Buying a home is an exciting life event. Learn the key factors to consider before you make an offer, and the steps involved in buying a home in British Columbia.
What you should know
You may decide to look for a home on your own or you may use a professional to help you. There are advantages to working with a real estate agent. Agents can help you clarify the type of home you need and can afford. They are connected to networks of potential sellers and can help arrange appointments to view available properties. And they can help you navigate a complex process by:
explaining the forms used and helping you make a written offer to purchase
presenting your written offer to the seller
explaining the steps to complete the purchase after the seller accepts your offer
As well, keep in mind the seller typically pays both realtors (the seller’s realtor and the buyer’s realtor) from the sale proceeds after selling their home.
Before you start looking for a new home, it’s important to consider how much you can afford to pay. This will allow you to spend your time looking at homes in your price range.
Almost everyone who buys a home borrows some of the money needed to pay for it. The cash you can apply towards buying a home is called the down payment.
Obtaining a loan to borrow the rest of the money typically involves signing a document called a mortgage. This document sets out the terms and conditions for the loan and its repayment. If you fail to meet your obligations under the mortgage, the lender may have the right to take your home to pay off what you still owe.
The easiest way to learn how much money you will be able to borrow as a mortgage loan is to meet with one or more financial institutions. These lenders will look at your family’s current income and debts and do a credit check to decide how much they will lend to you.
A home is often the most expensive thing you’ll ever buy. Yet the purchase price is not the end of it. There are many extra costs when you buy a home, in legal fees and other transaction costs, and particularly in taxes.
Property transfer tax
When you purchase property in BC that is registered at the land title office, you're responsible for paying property transfer tax. You pay the tax based on the purchase price of the property. The tax rate is:
1% on the first $200,000 of the price,
plus 2% on the rest of the price up to $2,000,000,
plus 3% on amounts over $2,000,000,
and, for a residential property, another 2% on amounts over $3,000,000
If you’re purchasing your first home, you may qualify to reduce or eliminate the amount of property transfer tax you pay. There are other exemptions as well. For details, see the BC government website.
Other taxes apply in certain circumstances.
If you are a foreign national, you must pay an additional property transfer tax of 20% if the property is within specified areas of BC. These include Metro Vancouver, Greater Victoria, Fraser Valley, Central Okanagan, and Nanaimo.
Goods and services tax (GST) of 5% applies to the purchase price of all newly-constructed or substantially renovated homes. GST also applies to most legal fees and other costs of buying a home.
Provincial sales tax (PST) of 7% applies to most legal fees and other costs of buying a home.
If you find a home you want to buy, you must make a written offer to buy it. Verbal offers and agreements for land may not be valid. A realtor can provide a form, usually from the local real estate board, called a contract of purchase and sale. Read it carefully, as this offer can lead to a legally binding contract. If there’s anything in it you don’t like or doesn’t apply, cross it out with a pen, then initial the change. Get the seller to initial any change as well.
What to include in the offer
Give the seller a time limit to accept your offer — normally a day or two. If the seller doesn’t accept it by then, your offer expires, allowing you to make an offer to someone else.
When someone sells a home, all the fixtures go along with it. Generally, a fixture is anything that’s attached to the home to the point where removing it would damage the home or require repair. The bathroom sink is an obvious example. The appliances — such as the washer, dryer, fridge and stove — are not fixtures. It’s best to specifically list in the offer anything that might be thought to be a fixture, that you want the seller to include in the sale — such as appliances, curtains, mirrors or chandeliers. Add a sentence that the purchase price includes these items and make sure each item is listed.
You might want to make your offer conditional on the home passing an inspection by a professional building inspector. To do this, you can use a subject to clause, which spells out a condition that must be met before a sale proceeds. While the seller usually gives you a disclosure statement listing any potential problems the seller knows about, you might still want your own inspector to look at the home.
You can also use a subject to clause if you must sell your own home before you can buy the new one. You can make your offer conditional on selling your current home by a date you set.
If you need a mortgage, you can make your offer subject to getting satisfactory financing. This is wise even if the bank has already pre-approved a mortgage amount, just in case.
You may consider a statement saying the offer is subject to your lawyer’s approval, so you can have a lawyer check the offer before it becomes a binding contract.
How much to pay as a deposit
When you make an offer, you’ll have to make a deposit, which you’ll want to keep as low as possible. The normal deposit is 5% to 10% of the purchase price. The deposit should be paid to the realtor in trust, not directly to the seller.
The seller may accept your offer, or may cross out some of your terms and add new ones. If the seller changes your offer in any way, it becomes a new offer by the seller known as a counteroffer. The counteroffer cancels your original offer. You must then decide if you want to accept the counteroffer or make a counteroffer of your own to the buyer. You do not have to accept a counteroffer.
Buying a home is a major expense and a complicated process. As well, there are risks of very bad things happening when buying real estate, if you’re not experienced and watchful. For example, people can:
use a false identity to pretend they are the true owner of a property and sign documents fraudulently
sell the same property several times in back-to-back transactions to falsely inflate its asking price
These are two examples of real estate fraud. To protect yourself, you should consider using a lawyer to advise you through the process of buying a home.
The process to buy a home
Decide if you are going to look for a home on your own or hire a real estate agent.
If you decide to use a realtor, pick someone you trust and are comfortable with.
When you find a home you want to buy, make an offer to purchase. A realtor can help you write up the offer on the local real estate board’s contract of purchase and sale form. Include any subject to clauses for conditions that are important to you, as discussed above.
Perhaps you got pre-approval for a mortgage before making an offer to purchase. If not, as soon as you and the seller have signed a contract for purchase and sale, you should begin the process to get a mortgage, if you need one.
Shop around to get the best terms, and promptly give the mortgage company any documents and information it needs. Usually, a mortgage company will need an appraisal of the home before it promises to give you the mortgage. Often, this appraisal will be done at your own expense.
As well, the mortgage company may require certain documents prior to the completion date (the date the property transfers from the seller to you and you become the owner). For example, the mortgage company may require:
Proof of insurance, showing you’ve organized fire and liability insurance coverage for the home.
A survey certificate, showing the home is within the property boundaries.
Title insurance, which is an insurance policy that protects you and them from problems related to the property’s title, such as unpaid liens, an encroachment that isn’t discovered until later, or fraud.
When you’re satisfied with the results of any subject to clauses or conditions (for example, the home inspection is fine), you should give written notice to the seller that you’re removing the conditions. Once you do this, the offer or counteroffer becomes a legally binding contract. There is no further cooling-off period to change your mind and cancel the contract.
If you can’t meet the conditions and don’t remove them, the contract ends and you don’t have to buy the home.
Most home buyers hire a lawyer or notary public to help with the paperwork to transfer legal ownership of the home in exchange for the purchase price of the home.
The lawyer or notary will do a title search, which shows the registered owner of the home and any charges registered against the property, such as mortgages, liens, or easements. Any existing mortgages and liens will have to be discharged by the seller as part of the sale.
Before the completion date, your lawyer or notary will prepare a document called the statement of adjustments. This document shows all money coming in and going out. It covers things you and the seller share, such as the annual property tax bill (the seller is responsible for the portion of the bill until the sale completes, and you’re responsible for the portion for the rest of the year). The most important figure for you is the amount you need by the completion date. This is the money you must pay, in addition to your mortgage.
Your lawyer or notary also prepares the transfer documents and sends them to the seller’s lawyer or notary. The seller signs the documents and returns them. Then, when your lawyer or notary has your down payment money and the letter from your financial institution promising the mortgage amount, they register the transfer documents and the mortgage with the land title office.
When the land title office confirms the registration of the transfer documents (and your financing cheque has arrived), your lawyer or notary gives the purchase moneys to the seller.
The realtor is then instructed to give you the keys to the home. Enjoy!