At the bottom of the signature page
of a real estate sale contract, more correctly called an Agreement of Purchase and Sale (APS) -
whether buying or selling, is an area where the parties to the contract affix
their signatures, address, phone number and lawyer's contact information.
By signing, the parties are simply
acknowledging receipt of a true copy of the real estate contract, which is
legally necessary to form a binding
contract between the parties.
When you buy a home, you obviously
require a down payment. Unless you have sufficient cash to pay the entire
purchase price, you'll also require a mortgage.
A deposit is submitted with your
offer upon acceptance of your offer by the seller. This deposit is credited
toward the purchase price on completion (closing) as part of your down payment.
The balance of your down payment, in addition to the full mortgage advance from
your lender, is also paid to the seller on closing and adjusted to reflect such things as prepaid property taxes, monthly condo fees or fuel oil.
This document is used when one or
more of the terms of your real estate contract require changing after it's been
executed by both the buyer and seller. Real
estate clauses, the price or completion date may be deleted, inserted or
altered. To be legally valid, it must be signed and dated by all parties
to the agreement, with each receiving a true copy prior to the irrevocable
(expiry) date of the amendment. It's also preferable to have signatures
Chattels and Fixtures
In a typical APS, items such as
appliances, carpets, plug-in electric lights, pool tables or curtains are
often, but not always, included in the contract. As these are movable and not physically attached to the
property, they are referred to as chattels. And unless specifically
mentioned as being included in the contract, they are automatically excluded.
Fixtures, on the other hand, include such items as furnaces, air
conditioner systems, drapery tracks, and built-in appliances, installed
broadloom, hard-wired electric lights, garage door openers, owned security
systems and satellite dishes and attached swimming pool equipment. Anything
that is physically attached to the
property is automatically included in the purchase unless specifically
excluded in the real estate contract.
Chattels, however, must be written
into the agreement to be included in the sale, otherwise, they're automatically
excluded from the sale.
items, such as hot water tanks, water
softeners and sometimes furnaces and air conditioners are excluded from a sale
because a seller has no right to sell them. The buyer must agree to assume the rental
contract(s) as part of the agreement. If there's no reference made to rental
items, a problem could arise after closing when the rental company demands
payment. If unpaid, they typically have the right to remove their equipment
from the property or, depending on the terms of the rental contract, go after
the previous owner.
When a homeowner enters into a
listing agreement with a real estate brokerage, authorizing the brokerage to
market their property, the homeowner agrees, amongst other things, to pay the
brokerage for its services by way of a commission, usually but not always
calculated as a percentage of the sale
price of the property. It could also be a flat fee, and is payable upon
the date set for completion (closing) of the APS.
Confirmation of Acceptance
Once the negotiations of an APS are
complete, the last party to affix their initials to the document must also add
their signature, date and time on the appropriate line on the signature page.
This confirms the final acceptance date and time from which the clock begins to
tick for any time-related conditions that may be contained in the agreement.
When a buyer and seller enter into
an APS, along with numerous other terms and conditions, the agreement must
include a completion date when the balance of funds are to be paid by the buyer
to the seller in exchange for possession and the transfer of clear title to the
buyer. The more common real estate terminology for this is activity closing date.
Deposit vs Down Payment
This real estate terminology refers
to monies submitted with or upon acceptance of an offer. It is often confused
with the monies paid by the buyer on closing. It is not the down payment. It's usually made payable to the listing
brokerage, held in their trust account and credited to the buyer on closing as
part of their purchase price.
The deposit provides a level of
comfort to the seller that the buyer will honor the terms of the agreement and
close on the date agreed for completion.
Occasionally, a brokerage will
represent both buyer and seller in the same transaction. Both parties must
provide written consent to this arrangement prior to entering into any APS.
Since the brokerage's loyalty is divided between each of the parties, who
obviously have conflicting interests, it's absolutely essential that a dual representation relationship be properly
explained, documented and acknowledged by all parties.
Since easements are extremely
common, this real estate terminology rarely crops up in the home trading
business. An easement, which is registered on title, is a non-possessory interest in real
property owned by someone else to use for a specific purpose. Often, utility
companies have easements in order that they may enter upon a property to
service their equipment.
This real estate terminology refers
to the unauthorized intrusion
onto the lands and property of another.
The right to an encroachment by one
landowner over an adjoining owner's property is sometimes granted by express
written agreement. Examples are when a window sill, eave, deck, porch or
chimney extends over a side yard area. This is particularly common in older
urban areas with narrow side yards. When the overhang is no longer present, the
encroachment ceases to exist. No right to substitute an encroachment exists if
one is lost, except by further agreement.
An agreement permitting the
encroachment of an improvement onto an adjoining parcel of land may be
registered against the title of both properties affected by the encroachment.
Because the term of a condition
pertaining to the sale of the buyer's property is typically longer than that of
arranging financing, for example, it would be unreasonable for a buyer to
expect a seller to accept an offer that included such a condition without an
escape clause for the seller.
Typically, such a condition extends
for a period of 30 to 60 days, during which time, the buyer is supposed to be
aggressively marketing their home to fulfill this condition. If it weren't for
the escape clause, the seller's home would be effectively off the market. However, with the
escape clause, the seller may continue to market their home and entertain
offers from other buyers.
This bit of real estate terminology
is from a listing contract with a seller. It refers to the period following the expiry of the contract.
The duration is agreed upon between the agent and the seller(s), but is
typically 60 to 90 days.
For example, if the original
brokerage commission was to be 5%, and the seller signs a new contract with a
competing brokerage at 4%, and the property subsequently sells to a previously
introduced buyer as described, then the seller may still be liable to pay the
first brokerage a commission of 1% of the sale price plus GST.
An irrevocable date is always
included in an offer to purchase or an amendment to an existing contract. If
the recipient of the document fails to accept it during this open period, by
affixing their signature(s), and prior to the irrevocable date, then the
'offer' effectively will expire. The offer cannot be legally revoked or
withdrawn by the party making the offer once they sign it. But it is
automatically revoked if not accepted by the recipient prior to this date.
Lawyer's Title Opinion
This is a service provided by a
lawyer in the form of a letter stating the lawyer's view of whether or not a
buyer has good and marketable title to the property. It includes search and inquiry results, along with
any outstanding issues that may affect future title to the property.
In any real property transfer,
including any and all documents pertaining to a transfer, the legal description
must be included. This entails adding the municipal lot and plan numbers,
possibly a block or reference plan number, or in the case of a condominium, the
corporation, level and unit numbers. For a rural property, it would be the
concession and lot or part lot numbers, possibly east or west half or something
similar, approximate acreage and the frontage, depth and any irregularities of
the lot or parcel.
Liens and Encumbrances
A lien is a form of non-possessory
security interest granted over a property to secure the payment of a debt or
performance of some other obligation. There are many types of liens, but most
common are mortgages, secured credit
lines, mechanics liens or those granted as security for installed rental
equipment such as a furnace.
An encumbrance is a legal term for
anything that affects or limits the title of a property, such as a mortgage, lease, easement, lien or
restriction. Also, those considered as potentially making the title
defeasible (voidable) are also encumbrances. For example, charging orders from
a court on behalf of a creditor, or a work order from the local municipality
can result in a title transfer not being fulfilled unless such order is
The highest price in terms of money,
that a property will bring to a willing seller if exposed for sale on the open
market, allowing a reasonable time to find a willing buyer who is buying with
the knowledge of all the uses to which it is adapted and for which it can be
legally used, and with neither buyer nor seller acting under necessity,
compulsion nor peculiar and special circumstances.
Market value is not to be confused
with market price, which is an
accomplished or historic fact, as the amount paid or to be paid for a property
in a particular transaction. Market price tends to closely align with market
value in an efficient market system involving willing, informed parties acting
rationally and prudently and given reasonable periods of time with no undue
influences. Successive market prices in the sale of comparable homes form the
basis of estimating the market value of a particular property.
A mortgage loan is a loan secured by
real property through the use of a document which evidences the existence of
the loan and the encumbrance of that realty through the granting of a mortgage
which secures the loan. However, the word 'mortgage' alone is most often used
in everyday usage to mean mortgage loan. More simply stated, when someone with
insufficient cash to pay the full price wants to purchase a home, they must
borrow the needed balance from a credit union, bank or trust company
(mortgagee). Mortgages can also be arranged with the services of a mortgage
broker or agent.
When the parties to a contract,
whether an APS, listing contract, BRA or lease, wish to terminate and release
each other from a contract, they enter into a mutual release. When fully
executed by all parties to the contract, this legally binding document, which
sometimes includes the brokerage(s), effectively puts an end to the agreement.
In the case of an APS, instructions
to the deposit holder (usually the listing brokerage) are included for the
disposition of any deposit paid previously by the buyer. Usually, but not
always, the deposit is returned to the buyer without interest or deduction.
Notice to Conditional Buyer
If a buyer submits an offer on a
property that is conditional upon the sale of their present property, it'll
include an escape clause for the seller. The seller will continue to market the
property while the buyer is busy trying to sell their present home.
If the seller receives another
acceptable offer, the seller can accept it, conditional upon being released
from the APS they have with the first buyer. Through their agent, they deliver
a Notice to Conditional Buyer (NCB) to the buyer, the buyer agent or to the
Once delivered, the buyer will have
48 hours or whatever time period was established in the APS, to either waive
(remove) the condition or conditions (depending on how the clause was phrased
in the APS) or execute a mutual release. If the buyer signs a waiver, they've
bought a house. If they release, they're out and will receive a refund of any
Notice of Fulfillment
When a buyer submits an offer, it
usually contains at least one condition and probably more, especially if
they're buying a rural property. For example, time is needed to arrange a new
mortgage or a home inspection. Once a firm written commitment from the lender
or a satisfactory report from the home inspector is received, the document to
sign is called a Notice of Fulfillment (NOF). This is delivered to and signed
by the seller which acknowledges the condition(s) has been fulfilled and the
purchase is now unconditional.
In common practice, however, many
agents mistakenly use a form called a Waiver.
This form actually just removes the condition from the APS and fails to state
that the condition was fulfilled. The two forms ultimately accomplish the same
result, but in a different way. If there's any conflict later, such as a
misunderstanding regarding mortgage approval, a buyer agent might regret not
having had the buyer execute the proper form in which the buyer confirmed they
actually fulfilled the condition and didn't simply remove it.
Null and Void
In law, the real estate terminology
of 'null' and 'void' mean of no legal effect. A transaction which is void is of
no legal effect whatsoever or an absolute nullity. The law treats it as if it
had never existed or happened.
For example, when a condition for the benefit of a buyer contained in an APS is
not fulfilled, the buyer declares the contract null and void or as having never
Periodically, a homeowner receives a
Notice of Assessment with a
value applied to their property. The local municipality or tax authority
determines the tax (mil) rate, which in conjunction with this assessed value,
establishes the amount of property taxes payable for that property.
An assessment increase doesn't
necessarily translate into higher taxes. And there are appeal options if the
homeowner disagrees with the assessment increase.
A ROW refers to the right to pass over
land owned by another party, more or less frequently, according to the nature
of the easement.
Representations and Warranties
All contracts contain
representations and warranties, which are basically the underlying matters or
facts as they're being presented in terms of the contract.
When selling real estate, the
sellers represents themselves to be the owners who have the legal authority to
sell the property, and warrant
that the property is as they represent it to be. A representation is defined as an account or statement of facts,
allegations or arguments. They present everything from its past to present
status and are created to induce someone to enter into a contract.
A warranty moves from the present to
the future. In real estate, when a seller warrants something, they're promising
that the 'item' is free of defects
and will repair or replace it if found otherwise for a specified amount of time
into the future. The warranty obligates the seller to the terms of the
Warranties can be either expressed
(written) or implied (verbal or assumed). Implied have less force in court.
Thus, a buyer should insist on any warranty being expressed, that is written
into the APS.
Used together, the terms
'representations' and 'warranties' are assurances that the seller gives to the
buyer that the buyer can rely on as factual.
This real estate terminology
involves the lawyer or closing service. A closing or completion date is the
date when funds are exchanged for a transfer/deed and possession of the
A requisition date, often referred
to as a title search deadline date, is the last date upon which a buyer's
lawyer can require the seller to clear up any title problems. This may be
important, especially if the buyer intends to mortgage the property. The lender
will require clear title before advancing any funds.
Sheriff's Execution Search
This vital function is performed by
the law office handling a closing. It's done for the current owners (soon to be
previous), as well as all named buyers of the property, and discloses any unsatisfied
judgments (claims) that may have been filed which may create a lien or interest
in the subject property. If any of the parties to the transaction are aware of
any judgments against them, they should inform their lawyer as early as
Seller Property Information
A SPIS (different monikers in different areas), a highly
controversial document, is designed in part to protect sellers by establishing
that correct information concerning a property is being provided to prospective
buyers of their property. Such statements assists buyers in the decision-making
Under the Family Law Act, if
a spouse is not named on the title to the property, the non-named spouse
must consent to the sale by affixing their signature to the APS where
appropriate, and to all other pertinent documents to give the sale full force
and effect. It refers not only to married couples, but also common-law
relationships, provided the non-titled spouse has resided in the property for a
certain period of time as described in the act. Therefore, no spousal approval,
no sale. Any transfers without such consent would be considered fraudulent.
This is real estate terminology
employed in the purchase and sale of condominium property. When a buyer makes
an offer on a condominium, they want to know they're not buying into an
A SC is a brief report on the current financial and legal health of the
corporation. When buying a resale condo, it's wise to include a
condition in the APS, providing the buyer's lawyer the opportunity to review
and approve this certificate.
It must also include a list of all
contracts to which the condo is a party, such as management and maintenance
contracts. A buyer may request copies of these contracts.
A buyer's lawyer will review the SC
and all accompanying documents and advise their client on whether they should
proceed with the purchase or abort it.
Under the Condominium Act,
management is permitted 10 business days to prepare it and charges a fee of
$100 including GST. Who pays this fee is negotiable.
The term 'survey' is loosely used -
sometimes erroneously - to refer to a Survey, Surveyor's Real Property Report
(SRPR) or a Reference Plan (RP).
An SRPR is a legal document that shows the location of all
improvements (buildings, decks, pools, fences, etc) relative to the boundaries
of the subject property. It usually includes an illustrated plan along with a
written report of the surveyor's opinion regarding any concerns. In a real
estate transaction, it may be relied upon by all parties to the transaction as
an accurate representation of the property.
An RP is a graphical representation of a description of land and is
necessary for a severance. It shows the boundary and dimensions and any
physical or documentary evidence that could affect property title, such as the
location of fences, hedges, retaining walls or overhead wires in relation to
the boundaries. Evident or registered easements and rights-of-way would also be
shown. Buildings and any improvements would generally not show unless they were
used for boundary positioning or encroach on the subject property.
Survive and Not Merge on Closing
In an APS of real property, a buyer
usually wants assurance that any chattels or fixtures included in the agreement
will be in good working order when they take possession. They want to know that
what they're paying for will be as represented by the seller.
However, once a transaction is
closed, when the transfer/deed has been exchanged for the closing funds, the
realty sale is completed. And so are all the obligations by both parties. Under
the Doctrine of Merger, all
obligations have merged or have been fulfilled, completed and satisfied unless
some provision was included in the contract.
To provide a buyer with assurance
that any seller warranty in the contract will be effective, the buyer must
insist that some reference for a warranty to survive closing be included in the
real estate contract.
An insurance policy typically
offered to a buyer by their lawyer, it is designed to protect against certain
undesirable situations that might limit or affect the use, marketability or
forced removal from the property. Example could be surprise restrictive
covenants, zoning, location on conservation authority lands, a building
encroachment onto adjoining property, defects which would be discovered by a
local authority search, improvements built without a permit, a future forgery
claiming an interest in the property, future construction of an encroachment
onto the lands or matters which would be revealed by an up-to-date survey. Also,
taxes, special assessments, utilities and condominium arrears may be covered in
most title insurance policies.
Title insurance can simplify real
estate transactions. For example, a policy may eliminate the need for an
up-to-date survey, thereby saving money for a buyer, and possibly avoiding
closing delays. Title insurance is often promoted as a method to avoid last
minute title defect problems that could destroy a sale. Advocates cite the
benefit of title insurance for a lender, who receives certain assurances.
Title search is the process normally
performed on a purchase of real property, or when an owner wishes to mortgage
his or her property, primarily to ensure that a seller has the right to sell or transfer a property. It provides
information regarding any restrictions or allowances pertaining to the use of
the land, such as real covenants or easements. Also, if any liens exist on the
property which need to be discharged at closing, such as mortgages, municipal
tax arrears or mechanic's liens. It's completed prior to closing and before the
Requisition Date included in the APS.
Since documents concerning
conveyances of land are a matter of public record, anyone can perform a title
search. However, it's advisable to hire a title company or lawyer to conduct an
exhaustive search. A title report may show recorded legal rights to the
property such as a right to share a driveway given by a previous owner to a
neighbor. Or the municipality may have the right to strips of the property for
installation of power or communication lines or water or sewer pipes.
This real estate terminology refers
to a property, usually occupied by the homeowner or tenant, that is for sale on
the understanding that the present occupants will vacate (move out) prior to
completion. The seller must remove all chattels not included in the APS. The
buyer can move into the property immediately upon closing. The same applies at
the end of a tenancy.
When a property is sold subject to
an existing tenancy, such as when an investor buys a tenanted property and
agrees to assume the tenant, then vacant possession will not apply. Or there
may be part vacant possession with only certain rooms, levels or a basement
apartment occupied by a tenant.
If a buyer wishes vacant possession
of a property that is currently tenanted, they may not be able to evict the
tenant, and certainly not prior to closing since the buyer is not the landlord.
The buyer will have to appoint the seller - in writing - to act as their agent
to provide the tenant with appropriate notice to vacate. Even then, the tenant
may not comply.
When a buyer purchases real
property, the offer often includes conditions to facilitate such requirements
as arranging satisfactory financing, a home inspection, well water portability
test or to sell their present property. When such conditions are fulfilled,
they may sign a waiver form which effectively removes the condition(s) from the APS. Technically, if the
condition has actually been fulfilled, the correct form to execute would be a Notice of Fulfillment of Condition,
but waivers are often used erroneously in its place.
A waiver would be used correctly if
the buyer wanted to remove a condition if that particular condition had not yet
been fulfilled. For example, if the buyer decided not to pursue a home
inspection even though they had the right to do so, they would sign a waiver.
These are rules established by
various levels of government for controlling the usage of specific parcels and
individual lots of land and set aside land for certain predefined purposes. In
an urban area, for example, some land is zoned residential and some commercial.
If one wishes to sell or buy property in an area, how the property is zoned, be
it commercial or residential, could be an integral component in the decision
process. Each zone type, sometimes referred to as a zoning district, has its
own set of restrictions regulating how such type may be used.
One of the main functions of zoning
requirements is to ensure that adjacent lands have compatible uses. Most people
would not want a noisy, unsightly factory next to their home. Each zone type
has its own restrictions regarding the kind of activity that can occur within
its boundaries to ensure compatible activities.