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Navigating a property purchase: Getting ahead of unexpected costs and risks

Purchasing a property is an exciting and significant accomplishment,  but the process can be comp...

Purchasing a property is an exciting and significant accomplishment,  but the process can be complex and confusing.

Across all types of real estate transactions, there is no “rulebook” to guide the process and buyers are often reliant on legal and real estate professionals to provide the education necessary to make informed decisions.

According to a CMHC survey conducted in 2019, while Canadian homebuyers’ attitudes were mixed in terms of their wants, needs and sources of information, many shared uncertainties about the homebuying process. Almost half (42 per cent) of respondents stated they were concerned or uncertain about the process of buying a home.

This uncertainty does not only apply to residential homes – those exploring commercial properties also struggle with the complexity and uncertainty of the buying process.

While this research was conducted last year, it demonstrates that uncertainty in the buying process was a trend even before the pandemic brought significant disruption to our lives – and one that will undoubtedly continue as we adjust to our “new normal.”

While real estate agents, brokers and lawyers serve as skillful and knowledgeable guides who will walk through each step with care, it’s important for the buyer to understand the right questions to ask, both during the transaction and well beyond it.

To celebrate Financial Literacy Month, we’ve put together some initial thoughts to help buyers take that leap.

Ask questions to understand costs and risks 

Most Canadians understand the process of purchasing a property is one of the biggest financial investments they will undertake – and one that will significantly impact their life.

However, there are typically many questions about the specific costs they will be responsible for during and following the closing process.

To effectively navigate the property purchasing process, it’s important for all prospective property buyers to ask as many questions as possible and to make sure they are asking the right ones.

At the outset of the property-buying process, prospective buyers should ask about the estimated total costs, including taxes and disbursements.

This should cover the down payment, monthly payments, insurance, fees and all other payments that may not be obvious to the buyer, such as the Land Transfer Tax or fees for hooking up cable, gas and other utilities.

Additionally, for buyers of commercial properties, there are other issues, such as readjustments with respect to tenant rents, that will be important to understand prior to the closing. 

Asking for a total estimated cost will provide full visibility from the very beginning, helping with budgeting and preventing any unexpected costs along the way.

It’s also important to understand what is included in each fee and how it’s paid.

Do you need to pay any legal fees upfront or are they included in closing costs? What is included in the legal fees?

Understanding the breakdown of each cost is critical to ensuring there are no surprises and that a property owner has full transparency about what exactly they are purchasing.

Title insurance: Protecting against unforeseeable costs 

For many, searching for and finding the perfect property is the exciting part, but understanding the risks and legalities can be a bit more challenging.

Lawyers, thankfully, have a responsibility to ensure the buyer receives the correct title to the property and that it is free of any liens or charges. Ideally they will have the opportunity to review all contracts before they are signed.

Yet, even if a lawyer does their due diligence and ensures every search has been done accurately, there are issues that may come up post-closing which even the most prepared lawyer could never have predicted.

For a residential home purchase, this could include a fraudulent transfer of the owner’s title or an unpaid utility bill from a previous owner.

On both the commercial and residential side, this could include a neighbouring owner claiming rights to the land, or an error in correspondence received from municipal and other governmental authorities when the lawyer conducted various searches.

Whether months or years later, it’s crucial that property owners are aware of unexpected costs that could appear in the future and do not overlook ways to protect against them.

Providing peace of mind through financial literacy

Financial literacy plays a key role in the property purchasing process and is critical to protect against future issues and there is no one party responsible for providing or seeking this education.

The onus lies on both sides.

Real estate professionals have a responsibility to ensure Canadians are prepared to navigate the complexity and uncertainty of the property purchasing process, while the buyer needs to ask important questions along the way to ensure they understand each step of the process.

At FCT, we are dedicated to giving buyers and the professionals they work with the confidence to complete real estate transactions efficiently, while providing full protection for the duration of their ownership.

This can save buyers a substantial amount of money and provides peace of mind in knowing they are not only prepared for the known costs, but also unknown costs or surprises which could arise.

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