The dos and don’ts of buying a home
By Peter Small, AdvocateDaily.com Contributor
Purchasing a home is demanding and risky, especially for first-time buyers, so it pays to get good legal advice and follow some basic guidelines, says Edmonton real estate and business lawyer Kirk Goodman.
“Buying a home is one of the most important financial decisions of your life,” Goodman, principal of KGPC Corporate Law, tells AdvocateDaily.com. “It’s a heavily contracted process. So, any misinterpretation of your legal rights or obligations could have serious consequences.”
Goodman offers some key dos and don’ts for homebuyers:
- Do consult a good, experienced real estate lawyer who will make sure you fully understand your rights and obligations. He or she will guide you through the entire process so you’re not dazed by inspections, loan documents, paperwork, disclosures, affidavits and unplanned issues that can turn a sure sale into a disaster.
- Do find a lawyer who will meet you personally. Some cut-price lawyers don’t bother with in-person consultations, but you need face-to-face meetings for optimum results.
- Do ask your lawyer to explain the difference between fees and disbursements. Purchasing a home requires many disbursements, such as for registering a mortgage at the land titles office. “You need to be careful that you don’t pick a lawyer just based on their fee, but find out how many extra costs are involved,” Goodman says.
- Do shop for a lender. Work with your mortgage broker to find the bank or other financial institution offering the best deal. Make sure you ask the lender what conditions are attached to the loan. “It’s important to remember that the lender may put conditions on your lawyer, who is also working for the lender,” Goodman says. These conditions must be met before the financing is delivered to you.
- Do pay off your debts before buying the property. Lenders often make mortgages conditional on the borrower paying off their credit cards and lines of credit. If your lawyer has to pay off those obligations on your behalf, he or she may charge a fee for that service, although Goodman does not.
- Do have your lawyer scrutinize the title for judgments, easements, prior conveyances, unpaid mortgages, liens and other claims on title.
- Do have your lawyer review the agreement of purchase and sale to identify any hidden fees or extra costs. People sometimes leave this to the realtor, but an experienced lawyer is best positioned to mitigate your risks by, for example, scrutinizing the conditions pertaining to financing or repairs to the property. “The lawyer would make sure that the price you agree to at the outset is the price you pay in the end,” Goodman says.
- Do have your lawyer negotiate a holdback for any deficiencies in the property. For instance, if the house requires extensive repairs, you can hold back payment until they are completed by the seller. Alternatively, you can ask for a price reduction and later fix the defects yourself.
- Do use a trust account, which is only available through a lawyer. Lawyers’ trust account cheques are as good as gold and help ensure a smooth transaction, Goodman says.
- Do have your lawyer collect all your documents in one cohesive file prior to the closing, and make sure you understand them all. The file should include a statement signifying the debits and credits to the seller and buyer.
Here are some things to avoid:
- Don’t choose a non-qualified representative, like a notary, instead of an experienced real estate lawyer to handle the purchase, he says. “A real estate lawyer is trained to oversee the full process with all limitations to mitigate your risks, create purchasing flexibility and explain the nature, amount and fairness of all the costs and the issues involved in the transaction, and control the payment of funds,” Goodman adds.
- Don’t sign a purchase contract until your lawyer has reviewed it. “Once it’s signed, the lawyer is unable to negotiate certain items on your behalf. They’re bound to be negotiated within the framework of the contract,” Goodman says.
- Don’t rely on title insurance as a substitute for a Real Property Report (RPR). An RPR sets out the position of the house and any additions (decks, sheds, etc.), and is sent to the municipality for compliance. If the property does not comply, your lawyer will be able to help you deal with the issue. Title insurance, which is often used instead of an RPR, only protects you if you suffer an actual loss, Goodman says. For instance, if the municipality forces you to tear down a deck, you must first pay out of pocket and suffer a loss before making a claim.
- Don’t choose a lawyer based on the lowest fee. “A good real estate lawyer will have your back and see that you get what you pay for,” Goodman says.
Real estate closings are complex and require an in-depth knowledge of the law, Goodman says.
“With a decision as big as purchasing and selling a home, it is crucial that you are guided through every step of the closing process by a practised and well-informed real estate lawyer,” he says.