The buying process
You’re ready to buy. Now what?
Buying property means you’ll be making a number of important decisions. Hiring a skilled industry member to work on your behalf is invaluable. Their expertise makes certain you understand each and every step of this complex process.
Hiring Industry Members
It’s a good idea to interview several brokerages before you hire one. This way, you ensure open communication and a good working relationship from the start.
Educated and Regulated
Industry members complete extensive education so you receive knowledgeable advice when buying a home. They're also licensed and regulated by the Real Estate Council of Alberta.
Industry members are required to discuss the different types of relationships available. Depending on the one you chose, legal obligations for both parties will vary.
- Common Law Agency – is a legal relationship established when two parties agree to have one party represent the other party or provide services on behalf of that party. This common law agency relationship exists between the client and the brokerage.
- Designated Agency (a modification to common law agency) is when the agency relationship exists between you as the client and a designated industry member from a particular brokerage - not with the brokerage itself. The industry member you choose is your designated agent from that brokerage.
- Customer Status – is when a consumer doesn’t want an agency relationship with an industry member or “real estate broker,” but still wants to work with them on a particular real estate transaction. The industry member has an obligation to act honestly and with reasonable care and skill, but wouldn’t owe you any fiduciary duties.
- Transaction Brokerage – allows an agent to work with both the seller and buyer in the same transaction, while treating both clients in an even-handed, objective and impartial manner.
They must also review, complete and give you a copy of the Agency Relationships Guide . This guide highlights basic information about what you can expect and the responsibilities surrounding each relationship type. It provides information to assist you in choosing a relationship that works best for you.
The Mortgage Professional’s Role
Mortgage brokers are licenced professionals that arrange mortgage applications with lender(s). They can represent the consumer, the lender or both. They can also give advice on the lending process and help you understand what you can afford. Most mortgage brokers are paid by commission from the lender. As well, you may have to pay certain fees like an application or appraisal fee.
About Your Mortgage
A lender might give you a pre-approval letter confirming mortgage amount and financial terms. It’s important to remember that pre-approval letters or pre-qualifications are not absolute loan commitments. Lenders still need to see the property value, verify financial information and re-check your credit before agreeing to make a loan.
Mortgage pre-qualification or pre-approvals not only prove to sellers you’re a serious buyer, they also allow you to focus property searches based on what you know you can afford.
About Your Transaction
Your purchase price includes the mortgage, down payment and any deposit that accompanied the purchase contract.
When you write an offer to purchase a property, you’re asked to include a deposit as a sign of good faith. This money becomes part of the down payment - held in trust by the sellers brokerage and eventually going toward the purchase price. If the transaction falls through prior to purchase contract conditions being satisfied or waived, the deposit is usually returned to you.
You can ask for any interest earned on your deposit(s) while in the brokerage’s trust account. Be sure your industry member is aware of this request at the beginning, as this depends on the policies of the brokerage. Some considerations include:
- the amount of deposit
- how long it is in trust
- current bank interest rates.
In addition to the mortgage, consider your down payment amount. If you don’t have a certain percentage of the purchase price as a down payment, you’ll be required by law to insure your mortgage. Financing exceeding 80% of the value of the property is referred to as a high-ratio mortgage and requires insurance. This insurance protects the lender in case they’re unable to make mortgage payments and the property goes into foreclosure. There’s a number of companies offering this type of insurance, so ask your mortgage broker for further information.
Along with mortgage and down payment costs, there are also closing costs. These include legal fees for the transaction and mortgage, registration of your mortgage at Alberta Land Titles, property tax adjustments, moving costs, utility deposits, etc. You might also consider title insurance. Contact your lawyer for further information.
As a buyer, you need to be aware that the buying and selling of property may have tax implications. It’s the sellers responsibility to obtain expert advice (e.g. an accountant) regarding the applicability of GST on the sale of their property. If you’re purchasing a new home (a home to be built, or one that’s never been occupied), the buyer pays the GST. The amount owing varies depending on the price of the property. Keep in mind you could be eligible for a GST rebate. Builders may ask, or offer, to have the buyer assign the GST rebate to them and reflect this in the purchase contract. Speak to your builder, industry member or real estate lawyer if you have any questions.
Contact a Lawyer
A lawyer manages the title transfer and mortgage registration. Property title transfers between sellers and buyers must be recorded at Alberta Land Titles to protect new owners. You’ll sign all documents in the lawyer’s office prior to the possession date. It’s best to select a lawyer early in the buying process and consult them if you have any legal questions. For further information on real estate lawyers contact the Law Society of Alberta.
The need for Timelines
Time is important. When an offer is made, the purchase contract includes a variety of deadlines - from how long the offer is open for consideration; to the number of days you have to satisfy any conditions (e.g. home inspection, financing, etc.). If you’re currently renting, review your lease to determine a suitable possession date. You’ll want to monitor these dates closely. Your industry member can help you coordinate these multiple timelines. Keep in mind that missing key deadlines could jeopardize your deposit, the transaction or both.
Looking at Properties
It’s important to exercise care when you purchase a property. Remember, it’s your responsibility to ensure the property’s condition and suitability meets your needs.
Defects & Disclosures
Sellers cannot conceal defects or mislead buyers about the condition of their property and must be honest when answering questions. Any material latent defects must be disclosed to potential buyers, whether the seller sells the property themselves or through an industry member.
A latent defect or hidden defect is a property fault that wouldn't have been discovered through a reasonably thorough pre-sale home inspection. A material defect is any property defect that could affect a buyer’s decision to purchase or affect the property’s value - like a cracked foundation.
The following is a brief list of defects:
- Defects that render a property dangerous or potentially dangerous to the occupants
- Defects that render a property unfit for habitation
- Defects that render a property unfit for the purpose which the buyer is acquiring it, at least where the buyer has made this purpose know to his/her industry member representative or the seller’s industry member.
and may include:
- defects that would involve a great expense to remedy
- local authority and similar notices received by the seller that prejudicially affect a property
- lack of appropriate municipal building and other permits for a property.
As a buyer, you can request a professional property inspection. This inspection ensures the property you’re interested in is free of major defects. Inspection requests should be included as a condition in your purchase contract. If instructed, the industry member can make your offer to purchase conditional on satisfactory inspection reports.
The Inspection Request Form lists many common types of inspection reports.
Purchase Contracts- Setting the terms and conditions
A typical Alberta purchase contract sets out the real estate transaction terms and conditions. The form can be modified to reflect specific requirements in your transaction.
When you write the purchase contract with your industry member, make sure it reflects all your needs and concerns regarding the potential purchase. Once your offer is presented to the sellers, it's either accepted, rejected or countered. If the offer is countered, negotiations continue until both parties agree to the terms, or the offer expires.
Being familiar with the clauses ensure you ask your industry member and/or legal representative appropriate and applicable questions. This knowledge is also helpful when you’re a buyer preparing an offer and when evaluating offers as a seller.
As a buyer, you decide whether to accept an offer. Your industry member must communicate the progress of the negotiation, but can’t make or accept offers on your behalf unless you give them written authorization.
You should also be aware that, in general:
• offers or counter offers may be withdrawn at any time before acceptance
• withdrawal or acceptance of an offer or counter offer is only effective
when the situation is communicated to the other party, or to the other
party’s industry member
• when an offer or counter offer has been accepted there is a binding
contract between buyer and seller, even if it may be subject to certain
conditions having to be satisfied.
In a multiple offer situation your industry member should explain your options. It’s important to note that the seller and the seller’s industry member don't have to tell you, the buyer, that other offers have been made on the home. But, if your industry member learns of competing offers and their details, they must let you know. For further information refer to the Multiple Offers information bulletin.
Defining your Terms and Conditions
As a buyer, you’ll likely write in specific conditions into the purchase contract.
Some condition examples include:
• obtaining satisfactory financing
• satisfactory inspection reports for the condition of the property
• sale of the buyer’s current home
• third party approval of transaction (e.g. parent, employer, lawyer etc.)
• confirmation of tenancy information
• confirmation of renovation costs.
Other purchase contract terms include possession date and the inclusion or exclusion of attached goods (affixed to the home, eg. light fixtures, built-ins) and unattached goods (not affixed to the home, eg. furniture).
All about Property Insurance
In Alberta, risk of loss or property damage lies with the seller until the purchase price is paid. A home can suffer damage from accidental causes (fire, flooding, high winds, etc.) between the entered contract date and the completion date of the transaction - through no fault of the seller.
If loss or property damage occurs prior to the seller receiving the purchase price, then any insurance proceeds are held in trust for the buyer and the seller according to their interests in the property. As a buyer, you’ll need to arrange your own property insurance prior to possession date.
Information provided by the Real Estate Council of Alberta