchasing a new home from a builder

One of the most difficult decisions that the purchasers of a new home have to make is when to market their existing home. More often than not the closing date for the new home is months if not a year or 2 into the future. The problem is compounded by the fact that the closing date for a brand new home is nearly always fluid (i.e. the Agreement of Purchase and Sale provide that closing dates may be delayed or escalated B it is hard to gauge). In the last few years we have experienced a new housing boom in Ontario. More often than not the original closing date agreed to by the Builder and the Purchasers is delayed by the builder as a result of unforeseen circumstances. These unforeseen circumstances could consist of:

The conservative approach is to list your house for sale as soon as you have entered into a firm Agreement with the Builder. You would close the sale of your existing house in a month or two; thereafter you would bank the equity, perhaps in a term certificate which may pay better interest, and reside in temporary housing for the time up to your closing of your brand new home. For younger couples with parents with ample space this could actually provide an opportunity to accumulate a greater down payment. The advantages of this conservative approach are four fold.
The first advantage is that you are buying and selling in the A same market. Accordingly, if prices depreciate you have had the advantage of selling your existing home in a better market. Of course, the converse is also true. In an appreciating market you loose the benefit of your existing home increasing in value prior to its being sold.

The second advantage is that the stress of trying to market your existing home so as to coincide the closing dates is eliminated.

The third advantage is that the risk of having the new home closing date approach and still have an unsold existing residence disappears.

The fourth advantage eliminates any concern over the builder accelerating the closing date. Many Builder Agreements allow for the Builder to accelerate the closing date. This means that the closing date could actually take place earlier than expected. If you have already sold your existing residence then the result of such an escalation could be much less dramatic.

The less conservative and more risky approach is to market your existing residence only 2 or 3 or 4 months prior to the anticipated new home closing date. This approach has its own advantages and disadvantages. The greatest pitfall to this approach is that in a slow market you will be left frantically trying to scramble for closing funds because you have been unable to secure an acceptable offer on your existing residence. Obviously, people with a treat deal of equity in their home are able to withstand this disaster by arranging short term mortgage financing or bridge financing through their bank. However, the failure of people without equity to secure an acceptable offer would usually lead to default on the new home purchase. The default results in a loss of your deposit and a potential law suit. One must remember that the Builder is not obligated to grant an extension of closing because the purchasers are unable to sell their existing residence. Finally it has been my experience that these risk taking people who market their homes at the last moment and do manage to coincide their closing dates are quite often inconvenienced in the end as a result of last moment delays by the builder. In other words, the best laid plans often go awry.

Read also
What is the difference between a Power of Attorney and a Will?
What is Land Transfer Tax and how is it calculated?
New Home Cost
Moving Numbers
Condo Insurance

New Home Cost

Purchasers of new homes from builders.

The process of purchasing a new home is VERY different from that involved in the purchase of re-sale home. Aside from the possibility/probability of a number of extra closing costs – see below there is the simple fact that the agreement of purchase and sale is very much more complicated than the type of agreement used in are-sale.

This brings me to my first point – it is imperative that our clients READ and UNDERSTAND the agreement. Although, We will read this document in order to ensure that there are no particularly onerous or unusual provisions, your reading of the agreement will educate you as to the general process and also as to the particular clauses included in your deal. Please call us with any questions that arise from your review.

In general, although your agreement may be conditional upon a lawyer review, this provision is not intended to give you the opportunity of re-negotiating your arrangements with the builder. Rather, it is intended to allow you to withdraw if the legal review brings to your attention provisions that you just cannot live with and that the builder is unwilling to amend. Some builders are more willing than others to entertain changes. A few builders actually design the agreement with the idea that the purchaser will seek legal advice and propose changes to which the builder will agree. This is all part of the game!

There are a few things to remember when buying a new home:

Your agreement with the builder contains ALL of the terms of your deal. Any verbal promises or representations are non-binding on the builder. If a particular issue is important to you GET IT IN WRITING.

The builder is entitled to delay the closing in accordance with the agreement and the Tarion – Ontario New Home Warranty Plan. Please visit their website at www.tarion.com for more details with respect to permitted delays.

In terms of closing date, you, the buyer, can best compare the scheduled closing date with the state of construction at any given time. For instance, if the builder is telling you that the home will be completed, on time, in three months and if no foundation has been poured, then, obviously, the builder is not being straight with you! As a rule of thumb, four months is the required time to start and complete an average home. This is assuming no strikes, labour shortages, weather or governmental delays.

Every agreement for the construction of a new home permits the builder to make minor changes to plans and specifications. They also permit builder substitutions for buyer colour selections etc. Efficient builders will consult with their customers when these types of changes are contemplated.

However, it has been our experience that many of our clients discover that the builder has made changes only when our clients make one of their periodic visits to the property! Unfortunately, in most circumstances builders nowadays are not responsive to their customer’s complaints that the customer was not properly consulted or notified of changes. Indeed, we have had many clients in the past few years who have negotiated for and paid for changes/upgrades, only to visit the home and discover that these items were not implemented. Rather than re-do their work most builders will simply credit the purchaser with the amount paid for the extra or change. If your agreement does not specify a dollar amount then the credit is likely to make the purchaser very unhappy. Accordingly, if your purchase price includes specific extras or changes make sure that a dollar value is listed, in the agreement, for each item.

As with many consumer-oriented decisions the best protection for the consumer is to obtain references from others that have bought from the same supplier of goods or services. A person who has bought from the same builder and is unhappy will be delighted to steer you away. By the same token, a happy consumer will gladly give the builder a positive review. How do you find someone from whom to obtain an opinion? I suggest that you knock on a door or two. The decision to buy a home is as important as any non-personal decision in a person’s life. Accordingly, a little self-protecting legwork by the purchaser is certainly in order. Although the costs involved in the purchase of a new home are, undeniably, higher than those for are-sale, there is one redeeming feature for first time purchasers. If you have never owned a home anywhere in the world then you are entitled to deduct from the land transfer tax otherwise payable an amount equal to the lesser of the tax or $2,000.00. There are special rules for persons who are otherwise eligible but who are married to an ineligible spouse as well as rules for eligible/ineligible unmarried co-buyers.

In the event that the builder requires an extension/extensions of closing do NOT sign any documents without speaking with us first. We do not want you to give up any of your rights under the Tarion – Ontario New Home Warranty Plan.

If you are arranging a new mortgage you should obtain a mortgage commitment that is binding upon the Bank/trust Company for a period of time expiring well after the closing date. This will guaranty your interest rate in the event of extensions of closing imposed by the builder.

Attached to this memo is a list of POSSIBLE closing adjustments. Unless your agreement includes an adjustment, either specifically or generally, then you are not subject to that adjustment. It is recommended that you insist that your builder quantify the amount to be charged for a specific item. If the builder is not prepared to do this then insist that h& at the very least, “cap” the amount to be paid. For instance, if you are responsible to pay for a water meter ask that the agreement contain something such as “said cost not to exceed $250.00” . You absolutely and unequivocally CANNOT rely upon the verbal representations of the salesperson or builder as to the amount of these adjustments. Finally, you should be very wary of any adjustments relating to municipal/governmental/educational charges or levies. You should absolutely insist that the builder deletes or “cap” these types of adjustments. If you do not, you could be faced with an unexpected adjustment of$500.00 to $5,000.00 depending upon municipality and house price.

Condo Insurance

Guidelines for insurance for condominium unit owners.

This memorandum is intended to provide you with some basic guidelines and information. Your insurance requirements should be determined in consultation with your insurance agent.

Betterments and Improvements

The insurance the Condominium Corporation maintains on your unit will only cover the unit as it was originallybuilt by the developer, excluding any extras or improvements acquired at the expense of the original purchaser. It does not cover the contents of your individual unit or locker, nor any betterments and improvements made to the unit by you, a previous owner of the unit or the developer. For example, these betterments could include wall-to-wall carpeting, mirrored walls, other wall coverings, remodelled kitchen or bathroom finishings or improved light fixtures and appliances.

If changes have been made to the condominium unit (apartment or townhouse) as originally supplied by the builder, you should ensure that these items are covered and your insurance increased by the amount of each improvement. There is no provision in the condominium’s policy for cost sharing. If you have replaced the kitchen cupboards, you must insure the incremental value of the replacement if you expect to have the damaged cupboards replaced by a like kind. The condominiums policy will only replace the cupboards in a similar quality to those originally supplied by the builder.

Liability Insurance

Your insurance program should include personal liability coverage to protect you against any actions by third parties for personal injury or property damage caused by any personal act or omission or failure to repair or maintain your unit. You should discuss the appropriate amount of insurance to carry with your insurance agent.

Living Allowance

If your unit is damaged to the extent that it is uninhabitable, your insurance policy should provide coverage for any living expenses you may incur as a result of not being able to reside in your suite as repairs are being made. Again, discuss the amount of coverage with your insurance agent. This coverage is not provided in the Condominium Corporation’s policy.

Sewer Backup Rider

If you have purchased a condominium townhouse you should confirm with your insurance agent that your policy of insurance provides protection in the event the sewers back up into your basement or other area of your home.

Contingent Building and Liability Insurance

This provision covers damage to your unit when the Corporation’s policy cannot respond or is insufficient. It is, in effect, excess coverage beyond that of the Corporation. The Corporation’s policy will always be primary because it will respond first. If the cause of the loss is not covered by the condominium, or if the extent of the coverage is insufficient (depending on the event) this contingent building insurance may help you out. It very rarely applies but it may be useful and is typically fairly inexpensive.

What is Land Transfer Tax and how is it calculated?

Land Transfer Tax or “sales tax” levied by the Province of Ontario. The amount of the tax increases as the purchase price increases. Tax is payable in connection with the purchase of any real estate (including condominiums, cooperative apartments and vacant land) in Ontario Land Transfer Tax (L.T.) is calculated as follows:

  1. if the purchase price of the property is less than $55,000.00, the tax is 1/2% of the purchase price (this is $5.00 per thousand);
    example: if purchase price is $55,000.00, L.T.T. would be $275.00
  2. if the purchase price is between $56,000 and $250,000.00, the tax is 1% of the purchase price (this is $1.00 per thousand) less $275.00;
    example: if purchase price is $250,000.00 L.T.T. would be $2,500.00 less $275.00-$2,225.00
  3. if the purchase price is more than $250,000.00, the tax is $2,225.00 plus 15% of purchase price in excess of $20,000.00 (this is $15.00 per thousand for each thousand over $250,000.00);
    example: if purchase price is $400,000 L.T.T. would be $2,225.00 plus $2,250.00 = $4,475.00
  4. if the purchase price is more than $400,000 for residential properties having one or two units, there is a surcharge of $5.00 per thousand over $400,000.00 which, essentially, results in tax being 2% of the purchase price in excess of $400,000.00;
    example: if purchase price is $500,000.00 L.T.T. would be $2,225.00 plus $2,250.00 plus $2,000.00 = $6,475.00

Land Transfer is paid at the time of closing with a real estate lawyer Toronto. When you co for your appointment to sign the closing document, the bank draft or certified check that you will be asked to bring with you will include the balance of your down payment, your Ie I fees and out-of-pocket expenses, any money deducted by the mortgagee from the advance of mortgage proceeds and the Land Transfer Tax.

When do I get the keys?

If you are buying a new home from a Builder you can usually obtain the keys at the site office immediately after closing. Generally speaking, you should not plan on obtaining the keys until mid-afternoon on the day of closing.

If you are purchasing a resale property, the keys will be delivered to my office by the Vendors Solicitor at some point during the day of closing. Again, generally speaking, the’ keys will be available to be picked-up from my office at some point during the afternoon of closing. Naturally, the keys can not be released by my office to you until the closing has been completed. The closing is completed when the balance of the purchase price has been delivered to the seller’s lawyer, the vendor’s closing documentation has been delivered to my office and the Deed and Mortgage have been registered. This process is usually completed electronically by 3:30 p.m. on the day of closing. However, if you look at the form of Agreement of Purchase and Sale that is commonly used in Ontario you will find that paragraph 7 of the Agreement provides for the closing to be no later that 6:00 p. m. on the day of closing. Accordingly, there are occasions when keys will not be available until quite late in the afternoon. When arranging your movers you should keep in mind that you may not have the keys until later in the afternoon.

Although we endeavour to have the key available to my purchasing clients by 3:30 p.m. on the day of closing there are circumstances that can delay the release of keys. For instance, if you are selling as well as buying on the same date (see bridge financing) then naturally we can not complete your purchase until we have the funds from your sale. If there is a delay by the person or lawyer for the person, purchasing your home then this will result in a delay in the closing of your purchase. Similarly, if you have arranged a mortgage with respect to your purchase the closing funds can not be delivered to the seller’s lawyer until I have received from your mortgage company or bank the proceeds of your new mortgage.

Read also
What is the difference between a Power of Attorney and a Will?
What is Land Transfer Tax and how is it calculated?
New Home Cost
Moving Numbers
Condo Insurance

What are the Steps in a Power of Sale?

Power of Sale

When a homeowner is in default with their mortgage payments, a lender can rely upon a power of sale provision in their standard charge document to lease or sell the property on default. If there is no provision in the charge document, the lender may rely on the Mortgages Act which authorizes Power of Sale.

Steps of a Power of Sale

  1. Notice of Sale

A homeowner, spouse, and encumbrancers after the lender may be served with a Notice of Sale after 15 days of default. The mortgagor is provided a minimum of 37 days of redemption period to pay off the principal and interest amount owing. During the notice period, the lender cannot negotiate or accept any payment, otherwise the Notice becomes void.

  1. Statement of Claim

Once the notice period expires and payment is not received, the lender may issue a Statement of Claim with the Superior Court of Justice to take possession of the property. However, Statement of Claim may be served in conjunction with the Notice of Sale.

  1. Statement of Defence

Once the Statement of Claim is issued, the borrower is provided a minimum of 20 days to file a Statement of Defence with the Court.  It is important to note that the lender may provide an extension to the borrower to file a Statement of Defence.

  1. Writ of Possession

If a Statement of Defence has not been made by the borrower the lender can note the defendant in default, then file a motion to get an order for a writ of possession. The writ of possession is then provided to the Sherriff’s office in order to issue an eviction notice.

  1. Sale

If the property is listed for sale, the lender has an obligation to the mortgagor to conduct an appraisal of the property and list the property at true market value through a brokerage. However, the property is sold in “As Is” condition.

Based on the Ontario Court of Appeal decision in Logozzo v Toronto-Dominion Bank (1999), the borrower cannot negotiate or pay off the arrears once the lender has entered an unconditional Agreement of Purchase and Sale with a third party. However, it is important to note that if an Agreement of Purchase and Sale contains a redemption clause, the lender may terminate the transaction upon receipt of redemption funds from the borrower.