Buying a home should be a dream come true. However, often that dream becomes a nightmare, particularly if you do not use the proper professionals in purchasing your home.
John Ruskin once said:
“When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.”
“If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better.”
The point of his quote is that it is unwise to pay too little for something because often the cost of fixing a problem is more than paying to do the job right the first time. This is true in law. For example, it is much cheaper to hire a real estate lawyer to close your house properly than to hire a litigation lawyer to fix a problem caused by an improper closing.
Here are some tips and insights into buying your first home. These tips and insights are based on my experience as a real estate lawyer and, more importantly, as a civil litigation lawyer that is often called upon to sue people as a result of something that has gone wrong during the course of purchasing a home.
Scenario 1: Legal consequences of not completing the purchase of a home
When you enter into an agreement to purchase a house (the Agreement of Purchase and Sale) you and the vendor are entering into a legally binding contract. Accordingly, if either party does not follow through with the contract there are serious and often expensive legal consequences.
For example, if on the day of closing you do not have enough money to pay the vendor, which could happen if you were denied a mortgage, you would be responsible for the losses that the vendor suffers including: any extra expenses that the vendor must incur to advertise the sale of the property once again, any decline in the value of the property that occurs from the date that you were supposed to purchase the property and the date of the new sale, and the vendor’s legal fees. This can result in you being responsible for thousands of dollars to the vendor. The situation can become even more complicated if the vendor of the house was relying on the sale of their house to purchase a new home. In that situation, the losses can become even more serious.
So how do you avoid the problems mentioned above? You plan and you consult your professionals.
TIP 1: Go to see your mortgage specialist early!
You should always go and see your mortgage specialist before you sign an Agreement of Purchase and Sale. Confirming that you have been approved for a mortgage provides you with considerable benefits. First, in a hot real estate market it provides you the opportunity to know your spending limits and to bid on a house and still stay within your financial means. Second, it ensures that you will have the funds on closing to purchase the house and to avoid the problems that are set out above.
When you see your mortgage specialist you need to be frank and honest with them about your income, your expenses and your financial obligations. By doing this your mortgage specialist can provide you with a range of options that will ensure that your dream of buying a home becomes a reality.
TIP 2: Consult with the right real estate agent!
When the real estate market is hot there is a growing tendency for people to try and sell their home on their own without the help of an agent. There is an equal temptation on the part of the buyer to buy the home without the use of a real estate agent.
Proceeding without an agent is very dangerous!
As explained above, the agreement you sign to buy the house is a legally binding contract which imposes legal obligations on the vendor and the purchaser. Part of the role of your real estate agent is to ensure that you are protected when you purchase the home. For example, the Agreement of Purchase and Sale that is drafted by the real estate agent will typically contain important clauses that ensure that:
- the person selling the home actually has the authority to sell the home;
- all existing mortgages on the property have or will be paid off; and
- all taxes on the property have been or will be paid off.
If these clauses are not contained in your agreement, you may face problems down the road with people who claim to own the home, from mortgage companies to municipal tax departments, looking to you to pay the vendor’s debts.
Furthermore, a good real estate agent will listen to you and determine the needs of you and your family and find you a home in the right area that is within your budget.
Scenario 2: Your dream home has turned into your nightmare, and into your repair person’s dream
The costs of repairing a home are significant. Electricians, plumbers, structural engineers and roofers charge a lot of money for their services. The cost of rewiring a home, changing the pipes, or re-roofing a house can run into the tens of thousands of dollars. Quite often you can avoid these expensive repairs by hiring a qualified home inspector to inspect the home you are about to purchase.
If you have gone to a good real estate agent they will have inserted a clause in your Agreement of Purchase and Sale that permits you the opportunity to hire a home inspector to inspect the home for any significant defects. A good inspector will walk through the home, make notes and then provide you with a detailed report outlining their findings. If an inspection determines that there are significant problems you can then decide whether to continue with the purchase of the house (at a discounted price), or you can decide to walk away.
Remember that you are making one of the biggest investments in your life in purchasing a home. It is unwise not to spend $300.00 – $800.00 to ensure that you are purchasing a home without significant defects.
Finally, a few words about the value of a good real estate lawyer. On a practical level, a good real estate lawyer will answer your questions and discuss your concerns. On a technical level, a good real estate lawyer will ensure that the home of your dreams is properly transferred to you by a person that has the authority to transfer the property. In addition, a good real estate lawyer will ensure that the home is transferred without liens, without mortgages and without property tax arrears.
Remember that spending a few extra dollars to do something right the first time will save you money in the long run.