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June 3, 2006
Top 10 things to beware of when buying resale |
Buying a resale home may seem deceptively simple since it is common
practice to use an industry-approved form offer and pop in a few
"standard" conditions like mortgage financing and home inspection.
Based on my experience with thousands of transactions over the years, I
have compiled a "top 10" list of things to watch out for when submitting
an offer to purchase a resale home. Here they are, in no particular
order.
1. Many offers are still prepared with wording that allows the final
purchase price to be paid "by cash or certified cheque" on closing. If
the buyer pays in cash, the seller will have a serious problem trying to
deposit several hundred thousand dollars in 20s and 50s into a bank
account. Do the words money laundering ring a bell?
2. Conditions are often drafted allowing a buyer several "business" days
to obtain financing, complete a home inspection or review a condominium
status certificate. Very few offers, however, define the term "business
day." Since some banks and many businesses are open on weekends, the
fuzziness of the words "business day" can easily lead to litigation,
unless the term is clearly defined. I prefer to use calendar day instead
of business day, or even to insert a specific date.
3. Most offers I have seen lately caution the buyer that current value
assessment (CVA) is being implemented and that the parties will not sue
each other or the agents for any change in assessment. (In fact, the
Ontario government implemented CVA in 1998.) Any clause releasing an
agent from liability for negligence or misrepresentation does not belong
in an offer between buyer and seller. That clause should be deleted and
replaced with a clause stating the precise amount of taxes for the
current and previous years. A copy of the tax bill can be attached.
4. For some bizarre reason, the printed offer form used by the Ontario
Real Estate Association and Toronto Real Estate Board allows until 6
p.m. on the day of closing to finalize the transaction. Since the
Teranet land registration system shuts down at 5 p.m., it becomes a huge
problem for the parties to figure out what to do in the hour between 5
and 6 if the deal can't be registered. I recommend adding a specific
clause changing the deadline from 6 p.m. to 5 p.m.
5. If the house or condominium being purchased was built and occupied
within the last seven years, a copy of the Tarion new home warranty
should accompany the offer. A current home warranty is an important part
of the sale and purchase of any nearly new home and should always be
made available by the listing agent.
6. Thousands of Canadian homes have been used as marijuana grow
operations or drug labs. An offer to purchase is not complete without a
warranty that the house or condominium has never been used for these
illegal purposes. Some purchasers are also starting to ask for
guarantees that the home carries no other stigma such as being the
location of a murder or suicide.
7. Recently I've had some clients complain that the home of their dreams
has been left on closing in a mess, with mounds of garbage everywhere,
inside and out. A well-drafted offer will have a clause requiring the
home to be left in "broom-swept" condition by the seller.
8. When purchase negotiations stretch out over several days, the quality
of the offer document deteriorates rapidly after being faxed and
re-faxed repeatedly. Not long ago, I received an offer that was one big
black smudge, and totally illegible. I advised the real estate agent
that I could not accept the retainer and open a file until I had a copy
of the agreement that I could decipher. My rule is that if I can't read
the offer, a judge won't be able to either when he or she is asked to
figure out what it really said.
9. One of the most important things for purchasers of freehold property
to know is the size of the land underneath the house and where the house
sits in relation to its lot lines. Far too many offers take the easy way
out and simply say the lot size is "as per deed." In my view, if the lot
size isn't available, the listing agent's job isn't finished.
On the same theme, the most important document in a house purchase is a
survey. Unless there's written proof that a survey does not exist or has
been lost, there is no excuse for failing to attach a legible survey to
the agreement or, preferably, promising in the offer that the seller
will provide a new one. Title insurance cannot replace the many benefits
of having a survey; it only insures over the resulting problems.
10. A surprising number of Toronto-area properties have not been
converted to Ontario's electronic land registration system because the
folks charged with the conversion to the land titles system view the
historical title as defective. Lately, I've seen more than my fair share
of these bad titles, and the non-conversion to the land titles system
often leads to a dispute between the lawyers for buyer and seller over
the issue of how serious the defect is.
I recommend to my clients that they insert into their offers a clause
that requires the title be electronically registered in the land titles
system before the purchaser can be required to close.
Finally, I've added one free bonus to my top 10 list:
11. Agreements of purchase and sale should be conditional on the
approval of the lawyer for each party. If the lawyer can't be consulted
before the offer is signed, the parties can be fully protected only if
they have the opportunity to obtain their lawyer's approval before the
deal goes firm. If a lawyer approval clause is missing from the offer,
the parties are not being adequately protected.
Bob Aaron is a Toronto real estate lawyer. He can be reached by email
at bob@aaron.ca, phone 416-364-9366 or
fax 416-364-3818. Visit the column archives at
http://www.aaron.ca.
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