*Please note that School of Scheff is not legal advice and should not be taken as such. School of Scheff provides legal information which is specific to the Province of Alberta. Should you reside outside the Province of Alberta, please contact a lawyer in your jurisdiction with any legal queries*
3 Things You Should Know Before You Buy a Home
You’re buying a house? Congratulations!
This is a huge milestone for the first-time home buyer and it is an exciting time all around. There are a few things that you should know going into the process. These items are things your lawyer wishes they could have explained to you in detail before you considered making your offer; waiving any conditions; or waiving your rights to an up-to-date real property report and compliance certificate. Your lawyer isn’t generally involved in the purchasing process until after these crucial steps are taken and after the point in which they could flag or fix a potential issue.
1. The Offer
You’ve made the decision to start house hunting and have selected a realtor to help you find the perfect home. After seeing a few homes, you find the one and decide to make an offer. The offer is arguably the most crucial document in a real estate transaction because it sets the road map for the entire transaction. Most critically it sets out the three P’s: people, price, and property.
Generally speaking, clauses that are in the standard form real estate contract in the Province of Alberta should not be crossed out of an offer without consulting a lawyer. Most often, these contracts come to your lawyer’s office with clauses crossed out, and it’s later discovered, after the conditions were waived, that the legal implications of crossing these clauses out was either a) not fully explained to you; b) incorrectly explained to you; or c) not fully understood by you. Sometimes this can have catastrophic results, which we, your lawyer, cannot fix at the time we generally receive the contracts. The reason your lawyer cannot fix it is because by the time it’s discovered, it’s usually past the time when they could have proposed an amendment. In crossing those clauses out or adding clauses in, you may have agreed to waive or accept a contractual right or obligation you would otherwise have had or may not ordinarily have been responsible for.
Take time to review the offer carefully and ask questions about anything you’re unsure about. If any doubt remains, most real estate lawyers are happy to answer these questions in these preliminary stages, even if they’re not yet retained.
2. Conditional Offer and the Condition Period
The seller has accepted your offer and you’re off to the races! Undoubtedly, your realtor has written in some conditions and has set a date by which you have to waive those conditions.
This is an absolutely critical part of the purchasing timeline because this is the time where you are able to: a) solidify your financing with your lender; b) do any inspections of the property; and c) if necessary, sell your existing home.
In other words, this is the time you have to discover any reason that you may not be able to proceed with the transaction either because of: defects in the property, issues with your financing, or anything else which might prevent you from being able to move forward with the purchase.
Do not under any circumstances waive conditions unless you are absolutely satisfied that everything you need in order to close the transaction is in place. If you waive conditions and the deal becomes “firm” or “unconditional”, you cannot get out of the transaction after that point without consequences. Most often these consequences are losing your deposit but can also be being sued by the seller for failing to perform your part of the deal.
How do you know if you can waive a condition? As far as financing goes, you want to ensure that you have a firm commitment from your lender, in writing, that you have been approved for financing (which should not be confused with pre-approval). As it relates to a property inspection condition, if you have any doubts about a defect in the property, in particular structural issues, you should not waive your property condition until you are satisfied that the issue can be remedied. If the defect cannot be remedied or you’re uneasy about moving forward, you can decline to waive the condition and terminate the contract.
If you find that your condition date is fast approaching and you require more time, do not waive conditions before you are ready and hope that everything will work out. Instead, request an extension of the condition date – it’s a common occurrence and preferable to prematurely waiving conditions.
3. The Real Property Report and Compliance Letter
The Real Property Report (“RPR”) and Municipal Compliance Certificate/Letter (“Compliance Certificate”) are by far the most misunderstood components of a real estate transaction and are the most frequently struck out clauses in the standard form real estate contract. These are very important documents which provide invaluable information about the property you are buying. In a standard form real estate contract used in the Province of Alberta, the buyer has a contractual right to insist on, and the seller has an obligation to provide, an up to date RPR and Compliance Certificate showing the current state of the property.
A RPR is intended to provide a birds’ eye view of your property. Most importantly, it shows a) where your property boundaries are and the exact dimensions of your property; b) where fences are constructed in relation to the property boundary; c) any encroachments onto someone elses land or onto yours; and d) the location and a description of all buildings and structures on the property (with dimensions, directions, and distances) from the property boundary. This would include decks, detached garages, large sheds, and dugouts.
The Compliance Certificate is a statement from the municipality, such as the City of Lethbridge, which identifies any issues with the property in relation to the City’s current Land Use Bylaw. Every municipality has a Land Use Bylaw and the Land Use Bylaw governs how a property is zoned; what uses a particular piece of property can be put to; and what permits are required for particular uses or structures and how to obtain them. It also regulates the technical rules such as where a driveway can be located; fence heights; what secondary or accessory buildings can be put on the property; as well as rules related to how a building is situated on a property such as how far back it has to be; and how tall it can be.
A municipality will identify whether a property is compliant or non-compliant. Often non-compliance is noted but is accompanied by a statement from the municipality identifying the action(s), if any, they require be taken at the time of the letter to bring a property into compliance. Your lawyer will be able to review this and advise you on any issues they foresee with compliance and any steps that should be take before closing.
If your seller states that they do not have these documents, they (or their realtor) will often try to strike out the provisions in the contract relating to the seller’s obligation to provide these documents and your contractual right to insist on them. If confronted with this situation, carefully consider whether you want to release the seller from this contractual obligation.
If the clause remains in the contract and the seller doesn’t have these documents, you’d typically have two choices a) insist that the seller orders a new RPR and Compliance Certificate; or b) close the purchase with title insurance to protect against any defects that would have been disclosed in the RPR or Compliance Certificate.
If you opt to close with title insurance, you are essentially playing “kick the can”.
This is because when you later sell the property, your future buyer may insist on a new Real Property Report and Compliance Certificate (as would be their contractual right), which typically cost in the range of $750-$850, thus passing this cost on to future you.