A step-by-step guide to buying a home in Kelowna.
You’ve spent some time looking at properties and you’ve found the perfect home… what’s next? Let’s go through all the steps to buying a home in BC from start to finish so you’ll have a solid grasp on the entire purchase process.
To make an offer you will need to write out all your terms and conditions on paper and send it to the seller. It must be in writing. An offer is actually the full Contract of Purchase and Sale with your terms and conditions written into it and your signature. If the seller agrees to everything they just sign the contract and it becomes a legally binding contract.
First, you’ll want to lay out some of your terms, such as:
- Purchase price
- Deposit amount
- Conditions (such as financing, home inspection, etc.)
- Review of seller’s disclosure and title search
- Included items (such as kitchen appliances, window blinds, etc)
- Closing / possession date
- Offer deadline
Key Elements To A Real Estate Sales Contract
The advertised, or “list price”, of a property is not always firm. Sellers understand that there will be some form of negotiation in an offer, so they tend to give themselves a little wiggle room in their list price. This all depends on the type of market we are in. We have recently shifted from a heavy seller's market into more of a balanced market. This means it is now easier for a buyer to put multiple conditions in their offer and do their due diligence before purchasing a property. It's also a more seamless transition from selling one home and buying another as there are few obstacles on either side. To ensure you don’t overpay for your home we will look at recently sold properties in the neighbourhood to decide if it is priced properly and then we will come up with a reasonable offer price.
This is separate from your mortgage down payment. Usually an accepted offer accompanies a deposit into a trust account that is held in trust between the buyer and the seller. This is often the real estate brokerage’s trust account. The deposit acts as both a good faith token and ensures the seller that you have the money put aside for a down payment and you are serious about buying the home. On closing day this deposit will go towards the purchase price of your home. The deposit is a type of security for the seller as well. If a buyer decides to breach the contract and not follow through, against their legal obligations, then the seller may be entitled to keep the deposit. As the buyer, you have protection against this through your subjects/conditions, which we will explain next.
There are many moving parts of the Contract of Purchase and Sale Agreement. These come in the form of conditions (sometimes called “subjects”). A condition is something in the offer that needs to happen in order for the purchase to finalize. If a condition is not met, the offer falls through (and usually you will get your deposit back unless you acted in bad faith or if the contract stated that the deposit was non-refundable). The two most common conditions are financing approval and satisfaction of home inspection results. Even with a pre-approval you will want a financing condition because the lender will need to approve the property being financed. With a home inspection condition, if the inspection report shows issues with the property that you were not aware of then you may have the option to either back out of the deal, ask for repairs, or renegotiate the purchase price. Since both parties need to agree to any changes of the contract, if the seller says no then the deal may fall apart. There may be a number of other conditions that you may want to put into the contract specific to your circumstances or the property (ex: building permits, subject to sale of your current property, notice to tenants to vacate, etc.)
Review Of Seller’s Disclosure and Title Search
Two honourable mentions for conditions you may want to include are subject to review of the seller’s disclosure statement and review of the property’s title search. Seller’s often fill out a Property Disclosure Statement that outlines everything they know about the property and has their signature. A disclosure may not always be available in cases where the seller did not live in the property (rental units) or when a home is being sold “as is''. A title search is a document that can be obtained from the Land Titles Office that lists all charges and claims to title such as any mortgages registered on title, easements, rights of way, etc.
What Is A Condition And What Is A Term?
In the Contract of Purchase and Sale there are two main types of clauses - A “condition” and a “term”. The main difference between the two is that a condition is something the buyer or seller needs to waive or fulfill in order for the deal to continue, while a term is something a buyer or seller is obligated to do. For example, with a financing condition the buyer would need to get financing approved by their lender. If financing is not approved then the deal collapses and there is no penalty to the buyer and the deposit is returned (unless the contract states that the deposit is non-refundable or possibly if the buyer was acting unfaithfully). If financing is approved then the deal goes ahead as planned. An example of a term is the purchase price or the items to be included in the sale.
Terms And Conditions In An Offer To Purchase A Home
Anything that is not physically attached to the property that you want to convey must be explicitly stated in the contract. This includes items such as kitchen appliances (fridge, stove, dishwasher, etc), washer, dryer, window blinds, etc. Items like alarm systems and security doorbells should be addressed also (especially if there is a monthly fee).
Closing / Possession Date
This is the day your name is registered as the owner of the property and you get to move in! The closing date is when you are registered as the owner of the property at the Land Titles Office. Usually adjustments for property taxes and other prepaid expenses are made for this day. The possession date is when you actually get to move in. This is often the day after closing in case there is a delay in the closing process.
An offer cannot be open for acceptance indefinitely. What if the seller does not respond in a timely manner, or at all? You don’t want to be waiting forever for a response. For this reason we put a deadline on the offer. It also prevents the seller from “playing the field” and gives them a sense of urgency to either accept, counter, or reject the offer.
As we mentioned earlier, to make an offer we fill out the Contract of Purchase and Sale with our terms and conditions then send it over to the seller. Once the seller signs the contract it becomes a legally binding document that conveys the property from the seller to the buyer. But what if the seller doesn’t agree to all the terms and wants to make a few changes? Quite often the seller will want to bargain for a better price or maybe make changes to the closing dates that they prefer. Literally anything in the contract is negotiable at this point, even your conditions. To do this the seller will make a counter offer. They make the changes to the Contract of Purchase and Sale and send it back. If you agree, you simply write your initials next to these changes to show that you acknowledge and agree to it. We now have a deal!
Ok, so let’s go through an example step-by-step offer to purchase.
Andy and Sally have been looking at homes and they found one they love! It’s a 2,800 sqft single family home in Crawford Estates. Homes in this area are known for having generous back yards with mature trees. This one in particular has a pool and hot tub. Perfect for relaxing on those hot summer days. Skylights and picture windows provide the home with tons of natural light and it even has a shop for Andy's woodworking hobby. It's a quiet neighbourhood and close to the school that their kids go to.
They decide to write an offer. The home is listed at $1,199,000. After looking at comparable sales and having a discussion with their agent they decide to make an offer of $1,100,000. They would be willing to go higher but wanted to give themselves some wiggle room in negotiations of the price.
Since the homes in this neighbourhood are on septic sewer systems the buyers add a term to the contract that the septic system be pumped on or before the closing date.
Here is a breakdown of their offer:
Date of offer: April 15 (11:00am)
Purchase price: $1,100,000
Deposit: $50,000 (due within 48 hours of removal of all conditions)
Included Items: fridge, stove, dishwasher, built-in microwave, window blinds, garage door opener, hot tub, pool accessories
Closing / Adjustment Date: May 30
Possession Date: May 31
Condition 1: Financing to be approved on or before April 29
Condition 2: Home inspection to be completed on or before April 29. This may include septic tank and/or pool inspection
Condition 3: Buyer to receive and approve contents of city property file on or before April 29
Term: Seller to have septic system pumped on or before closing.
Offer deadline: April 15 (7:00pm)
A few hours after submitting the offer we hear back from the seller’s agent. They countered back with a purchase price of $1,150,000 and everything else to remain the same. After some discussion Andy and Sally decided to accept the counter offer. The recent sales supported this price and they felt it was reasonable. They put their initials by the new price on the contract and their agent sends it back to the seller’s agent. There is now an accepted offer!
Retain A Real Estate Lawyer
To do the registration of title at the Land Titles Office they will need the assistance of a real estate lawyer. The lawyer will make sure there are no charges or liens on title on the day of closing and do property tax adjustments and other adjustments if needed.They call a lawyer with a good reputation and retain and set up a file with them.
Now that there is an accepted offer Andy and Sally bring the Contract of Purchase and Sale to their bank for final mortgage approval. Their lender sends the paperwork off and says it should take 5 or 6 business days for final approval. 5 days later they get the news - they’re approved!
Remove Other Conditions
Andy and Sally received the city property file and read through it. There didn’t seem to be anything of concern. They get a home inspection done on April 24 and they get the report back the next day. They read through the report and notice a few issues they would like addressed. One of the skylights seems to be leaking and the back deck doesn’t seem to have enough support underneath the hot tub. There were a few other minor issues that they were willing to take care of themselves but they wanted the seller to fix these two issues as they were a safety concern. Andy and Sally’s agent talks with the seller’s agent and explains the issues and reasons why they would like these items repaired. At first the seller wasn’t going to fix anything but after explaining the potential hazard of having a hot tub sitting on a deck with insufficient support beams and risk of water damage from the skylight they decided to agree to the repairs. The purchasers already had their financing in place so the seller didn’t want to risk losing a sale this late in the process. They hired a qualified contractor to do the repairs and provided invoices to the purchasers. Andy and Sally’s agent prepares a Removal of Conditions for them to sign and sends it off to the seller’s agent. Now all conditions are removed and it is a “firm deal”. They send the Removal of Conditions to their bank for their records.
Pay The Deposit
Now that all conditions are removed it’s time for the purchasers to pay the $50,000 deposit into the real estate brokerage’s trust account. This money sits there until the closing day then it will form part of the purchase price.
Home Insurance & Utilities
Andy and Sally meet with their insurance provider to get a home insurance policy effective on the closing date. They also call to set up gas, power, and water utilities as well as cable and internet effective on closing.
Other Legal Documents
While waiting for closing day Andy and Sally meet with their lawyer to go over some legal documents and final signatures for the transfer and legal registration of their property.
This is the day all money transfers hands from the purchaser to the seller. This is done through their lawyers. The bank sends the purchaser’s mortgage funds to the purchaser’s lawyer and the real estate brokerage sends the deposit to their lawyer as well. From here the purchaser’s lawyer sends the funds to the seller’s lawyer and releases it to the seller. There is also a BC Property Transfer Tax due at this time.
After waiting what seemed like forever, May 31st rolls around and it’s finally possession day! Andy and Sally get the keys to their new home and they can finally start moving in.
If you would like a copy of the Contract of Purchase and Sale so you can read it over before making an offer just let us know and we can send it over to you!
Cory Alexander: 250-575-5452
Taryn O'Donohue: 250-300-1311
Royal LePage Kelowna
1-1890 Cooper Road,
Kelowna, BC, V1Y 8B7
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