Can you cancel the closing?

As a follow up to my post last week, what happens if you’re the one who doesn’t want to close?

Generally, if you refuse to close, you must have a legitimate reason. As a buyer, if something is uncovered that would severely affect your enjoyment or use of the house, or your title to it, and you had no way of discovering it any earlier, you may be justified in not closing. As a seller, you are somewhat limited in why you can legitimately refuse to close, beyond not receiving funds. If you believe you have a legitimate reason, and refuse to close, you still run the risk of ultimately being found in the wrong, and then you will have to pay all of the other side’s costs that result from not closing. This could be additional mortgage costs, moving costs, or even the extra cost of buying a different house.

Before putting in or accepting an offer, be certain that you want it.

Specific performance

You put in an offer and it was accepted, but some time before the closing date, the seller decided not to complete the deal. Can you sue to make them sell you the property?

In Ontario, there is a concept called “specific performance” which, essentially, means that you are looking to have the contract fulfilled rather than get compensated for your loss. Specific performance, however, is not an easy thing to get. Generally, courts prefer to award damages (that must be proven) rather than force specific performance. Specific performance will usually only be ordered when the property is so unique that it would be impossible to find something similar. As always, consult a litigation lawyer before assuming that you can get the house in the end.

Do you have to pay HST?

Barrie always has a lot of new construction going on. New homes in Ontario are subject to HST on the purchase price. Usually, this is built into the offer price, so that you don’t end up having to pay extra, but that always factors in that you’ll qualify for the provincial and federal HST rebates on a new home. If you are buying a brand-new home, you may entitled to a rebate, but only in specific circumstances:

  1. You must intend to live in it as your primary home. It can’t be a cottage or other seasonal residence.
  2. If you are not going to live there, an immediate family member of yours (or of your spouse’s) must intend to live there. You can allow your brother to live there and get the rebate, but you can’t rent it to a friend.

If you don’t meet these requirements, you may end up paying a lot in HST that you weren’t budgeting for. If you aren’t sure whether you qualify, as a professional accountant before you go firm on your offer.

Left behind

I have had many occasions where purchaser clients arrived at their new home to find it full of items that the vendor left behind; most recently, a buyer client of mine agreed to allow the seller to leave behind a boat that couldn’t be moved because of the weather, which was only removed the very last day the seller was permitted to leave it there. (And the seller left behind some junk along with the boat, that he conveniently forgot to remove when he picked his boat up.) As a seller, you can only leave items if you have specifically agreed to do so in your agreement of purchase and sale. This includes construction materials; though it is easy to assume that the buyer would want leftover paint or trim, if the buyer doesn’t want it, you could be on the hook for the cost of removal after closing. If you aren’t sure, ask – before closing.

Why you shouldn’t add your kids to the title of your house

One of the most common questions I get asked is how difficult it is to add an adult child to the title of your house. The correct question, though, isn’t whether it’s easy to add them on title. The correct question is whether it’s the right thing to do. And the answer is, usually not.

There are a lot of things that can go wrong by adding someone on title. The very first is that you no longer have sole control over the asset. Quite literally, your house is no longer your own. In Ontario, any joint owner can, without notice to anyone else on title, sever a joint tenancy and make the house owned as tenants in common, which means that they can gift, sell, or bequeath their share to someone else. This can make your life very difficult.

Second, your house is now someone else’s asset. This means that their share can be claimed by creditors during a bankruptcy, or a spouse on divorce or death.

Third, and perhaps most important, you probably won’t even save the taxes you think you’re saving by doing this. Most people want to do this in order to save money on probate taxes. However, by giving someone what is, legally, an investment property, you have made your principal residence – otherwise completely exempt from capital gains taxes – subject to them. Capital gains tax is significantly higher than probate tax, so if the market goes up at all, which it has a habit of doing, you could end up paying far more than you would have through probate taxes.

As always, get advice before jumping into this. The attempted cure might end up being worse than the perceived disease.

Watch your taps

A few years ago, my husband and I went to visit his family at Christmas. What we didn’t realize was that, just before we left, a toilet that got flushed did not stop running. We returned four days later to find it running, immediately turned it off, and gritted our teeth when the very large water bill arrived the next month. One thing we were grateful for, however, was the fact that there was a note attached to our door from the local water department, letting us know that water had been running in our house for (at that point) two days straight, and that we should check to see where the leak was.

These people would probably have appreciated a note like that. In the end, they will be on the hook for over $4,000 in extra costs, and it appears the City of Toronto will not allow them to pay in instalments to ease their burden.

Refinancing is math

Pure and simple. How much will you save on interest, vs. how much will you pay in penalties? Reading the fine print before you sign your mortgage in the first place will help immensely, because then you will know what sort of penalty to expect. But the bottom line is that you should never assume what your penalty might be, because it’s almost always going to be a bit higher.

Common buyer mistakes

Here are some things that often cause trouble for buyers:

  1. Going shopping before meeting with a mortgage broker or agent. You want to know how much you actually have to spend, so that you don’t look at places outside your actual budget.
  2. Skipping the financing condition because you got prequalified. The prequalification is confirmation that you can pay the mortgage, but the bank still has to like the house. Even if you’re prequalified, you should always put in a condition on financing so that the bank has a chance to look at the house and be sure they want to lend money for you to buy it.
  3. Not paying attention to closing costs. There will be bills for property taxes, land transfer taxes, title insurance, and legal fees. Don’t assume what this will be; ask your real estate lawyer what they estimate so that you know what to expect.
  4. Forgetting about regular home maintenance costs. You’ll have your mortgage payment, but you’ll also have property taxes, insurance, utilities, and building maintenance. Don’t forget all of that when determining how much you can afford to buy.

Keep these in mind, and you will have a much smoother buying experience.

Becoming a first-timer again

For some things, you only get one chance: first time buyer credits for land transfer tax rebates or for income tax claims, for example. However, there is one area where you can have another chance, and that is the RRSP Home Buyer Plan. You can borrow from your RRSP to buy a home and, if you sell it or repay the loan and wait long enough, you can borrow money again. You should always call CRA or check with an accountant first to make sure you’re eligible, but if you have money in your RRSP, it’s worth looking into.

Buying a house involves more than a down payment

Here’s some great advice when you’re buying: have money set aside for more than just your down payment. You will have fees and adjustments to pay immediately on closing, and I can almost guarantee you will have something to pay within a few months of moving in. Even if it’s minor, having no money left over can only spell trouble, and you could need a new appliance or have to fix a major water leak. Having some money set aside for those emergencies right off the bat will save you significant stress down the road.