Buying a House or Condo: What Could Go Wrong? (Part II)
June 28, 2023
Welcome to part two about what can go wrong when you’re buying a house. If you haven’t read part one, click here.
Among the many benefits of using a seasoned realtor like myself is that not only do I know when something doesn’t feel quite right, I know the questions that need to be asked in order to prevent problems from even occurring. Let’s have a look at some of the more unusual occurrences and how they can be thwarted.
No Vacant Possession!
It should be obvious that, unless otherwise agreed to, sellers are required to move out of the house on or before the day of closing…. but to be super clear, it is mentioned on Page 1 of the Agreement of Purchase and Sale under the clause titled CLOSING DATE that vacant possession is to be provided.
And yet, it happens, on occasion, that the sellers don’t move out in time… or if they have moved out, have left the property in a terrible state of disarray.
Very early in my career, I had a buyer attempt to move in to their new home, but the seller hadn’t moved out. It took them three days to move, and when they did, the place was completely upside down. It was so bad that I hired cleaners to come in and it took an entire day to bring it to a liveable condition.
How can you prevent these situations from happening? Make sure you have at least two buyer access visits in your agreement. Three would be better, but two at a minimum. At the first visit, it’s fairly simple to gauge whether someone is in the process of moving. If you make the last visit close to closing, perhaps even the day before, then you’ll know for sure if the seller has already moved or at least is intending to move out.
Booking your last buyer visit allows you to be sure that the home is vacant, clean, and that there’s no damage. It’s rare that people move out on the day of closing, so if you come for your last visit and if you see the seller has moved out and caused damage, you can do what’s called a holdback. A holdback is where your lawyer holds back a certain amount of money in order to ensure repairs or cleaning are paid for by the seller. It’s not unusual, but it’s rarely required.
The vacancy tax that was recently implemented by the city of Toronto and, yearly, is every property owner’s responsibility to declare whether the home was or was not vacant for more than 6 months out of the previous year. If the property was vacant, the seller is required to pay a vacancy tax to the city. This tax, if not paid by the seller, gets passed on to the buyer. If the tax hasn’t been dealt with or paid by the seller, there can be a lien on the property the buyer has to pay once they are the new owner. As a buyer, you want to ensure that the declaration has been made or that it is stipulated in the agreement that the balance owing will be paid by the seller.
As a buyer, you should also know if the seller is a non-resident, especially if the unit has been vacant for some time, because the seller will owe tax. And if they’re not Canadian citizens, they may not have a social insurance or tax number, which requires an application to the CRA, and that takes time.
There is a clause in the pre-printed portion of the standard agreement of Purchase and Sale in which the seller declares that they are a Canadian citizen or permanent resident but it’s best to know for sure and ask, so there’s no confusion or hold up at the time of closing.
If you don’t do your homework, you could be on the hook to pay either of the above taxes. You can always appeal, but it’s a hassle… so, here’s how you troubleshoot this: most brokerages provide a schedule B to attach to your offer and this should have a clause regarding the vacancy tax. As a realtor, I have this clause ready to use, regardless.
Construction and Open Permits
When you buy a house that has obviously been substantially renovated, you need to make sure that the permits are closed and the sellers can produce the documentation showing the city’s final approval. If there are open permits, the deal can’t close. The permits are closed once a city inspector signs off on the work.
I had a client who had done some structural work to their house. The city came to inspect it, so they closed up the ceiling. It wasn’t until they went to sell the house that they learned the permit was never actually closed. The city then deemed it wasn’t done properly, so the seller had to re-do the structural work and get the permits closed. This all had to be done in a 60 day window of time and over the holidays. As a seller, make sure that any open permits are closed. As a buyer, you want to make sure you’re protected so it’s best to add a clause into an agreement that has the seller warranting all renovations, if requiring permits, were done with a permit and that those permits have been closed. If the work is less than 5 years old, you can actually visit the city website to see open permits.
Predicting the Unpredictable
With the decades of experience I’ve racked up, it’s very hard to surprise me… but it still happens! Having a solid list of clauses to add to any agreement is your best defence to making sure there are no surprises (or as few as possible) when buying or selling.
In every agreement of purchase and sale, there’s a clause that states that the house is being delivered in the state in which the buyer saw it – and if there’s a substantial difference the buyer has a right to get out of the agreement. Minor discrepancies sometimes allow for a renegotiation of the terms.
Thankfully, Toronto sees very few tornados and other natural disasters, but basements can flood. I’ve been involved in some serious touch and go situations, but nothing has ever been so bad that the sale hasn’t closed. Having enough insurance can help smooth out any situation.
If you have any questions about the real estate market, please get in touch!