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12 Terms You Need to Know When Buying

Posted August 11th, 2009 under say what?, smart buying.

Here are some terms that pop up all the time when you are buying a home. If you pay attention to these items you'll have a smoother purchase and may save yourself some money, too!

(Note: these explanations should not be taken as expert legal, tax, health, or environmental advice. If you have a specific question in one of those fields, you should consult an expert.)

1. Adjustment

Did you know the purchase price of a property can be adjusted on the closing date? Most homes have ongoing expenses associated with owning them, such as property taxes or condominium fees. Sometimes, the seller has pre-paid these fees through to the end of the month or year. To compensate the seller for the remainder of the year after the closing, a corresponding dollar amount is added to the sale price on the closing date.

2. Chattels

Any item which is not fixed to the property is considered a chattel. Chattels are never included in the sale unless they are specifically named in the agreement. So, as the saying goes, when you move in, expect the seller to have taken “everything that isn't bolted down”. Examples of chattels include: a fridge, a free-standing stove that is not built into the countertop, a hanging mirror, and even a swag lamp which is hung on a hook and plugged into the wall.

3. Closing date (also known as completion date)

The date when the title is transferred to the new owner and money and keys are exchanged. Your Agreement of Purchase and Sale will include a specific time of day, by which time the seller must “give vacant possession”, which means they must be out of the home and not leave any personal property behind. Many Sellers believe they have until midnight on the closing date to vacate, but in fact, any time of day may be agreed upon. If a Seller fails to vacate by the proper time and date, they are responsible for any additional expenses you incur, such as the cost to store your possessions overnight, or the cost for you to stay in a hotel.

4. Credit Report (also known as credit rating or consumer report)

This is a report that outlines how promptly you have made required payments on your debts, such as credit cards and loans. When you apply for a mortgage loan, the lender will review your credit report to determine how risky it is to lend you money, based on your past behaviour. They will often adjust their interest rate based on your credit report. Maintaining a good rating by making your payments promptly will give you access to the best rates for your mortgage, while a poor rating may mean having to borrow at a higher rate. Two organizations administer credits reports in Canada (Equifax Canada and TransUnion Canada), and you can request your report from them for free. It is a good habit to do this annually, as you will be alerted to any clerical errors that are damaging your credit rating.

5. Deposit

A deposit is a sum of money you pay that is held in trust for the Seller to show that your offer is sincere. You can choose to give the deposit either when you make the offer, or when the offer is accepted. If there is a breach of contract on your part, your deposit can be forfeited.

6. Irrevocability

When you make an offer, the Seller has until a certain date and time to accept it, as indicated on the offer. If they accept the offer before that time limit, the offer becomes binding on both parties, and you cannot revoke it.

7. Land Transfer Tax

On the closing date, the Buyer is responsible for paying a land transfer tax to the government. Some of this money goes toward administering the land registry office. It is based on a percentage of the sale price, and the percentage increases as the price of the property goes up. (Note: Toronto adds its own municipal land transfer tax, so Buyers in Toronto must pay twice.)

8. Rental Items

It is common for certain items, such as a water heater, furnace, or security system, to be rented rather than owned. When a Seller has rented items such as these, they cannot legally include the items in the sale, because a person can only sell things that they own. To get around this, the Seller will usually ask the Buyer to assume the rental contract as part of the sale. Most contracts allow this, but some have a “no-transfer” clause. In that case, the seller is forced to buy out the contract and you will need to arrange a new rental yourself.

9. Status Certificate (Condominiums Only)

This is a set of documents that contains information about a condominium property. It includes financial statements for the condo corporation, any lawsuits contemplated by or against the corporation, any liens and work orders against the unit in question, and finally, the rules and regulations of the corporation. If you are considering buying a condominium home, you should be aware of the contents of the status certificate.

10. Subdivision Agreement

When a developer wants to construct a new subdivision, they negotiate a Subdivision Agreement with the city. This agreement requires the developer to do things such as plant trees, or install curbs and sewers. In addition, the agreement may include a commitment by the developer to maintain parts of the subdivision, such as a noise fence or the watershed (grading). When you buy a property in a subdivision, those responsibilities are passed on to you! You may become responsible for costly repairs, so always review your Agreement of Purchase and Sale to see if any covenants (responsibilities) are included with the property.

11. Survey

This is a scale drawing of a property made by a certified surveyor. It shows the dimensions of the property and any improvements (such as the home, a pool, or a vehicle shed). It will also tell you if there is an easement on your property, which gives somebody the right to enter your property for a specific reason, for example a Hydro worker. You are obligated to accept all easements. Finally, a survey will show any encroachments, which means anything physically protruding onto your property, such as a neighbor's eaves trough, fence, or garage. Unlike an easement, you can ask for an encroachment to be removed, or you can seek compensation from the Seller. When buying a property, always make sure a survey is requested and reviewed so you avoid any nasty surprises.

12. UFFI

This is a type of insulation that was banned in the 1970's for its potential to release toxins under certain circumstances. (It stands for Urea-Formaldehyde Foam Insulation.) If you are considering buying a home that is insulated with UFFI, you should have the home tested for toxicity before you purchase, and continue to test it periodically.

Summary

These twelve terms represent some of the most common and important issues that can come up when purchasing a home. Keep these in mind and your purchase will go more smoothly. If you have any questions, don't hesitate to contact me.

Want to know the meaning of a term you've heard? Just ask me, I'll be happy to help.