FAQ FOR HOME BUYERS
WHAT IS A SUBJECT?
Subjects are essentially conditions that must be met in order for the deal to become firm, or official. These subjects might include: subject to financing, inspection, property disclosure statement, title search, or strata documents – to name a few. They are completed during the subject removal period, which is the time that you actively work to remove these subjects in good faith.
For more details on the types of subjects and clauses used in a contract, check out this blog: Real Estate Clauses for Contracts
WHAT IS THE SUBJECT REMOVAL PROCESS AND HOW LONG DOES IT LAST?
The subject removal period is a time where the buyer (most commonly) is able to do their due diligence on the property with regards to the subject(s) included in the contract, such as making sure financing is in place, documents are reviewed and satisfactory, and an inspection on the property or building has been done, before they are fully committed to the property purchase. Subjects are typically for the sole benefit of the buyer (for example: subject to financing, inspection, property disclosure statement, title search, or strata documents), but there may be unique cases where there is a subject for the seller (in extremely hot markets for example, subject to the seller finding a home!).
The subject removal period is negotiable, and can be as short as a 3 day rescission period (subject free offers in BC) or weeks. It is common to see a 7 day subject removal period (oftentimes 5 business days + the weekend) depending on the timing of when you got the accepted offer. The amount of time you need for a subject removal period can be different per person, so it’s important to check in with your realtor and mortgage broker to make sure you have enough time to be able to do your due diligence.
Once all subjects are removed, the property transaction is considered “firm” and the buyer is committed to complete.
For more details on subject removal, check out our blog post here: Subject Removal in Real Estate
IF I DON’T REMOVE SUBJECTS DO I LOSE MY DEPOSIT MONEY?
The subject removal period can be seen as a safety net for the buyer, and during that period of time the buyer is able to “collapse” due to inability to fulfill/complete/be satisfied with one or more of the subjects.
Typically, if there is a subject removal period then the deposit will be due either upon subject removal or within 24 hours after you have removed subjects. This means that if you back out of the deal during subject removal because you couldn’t obtain adequate financing (ex.) then you would not lose any money as you would not have handed in your deposit.
Keep in mind that if you are writing a subject free offer in BC that the rescission fee of .25% of the purchase price would apply as a penalty in the event you choose to collapse.
However, if you choose to remove subjects, you then hand in your deposit, and the deal now becomes “firm.” Once the deal is firm, the next step is to proceed with completion & possession. The only case where you would likely lose your deposit (and more likely be sued) is if you back out of the deal once it is already firm. The deposit is there as collateral to compensate the seller in the case that the buyer does not complete the deal after already removing subjects or passing the rescission period.
WHAT IS THE COMPLETION, POSSESSION, AND ADJUSTMENT DATE?
The completion date is the day that the money for the purchase is paid by the buyer to the seller and the buyer gains title of the home.
The possession date is the day you get the keys to your new home and can start moving in.
The adjustment date is the day that calculations for such items as property taxes, water accounts, rents, damage deposits, etc. are modified.
In Greater Vancouver, the possession and the adjustment date are typically the same day, with the completion day being at least 1 day earlier.
HOW MUCH MONEY DO I NEED FOR A DOWN PAYMENT ON A HOME?
The amount of money that you are required to put down depends on the amount that you are purchasing. The minimum down payment rules in BC and Canada are as follows:
- For homes with a purchase price less than or equal to $500,000, the minimum down payment is 5%
Example: $500,000 purchase price
$500,000 x .05 = $25,000 minimum down payment - For homes with a purchase price greater than $500,000 and less than $1 million, the minimum down payment is 5% of the first $500,000 plus 10% of the remaining balance
Example: $750,000 purchase price
$500,000 x .05 = $25,000
$250,000 ($750K-$500K) x .1 = $25,000
Minimum down payment required on a purchase of $750,000 = $50,000 - For homes with a purchase price of $1 million or more, the minimum down payment is 20%
Example: $1,000,000 purchase price
$1,000,000 x .2 = $200,000 minimum down payment
If you put LESS than 20% down, you are considered to be high-ratio mortgage and your lender will require that you get insurance through a company (E.G. CMHC) In this case, you are required to pay a premium for this insurance, which your mortgage broker or bank can factor in to your monthly payment.
When determining how much to put down, we recommend you speak to your mortgage broker to determine your affordability at each down payment and your realtor to assess the options within your budget.
WHAT IS THE DIFFERENCE BETWEEN DEPOSIT AND DOWN PAYMENT?
The deposit in real estate forms a part of the down payment, and is typically due upon or within 24 hours of removing subjects. The purpose of the deposit is to provide collateral to the seller, and show good faith that the buyer will move forward with completion.
The down payment is the total amount you are putting down towards the property purchase, and is due at completion.
For example, a deposit is typically 5% of the purchase price in BC. If you plan on putting 20% down in total, then the 5% deposit initially put down to secure the home would blend into your total 20%, meaning that only 15% additional funds would be due at completion for your down payment.
EX. continued:
Total down payment: 20%
Deposit: 5% due at subject removal
Remaining down payment: 15% due at completion
For more information on deposits, check out this blog: Deposits in Real Estate
ARE THERE FIRST TIME HOME BUYER PROGRAMS TO HELP WITH PURCHASING?
Yes! There are plenty of first time home buyer programs available and you should ask your mortgage broker when you get your pre-approval which ones apply to you.
To name a few in BC, you could qualify for:
- Property Transfer Tax Exemptions on Resale Homes
- Home Buyers Plan (RRSP withdrawal benefits)
- 30 Year Amortizations on New Builds (vs 25)
- First Time Home Buyer Tax Credits
There are often updates, changes, and new programs arising as well. Make sure you are aware of what options are available to you, and check the specifications to confirm that you qualify. Typically, these types of benefits are only available if you are purchasing your home as a primary residence to live in, and NOT an investment property.
WHAT KIND OF CLOSING COSTS SHOULD I ANTICIPATE WHEN I BUY A HOME?
Closing, aka completion, is when any remaining down payment funds plus additional fees (closing costs) need to be paid.
Common closing costs by the lawyer include:
- Property transfer tax
- GST for new build homes
- Legal fees
- Property tax / utility adjustments
- Maintenance fee adjustments for strata homes
You should also take into account any fees that may come up during the subject removal period, such as an appraisal fee or home inspection fee. There may also be additional fees such as moving expenses, mortgage and/or title insurance, property surveys, property insurance and more that you’ll want to account for.
To determine how much you should have set aside in addition to your down payment, you should contact a mortgage broker and realtor to make sure you have a full picture of the cost of buying a home.
You may also want to check out our blog post on “Cost of Buying a House in BC.”
DO I NEED TO HIRE A LAWYER OR NOTARTY WHEN I BUY A HOME?
Yes, you will need a lawyer or notary to assist you when buying or selling a home.
Whether you are a buyer or a seller, you will require a lawyer or notary as representation. The lawyers job is to help facilitate the title transfer, and produce the statement of adjustments and documentation that each party will sign off on to finalize the transfer.
DO I NEED TO PAY GST ON MY HOME PURCHASE?
If you are buying a resale home (already bought/sold), then you will likely NOT have to pay GST on your purchase.
If you are buying a new build (aka presales) home then you will have to pay GST which is an additional 5% of the purchase price. GST is due at completion, and the cost can often be blended into your mortgage payment.
Keep in mind GST on the purchase price is typically only applicable when you buy a new build/presale home, meaning this tax does not impact home sellers.
There are rebates for homes that qualify for GST, and separate to GST there are also potential exemptions for property transfer tax to avoid you paying 2 types of taxes on your presale/new build purchase.
DO I HAVE TO PAY PROPERTY TRANSFER TAX AND HOW MUCH IS IT?
Property transfer tax is a BC tax that applies to buyers purchasing or gaining an interest in a home, is due at completion, and is not a tax that you can blend into your mortgage.
Without any exemption, the tax structure is charged on the fair market value of a property at the rates below:
- 1% on the first $200,000
- 2% on the balance up to and including $2,000,000
- 3% on the balance greater than $2,000,000
- if the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000
An additional PTT charged at a rate of 20% of the fair market value applies to residential property transfers to foreign entities in Metro Vancouver or the Greater Vancouver Regional District. The additional tax applies on the foreign entity’s proportionate share of any applicable residential property transfer, even when the transaction may normally be exempt from the PTT.
Some examples of property transfer tax exemptions are:
- First time home buyer property transfer tax exemption
- Newly built home property transfer tax exemption
- Family exemptions
DO I PAY YOU A REAL ESTATE COMMISSION FEE WHEN I PURCHASE A HOME?
We can’t speak for everyone, but when you hire Bridgewell the buyer does not pay a commission. How is this possible? Because on the listing contract that the seller signs, there is a section that stipulates the gross commission. From that gross commission, there is a split for the buyer’s agent and the seller’s agent. Thus, the seller typically pays the buyer’s agent.
For more information on our services included when you hire a buyer’s agent, check out: Buying With Bridgewell
DO I NEED A REALTOR TO HELP ME BUY A HOME, OR CAN I JUST BUY WITH THE LISTING AGENT?
In BC, realtors can no longer engage in “dual agency” where they represent both the seller and the buyer as a client, except in very specific circumstances (E.G remote towns with next to no options to choose your own agent).
The practice of dual agency raised a number of concerns for consumers, including that:
- It is nearly impossible to be loyal and impartial to two clients with competing interests;
- In representing both clients, it becomes difficult to advise those clients without improperly disclosing their confidential information about the other party; and
- There is a personal benefit and concern that the realtor might prioritize his or her own interest in earning the whole commission, rather than acting in the best interest of his or her clients.
There is an option where a buyer or seller can choose to be unrepresented or in a customer relationship, but make sure you are aware of the risks of this.
When buying what is likely one of the biggest purchases of your life, it is important to have representation and make sure that your best interests are being put first. If you buy a home via the listing agent, it is a clear conflict of interest: the seller’s goal is to get the highest price, but the buyer’s goal is to get the lowest price. How can you have one agent working in both of your best interests, when the goals of each client are on complete opposite sides of the spectrum!? It’s practically impossible.
To make sure you’re in the best situation for yourself, and the most protected – hire a buyer’s agent to represent you and only you.
Are you interested in more information about what the buyer’s agent does? See our post on “What Does the Buyer’s Agent Do?”
WHAT DOES "SUBJECT FREE" MEAN IN REAL ESTATE?
A subject free deal is when there are no subjects put on a contract of purchase and sale, meaning the buyer is essentially stating that they are satisfied with the typical subjects you would perform due diligence on (E.G financing, inspection, title, etc.)
In BC, we now have a rescission period (aka 3 day cooling off period) that applies to all offers, but particularly subject free offers. Once a subject free offer is accepted, the buyer has a total of 3 business days to decide if they’d still like to proceed with the purchase. In the event they back out during those 3 business days, they would owe the seller a penalty fee of .25% of the purchase price.
Subject free offers are common to see in hot seller’s markets, as they offer the seller confidence that the buyer will proceed with the sale and compensation applies (in BC) if they do not. Essentially, there is more risk for the buyer and less for the seller.
WHAT IS A NORMAL AMOUNT OF DAYS TO CLOSE ON A HOME PURCHASE?
There is no normal amount of days form acceptance to closing, as it is something that is negotiated between the seller and the buyer at the time of writing an offer. Because this is so situational, there is no standard; however, it is common to see a 2-3 month time frame from accepted offer to completion.
Keep in mind the following:
- If a home is vacant, the seller will likely prefer a quicker closing
- If a seller still needs to find a home to buy, they may want longer closing dates to give them time to search
- If a seller has a home purchased already, they’ll likely want to line up their closing dates with their purchase
- If a home is tenanted, proper notice and tenancy rules will apply
The dates on a contract are all negotiable, and we’ve seen as quick as 2 week close and as long as 9 month close!
SHOULD I GET A PRE-APPROVAL?
Yes, we strongly recommend getting a pre-approval with a mortgage broker or your bank to confirm how much you can afford BEFORE you start to look for a home. Most home sellers will expect you to be pre-approved prior to writing an offer, and the pre-approval process can often take 1-2 weeks as they will require documentation on your end.
Online calculators can be a rough estimate, but there is much more that goes into a pre-approval that will help to confirm your budget and timeline to purchase. Some factors that can affect your affordability include your down payment, credit score, employment history, being self-employed vs salary vs contractor vs dividend income, personal debt, stress tests, and more.
By having a strong understanding of what you can realistically afford, you’ll also be able to look at realistic options within your budget and not waste time looking at things that you only later find out aren’t attainable. Not getting a pre-approval in advance is no different than going to the grocery store without a list or budget, you can end up disappointed and wasting time.
Another benefit of a mortgage pre-approval is that you can lock in your interest rate. If rates are rising or unpredictable, you can lock in your interest rate for 90-120 days (depending on the lender) and as long as you can complete within that period of time then you’ll be able to benefit from the secured rate.
Pre-approvals will save you time during your home search, and possibly money at the time of offers. If you’re looking for a mortgage broker, see our list of “People We Trust.”
