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The topics in the Dial-A-Law series provide general information on a wide variety of legal issues in the Province of Alberta. This service is provided by Calgary Legal Guidance funded in part by the Alberta Law Foundation.
This topic will discuss things you should consider when listing and selling your house. Your home is probably the biggest investment you will make in your life. The transactions for purchasing and selling your home are complicated and it is easy for things to go wrong.
You should consult a lawyer before signing any agreement with respect to the sale of your home. Your real estate agent or your financial institution may suggest a lawyer but you can insist on a lawyer of your own choice. Check with several lawyers as to their prices and services. Too often, a lawyer is consulted after the Agreements are signed. Sometimes it is too late to fix the problems because binding legal obligations are created once the parties have signed the Agreement.
You are not legally required to use a realtor to sell your home. However, there are some benefits to using a realtor. For example:
- Your home is advertised for sale within the real estate industry;
- Licensed agents have expertise in this area and have contacts with potential buyers;
- The agent may be able to ‘match’ your home to the needs of a potential buyer using a computer;
- The agent might suggest a few modest improvements to assist you in ‘marketing’ your home;
- The agent deals with the potential buyers.
If you use a realtor, you will be asked to sign a “Listing Agreement.” You may want to consult with a lawyer before you sign the Listing Agreement. A standard form of the Listing Agreement establishes the realtor’s commission rate; however, you may freely negotiate the real estate commission with the realtor. The Agreement states that the realtor’s commission is to be paid partly from the buyer’s deposit and partly from the purchase monies provided to your lawyer at the closing date. It is your responsibility to ensure that the commission is paid. The Listing Agreement also states the length of time the realtor has to sell your home.
The realtor will provide the standard form of the “Purchase and Sale Agreement” when an offer to purchase is made. Review the Agreement before you sign it. You should know and understand the terms upon which you were willing to accept the offer to purchase your property. If you do not understand any of the terms in this Agreement, ask the realtor for a written explanation or ask your lawyer. Once you and the buyer have signed the Agreement, binding legal obligations are created. These obligations can only be changed with written consent of you and the buyer.
The buyer should put down a small deposit as an indication of good faith for the offer to purchase. The deposit may range from 5 to 10 % of the purchase price.
The buyer may also impose conditions on the offer to purchase. A conditional offer means there is no binding contract until the conditions are met. For example, the offer may be conditional upon the buyer getting a mortgage or selling their home by a certain date. If the buyer does not get a mortgage or does not sell their home by the specified date, the buyer can be released from the Agreement and the deposit must be returned. Other standard conditions include the buyer getting a satisfactory home inspection or certain repairs completed before the sale. These conditions must be met or waived by the buyer; otherwise there is no binding Agreement. The conditions should be both reasonable and limited in time. Once all the conditions in the Agreement are met or waived by the buyer, the buyer is bound by the offer to purchase. If, after this point, the buyer backs out of the sale, you are generally entitled to keep the deposit.
Representations and warranties concerning the condition and location of the buildings on the property are also stated in the Purchase Agreement. Change any of the terms in the Agreement that you cannot promise about the property. Place your initials beside the term or terms you changed. If you are not sure whether your property meets the standard representations and warranties stated in the Agreement, discuss title insurance with the buyer. Title insurance will compensate the owners of the property if it turns out that the title to the property is not as stated and they suffer a loss as a result.
The seller must provide an up-to-date “Real Property Report” on the property. If you do not have a current Real Property Report with Municipal Compliance, you should contact a surveyor immediately. The Real Property Report is a survey of the land and its buildings. It will show the location of all buildings on your property, property boundaries, the location of easements, utility right of ways and so on. It will also show any encroachments onto the neighboring property. The Report must be stamped by your local municipality “Municipal Compliance” to show that your property complies with all its by-laws. The municipality will not certify the survey if there is a problem with the location of any building or improvement. If you have a problem that such a fence or garage is encroaching upon City property and you cannot easily remove the offending fence or building, you should consult a lawyer for assistance.
The fixtures that are to be sold with the house should be clearly identified on the Agreement for Sale and Purchase. Fixtures are major appliances, furnaces, lighting fixtures, satellite dishes and anything that is physically attached to the property. Vanity mirrors and mirror closet doors should also be expressly stated in the Agreement. Drapes, blinds, picture mirrors and picnic tables are not generally considered fixtures. To be clear, you should write down in the Agreement any item you intend to take with you that is attached to the walls, ceiling, or floor. The closing or possession date should also be clearly stated on the Agreement. Closing day is generally the date the property is transferred to the buyer. The seller’s interests in, and any responsibility for, the property terminates on this day. You should arrange to have final utility readings done, and cancel any automatic debit payments pertaining to the house. Do not cancel your house insurance until after you receive all the purchase monies for the sale. There could be a delay in closing or the sale may actually fail. Also, you do not want to have any gaps in fire insurance.
All paperwork and searches performed by the lawyer must be completed by closing date. A search will show whether there are any special requirements that must be fulfilled before the title is transferred to the buyer. You are required to pay for the searches of title. Title Searches are done at the Land Titles Office. Title to your property shows all encumbrances and charges against the land. For example, a search may result in charges such as mortgages, gas easements, restrictive covenants, rights-of-way and builder’s liens. In real estate transactions, you must remove any financial encumbrances, such as mortgages, before the closing date. Some non-financial encumbrances which interfere with the owner’s use of the land will not come off title, such as utility rights of way.
A search is also made at the Personal Property Registry to see if there are any outstanding debts which could ‘attach’ to your land and interfere with the sale. You must clear these debts from the title. Searches are also made with the local municipality for payments of property tax, utilities and compliance with local by-laws. In some municipalities, property taxes are paid by June 30 for the entire year. This means that an adjustment for tax costs is required between you and the buyer. For example, if you paid the taxes on June 30 for the entire year, and then sell your home with the possession date of October 1, then the buyer must pay you for the months they lived in the home – 3 months. The adjustment for the taxes is made on a Statement of Adjustments prepared by your lawyer.
A “Statement of Adjustments” prepared by your lawyer determines the final amount of money due for the sale of the property. The Statement of Adjustments will show the cost of the property, less the deposit, and adds in any “unseen” costs. The most common “unseen” costs are the property tax adjustments. Also, depending on the type of property you are selling, there can also be costs from adjustments made for security deposits, tenant rents, or condo fees.
The buyer’s lawyer must forward the entire purchase price to your lawyer. Your lawyer then pays any outstanding financial obligations relating to the property. For example, your lawyer will pay the realtor’s commission, any outstanding mortgage loan on the property, and the legal fees. The balance of the purchase monies is then released to you.
Title is transferred from the seller to the buyer by a “Transfer” of title that you sign and register at the Land Titles Office. The Transfer of title is often registered at Land Titles before you receive your purchase money for the property because most lenders will not advance any mortgage money until certain conditions are met. For example, the ownership of the property must be in the title of the mortgagor. You are protected during this period as the buyer signs a Transfer-back to restore title and possession back to you if the mortgage monies are not advanced as expected. The lawyers for the seller and for the buyers are responsible for drafting the actual documents required. Once the Transfer of title is registered at the Land Titles Office, the mortgage funds are usually advanced within a 5-day period. This payment is sometimes made after the closing and possession date stated in the Purchase and Sale Agreement. If the buyer moves in on possession day before the mortgage funds are advanced, the buyer must pay you interest on the amount of money still owing. The buyer may also move in as a tenant and pay you rent until the final payment is made for the purchase of the property. The buyer would sign a Tenancy-At-Will Agreement. The Tenancy-at-Will normally includes a clause that states the buyer must vacate the property on 48 hours written notice if the outstanding sum is not paid within a specified amount of time.