Even if I’ve accepted an offer, I can easily change my mind if someone else offers me more.
Selling a home is a huge financial decision. It’s important to understand what you’re committing to. Here are some legal documents you might come across at different stages.
The offer stage
If you’re happy with an offer that a buyer makes on your home, you can accept it. In BC, an offer is typically made using a standard contract of purchase and sale. This is the key legal document in the sale of a home. It’s important you understand your rights and obligations as a seller. Here, we explain the standard contract of purchase and sale in detail.
Once you accept an offer or counteroffer, the contract becomes legally binding on you. This means you can’t walk away from the deal without facing significant legal consequences.
With the property disclosure statement (or PDS) the seller tells the buyer what they know about the property. It covers issues that could affect the value or safety of the property. You’re not legally required to complete a PDS. But it’s become standard practice in BC so most buyers will expect one before they make an offer. And by completing it, you can reduce the risk of potential claims against you after you’ve sold the property.
Under common law, you must tell potential buyers about any latent defects you’re aware of. Sellers usually do this by filling out a PDS. A latent defect is a problem that can’t be detected by a reasonable inspection of the property. This might include a history of flooding, structural damage to the property, or any work done without permits.
As well, your realtor has a legal obligation to disclose material latent defects that are known to them. This is broader than the seller’s obligation. If you don’t want your realtor to disclose any such defects to potential buyers, then legally your realtor must stop representing you. The BC Real Estate Association has a video that explains a seller’s disclosure of material latent defects.
The law doesn’t require what you say about the underlying facts in the PDS to be correct. But it’s important to be honest about what you know and don’t know. For example, say the home is 100 years old. If you haven’t experienced any issues with flooding, you might assume there’s no other history of flooding. But if you aren’t certain about this, then answer accordingly.
Don’t assume or guess anything. Answering honestly gives you some protection against claims if a buyer discovers problems with the property after the sale. You won’t be protected if you lie to the buyer or mislead them. You also may not be protected if you should have known about the defect. If you become aware of a latent defect after you’ve accepted an offer, speak to a lawyer straight away.
Making the PDS part of the sales contract
A buyer can ask to incorporate the PDS into the sales contract. Ask your realtor or lawyer to explain how this affects you. It may mean that you’ll have to pay damages if anything you say in the PDS isn’t true (even if you made an honest mistake!)
Closing the deal
The final document signing usually takes place at the office of your lawyer or notary. This happens on, or a few days before, the completion date. Here are four common documents your lawyer or notary might get you to review or sign. One transfers ownership of the property, and the other three deal with financial aspects of the sale.
When someone sells their home in BC, they must fill out a document called a form A transfer. The form transfers ownership from the seller to the buyer. It’s prepared by the buyer’s lawyer or notary, but it’s signed by you as the seller.
Once you sign the form, it must be sent back to the buyer’s lawyer for filing with the land title office. The official record of ownership will be updated to reflect that someone else now owns the property.
A statement of adjustments lays out the financial obligations of both the buyer and seller in a real estate transaction. Your statement of adjustment will be prepared by the buyer’s lawyer or notary.
The final line on the seller’s statement of adjustment tells you how much money you can expect to receive from the buyer on completion. The calculation starts with a credit to you for the purchase price. Adjustments are then made to increase or reduce the amount you’ll receive from the buyer.
A credit is money you receive at closing. Typical credits include the following:
The purchase price (including funds obtained by the buyer through a mortgage).
Property taxes. Say you’ve already paid a bill for property taxes. A portion of that bill might relate to a time when the buyer will own and use the land. The adjustment recognizes that the buyer should pay you back for that amount of property tax.
Strata fees. Similarly, you might have prepaid monthly strata fees for the month that the buyer is moving in.
A debit is something you must pay for at closing. Typical debit adjustments include the following:
Real estate commission to be paid to your realtor and the buyer’s realtor.
Lawyer or notary fees.
Property taxes or other expenses that relate to a time when you owned the home, but which the buyer will be responsible for paying later. This usually happens when the sale occurs earlier in a billing period.
Any adjustments you agreed to make to the purchase price. For example, you might have agreed to compensate the seller for damage discovered during the home inspection.
Buyers want to know they’re getting a home that’s not burdened by other people’s debts. The standard contract requires you to remove financial charges from the property. (Common charges include mortgages and liens.) This is called “delivering clear title.”
For example, some documents involved in removing a mortgage include the following:
A letter to your lender. Usually prepared by your lawyer or notary, this letter asks the lender for a payout statement.
The payout statement. Tells you how much money you must pay the lender to discharge (get rid of) the mortgage. Once your lawyer or notary receives the proceeds from the sale of your home, they’ll pay the lender this amount. (Note that the payout of the mortgage does not add a debit or credit to the statement of adjustments.)
Your lawyer or notary will also make arrangements with your lender to remove the mortgage charge against the title. Title is a record of property ownership. This is done by registering a discharge of the mortgage with the land title office.
If a lawyer or notary is helping you with the sale, they’ll ask you to sign an irrevocable direction to pay. This document tells your lawyer or notary what to do with the sale proceeds. You’re authorizing them to pay part of the sale proceeds to people other than you.
The direction to pay shows how much money is coming in and going out. The main chunk of money coming in is the purchase price for the home.
Outgoing charges include money you need to pay to remove financial charges against the property. If you had a mortgage, this includes what you owe on the mortgage, plus any prepayment penalties.
Realtors’ commissions and legal fees might also be included in the direction to pay. Compare the direction to pay with the statement of adjustments to make sure you’re not being “double charged” for anything. If you have any questions about the numbers, ask your lawyer or notary.
