The following information, found on the Real Estate Council of Alberta's website, can be used as informative guides when purchasing property or a new to you home in Alberta. If you think you are ready to purchase your first home, or want to develop on an empty lot, you can use the following information as a guide to help you through the process. To download the full version of The Home Buyer's guide by RECA, click here.
Are you financially ready to buy a home? Get a sense of your current monthly expenses, and make sure to take into account the following:
- Consider your down payment
- Ensure you have the deposit funds
- Budget for closing costs (these are separate from your deposit and down payment and are typically due on possession date)
- Get a sense of market conditions (including the buyers market, the sellers market and the balanced market)
- Market conditions affect the prices of homes, and sellers want to get as much for their property as they can, while buyers want to pay as little as they can so the market conditions will dictate who has a stronger negotiating position.
If you believe you are financially ready to buy a home, your likely next step is to find a licensee to assist you. In many cases, this will be a mortgage licensee (a bank employee or a licensed mortgage broker) and a real estate licensee.
It is important to find licensees you trust, who are able and willing to answer your questions and who suits your needs in general. Things to keep in mind include:
- Word of mouth referrals
- Searching online
- Finding out if they are licensed in Alberta
- Check the RECA website
- Interview some various options
Most buyers need at least some financing (a mortgage) to purchase a home. The two most common sources of a mortgage are directly through a bank, or through a mortgage broker. Typically, banks only offer their own mortgage products while brokers can source mortgage products from different lenders.
Interview Questions for a mortgage broker:
- are you licensed
- do you represent the borrower, the lender or both?
- do I need to sign a contract?
- what services do you provide and how will you help me?
- do you charge a borrowers fee?
- how do you receive compensation for your services?
- how many lenders do you work with?
- was most of your business done through one lender last year?
Your mortgage broker has tools to help you in your home search. Before you go house shopping, you want to know how much of a mortgage your income will support, and what affect your current debt load will have on a possible mortgage amount. You find this information out by getting a mortgage prequalification:
- A mortgage prequalification is a tentative approval from a lender for a mortgage based on your qualifications (i.e. income, down payment amount) made in advance of a purchase. The prequalification will provide you with the information needed to know how much of a mortgage you will likely be approved for; it'll help you ensure you're shopping for homes you can afford.
After you choose either a bank financial specialist or a mortgage broker to work with, get your paperwork in order. You may need to have certain documents available when you seek a mortgage prequalification, and you will definitely need them when you apply for a mortgage - these include:
- proof of employment (letter from employer)
- most recent Canada Revenue Agency Notice of Assessment\
- confirmation of income (for example, pay stubs of a T4)
- gift letter (if you're using a gift as your down payment)
Lenders will review documents, as well as your credit score, to determine how much of a mortgage you can afford. They will also review a couple key calculations to make that determination, including:
- Gross Debt Service (GDS) Ratio: Lenders use this to determine whether the borrower has an acceptable debt level. Your GDS is the percentage of your gross monthly income required to cover payments associated with housing. Payments include mortgage principal, interest, property taxes, heating, and half of your condominium fees (if applicable). Generally, your GDS should be no more than 35% of gross monthly income for lenders to consider you.
- Total Debt Service (TDS) Ratio: Your TDS is the percentage of your gross monthly income needed to cover your monthly debt load, which includes your housing costs, plus all of your other debt payments (car loan or lease, student loans, lines of credits, etc.). Your TDS should not be more than 42% of your monthly income.
It is unlikely a lender will approve a mortgage if the mortgage puts your GDS above 35% and your TDS above 42%.
It is always a good idea to use a licensed real estate licensee in your home search. When you interview real estate licensees you're considering hiring, these are the kind of questions you should ask them:
- how long have you been in the business?
- do you have a job other than as a real estate licensee?
- how many buyers did you represent in the last year?
- what services will you provide to me?
- what geographic areas do you serve?
- do you specialize in certain property types?
- how will you search for my new home?
- how do you handle multiple offers?
- how do you present my offer to the seller?
- what are the top three things that separate you from your competition?
- are you working as part of a team or will I always deal with you directly?
- how do you get paid?
- how much do you charge for your services?
- will you work for me exclusively, not the seller?
- how do you handle conflicts of interest?
- will you do a property evaluation on the home I want to buy?
- how do you keep me informed?
- how many clients do you work with at any one time?
Three legal relationships that will be important between you and your licensee:
1. An entire real estate brokerage can act as your agent. This is a common law agency relationship and means you have a relationship with all of the brokerage's real estate licensees.
2. An individual real estate licensee (or team of licensees) can act as your agent. This is a designated agency relationship.
3. You can be the customer of a real estate licensee. You do not have an agency relationship with anyone at the brokerage; they are not acting as your agent.
If you decide to enter into a client relationship with your licensee, they will ask you to sign a written service agreement. Written service agreements are required in Alberta when you're a client of residential real estate licensee. Written service agreements help real estate licensees clearly and confidently communicate with their clients about:
- the relationship between the parties
- the services to be provided by the brokerage
- the obligations and responsibilities of the parties
- consent for collection, use and distribution of personal information of the client
- method of calculation of remuneration or how the licensee will be compensated
Specific terms that can be negotiated:
- the duration of the agreement
- whether it's exclusive or non-exclusive (in an exclusive agreement, you agree to only use the services of that brokerage to represent you. In a non-exclusive agreement, you can use services of multiple brokerages at the same time)
- the remuneration (if any)
- services to be provided
- clauses for early termination of the agreement
In rare situations, you may run into a conflict of interest. This happens when there is incompatibility between a licensees' interests and yours. Some examples of common conflicts include:
- if you buy a home and the seller is related to your licensee.
- you want to buy a property that your licensee owns.
- you find a property you want to buy, but your real estate licensee also represents another buyer who wants to buy the same property.
- you find a property you want to buy, but your real estate licensee also represents the seller.
Licensees have an obligation to avoid, and disclose any conflicts of interest to you as soon as they arise.
That disclosure requires them to:
- give you all details they know about conflict
- explain why they believe they are in a conflict or potential conflict of interest
- describe how the conflict affects you
- advise you to obtain independent advice
Once you are aware of any conflicts of interest it is up to you how you want to proceed. You may want to get legal advice or you may want to proceed with a different real estate licensee. Licensees cannot provide services to you if they are in a conflict of interest unless you give them your written and informed consent.
Now the fun part begins. It is time to find your perfect home. Things to consider include:
- home style - condo apartment, condo townhouse, single family home
- number of bedrooms
- number of bathrooms
- features - garage, yard, basement suite
- inclusions - appliances
It is a good idea to make a list of your needs and wants so you can better focus your search.
Property size is one common consideration for buyers. Your licensee will talk to you about property size and the Residential Measurement Standard (RMS) in Alberta. Licensees in Alberta must use the RMS when describing a property's size.
Other considerations include:
- material latent defects
- includes defects that make a property more dangerous or potentially dangerous, makes a property unfit to live in, or makes a property unfit for the buyers purpose
- stigmatized properties
- suicides or deaths occurring at property
- property was the scene of a major crime
- address of the property has wrong numerals
- reports that a property is haunted
Special listing situations (or an as-is) sale may be cheaper in pricing but may have conditions attached. For example:
- you may not have access to condominium documents
- your purchase may require approval through court of law
- may be a set minimum deposit
- it is possible in a foreclosure situation, right up until possession day, that the sale can fall through
Once you found your perfect home, you have your deposit, and are ready to make an offer, there are a few things you should do to prepare:
- Review the real property report (a legal document prepared by an Alberta Land Surveyor that shows property boundaries and improvements)
- Search the address (an internet search can uncover quite a bit)
- Conduct a historical listing search
- Look into warranties and representations (Alberta has an online public registry of homes covered by new home warranty)
When writing up the offer, it is important to keep these things in mind:
- Offer price
- Terms (possession date, time for acceptance/expiry of offer, pre-possession inspection, etc.)
- Conditions (home inspections, document review, water or soil tests, etc.)
There will likely be some negotiations between you and the seller after you submit an offer. These are some examples of what could happen:
- if your offer is accepted by the seller, congratulations! If your offer contained conditions, your real estate licensee will help you do what needs to be done to satisfy those conditions
- if the seller rejects your offer, you can either submit a new offer, or look elsewhere
- if sellers provide a counter offer, carefully review it and any terms/conditions.
- A counter offer likely contains a different selling price, but the sellers may also counter on possession date, inclusions/exclusions, terms, or conditions
- If you want to accept their counter offer, make sure you review everything in it. If you want to change anything, you are providing the sellers with a counter offer rather than accepting their counter offer.
- if the seller ignores your offer, it is the same thing as the seller rejecting it. It is up to you how you want to proceed (new offer, or look elsewhere)
In some situations, multiple buyers can submit an offer to purchase property at the same time. It is the seller who determines the process, including whether they want to disclose the multiple offers. If the seller does disclose, your real estate licensee will:
- tell you of the multiple offer situation
- advise you of the sellers options
- attempt to personally attend the offer presentations
- advise you of YOUR options, including:
- increasing your offer prior to its presentation to the seller
- leaving the offer as it is
- withdrawing the offer
- reconsidering the fixtures, chattels, terms and conditions of the offer
- advise on other considerations that could improve your position including:
- a term or condition that will compel the seller to deal with the offer at the time of presentation or face withdrawal.
- a requirement that the seller not disclose the price and terms to any other buyer or face withdrawal
If your accepted offer was conditional, you need to try to satisfy your conditions.
Financing: if you included a financing condition, you need to confirm your financing before waiving this condition. You will need documents related to the property you're buying. These will likely include:
- a copy of your accepted Offer
- the listing sheet for the property you’re purchasing
- copy of the Real Property Report for the property (single family home/bareland condo)
- current title for the property
Home inspection: a home inspection is a professional opinion on the condition of a property based on a non-invasive examination of its features and components. The home inspector will give you a written report on their findings. Things being inspected include electrical, heating/air conditioning, roof, and foundation, as well as moisture problems
If you meet all of your conditions and you're prepared to proceed with your purchase, your real estate licensee will provide you with a waiver to sign. If you do not waive all of your conditions, your accepted offer is null and void.
If you waive your conditions and end up not proceeding, you could lose your deposit and may be subject to legal action. Only waive your conditions if and when you're confident you're going to proceed with the transaction.
You will need to find a real estate lawyer to go over all legal documents with you, including he RPR and the land title. They will also highlight possible restrictions or caveats registered against the property, discuss closing costs, disbursements, and have you sign the documents to transfer the title to you after payment. Some lawyers require two pieces of identification.
Your lawyer will also discuss title insurance with you. Title insurance works like a standard insurance policy, and protects against future discoveries about insured property. There are two types:
1. Lender's title insurance policy (borrower usually pays for this and is for the sole benefit of the mortgage lender.
2. Owner's title insurance policy (this title insurance may relate to coverage for title and non-title issues)
Another thing to think about is Additional Closing Costs. These include things like:
- Property tax adjustments, reimbursements, lawyer fees, and title insurance costs