FAQ'S For Buyers -

What is Buyer Agency?

BUYER AGENCY is when a real estate brokerage is representing the interests of the buyer. Buyer agency can be established by implication, as well as a written agreement/contract. Buyers seeking exclusive representation usually do so through an agency agreement. This relationship is the counterpart of agency with the same agency principles and practices apply. A representative of the buyer must use professional negotiation skills, find appropriate properties that meet the buyer's needs, describe the defects of any selected property, keep information confidential concerning the buyer, and generally act in the buyer's best interests.

The hallmarks of this relationship are good faith, full disclosure, competence, obedience and proper accounting. The buyer and the brokerage will enter into a signed buyer agency agreement that details their relationship. The seller usually pays commission to the listing brokerage who, in turn, forwards the appropriate portion to the buyer's brokerage. Alternatively, the buyer's brokerage can be paid directly by the buyer and, therefore, this amount does not form part of the sale proceeds. In most transactions, the commission of the buyer's brokerage is paid via the listing broker from the proceeds of the sale. Payment procedures for the payment of commission will vary with provincial jurisdiction.

What is Dual Agency?

DUAL AGENCY is when the same brokerage has an agency relationship with both the buyer and the seller in a real estate transaction. Dual agency also occurs when different salespeople represesent the buyer and seller and are employed by the same brokerage, including those who work in different branch offices. The brokerage or its representatives must advise the seller and the buyer of the dual aspect of representation and must be impartial when representing both parties. Both buyer and seller must give their informed consent to this form of representation.

What Are Land Transfer Taxes?

Purchasers in most of Canada can add Land Transfer Taxes to their list of closing costs. Unless you live in Alberta, Saskatchewan, or rural Nova Scotia, land transfer taxes (or property purchase tax) are a basic fact of life. These taxes, levied on properties that have been changing hands are the responsibility of the Buyer. Depending on where you live, taxes can range from half a per cent to two per cent of the total value of the property.

What Financing Terms & Options Are Available For First Time Buyers?

• GDS is the "gross debt service" ratio which is the gross mortgage principle payment plus interest plus taxes divided by the gross income.

• TDS is the "total debt service" ratio which is the gross mortgage principle payment plus interest plus taxes plus other payments like heat, car payments etc., divided by the gross income.

• Both GDS and TDS rates are set by the banks and you have to meet their number to qualify.

• HIGH RATIO MORTGAGE allows you to borrow up to 95% of the value of the home but you pay an insurance charge up front - added onto the amount of money being borrowed. The amount of insurance premium is based on LTV ("Loan to Value ratio"). For example if you purchase a home for $100,000.00 and have a $5,000.00 down payment then the LTV ratio is $95,0000.00 divided by $100,000.00 or 95%. This is the highest ratio you can borrow and if the insurance premium is 3.25% (this is set by the financing institutions) then the premium is $3,087.50. This number is added to the amount you need to borrow so your mortgage becomes $98,087.50. Using our same example to borrow $98,087.50 and amortize it over 25 years at 5% interest for a 5 year term your monthly payment would be $570.48

• AMORTIZATION is the number of months/years it would take to pay back the money borrowed assuming the payment and interest stay the same.

• TERM is the length of time a lender will guarantee the terms agreed upon. At maturity or at the end of the term, you will still owe money and re-negotiate the details of the mortgage and hopefully reduce the amortization period. (Note the longer the amortization the lower the payments the more money you end up paying in the long run and obviously, the shorter the amortization the higher the payments but the less interest you end up paying back).

Now, back to GDS and TDS. Using our example we know the monthly payments of principle and interest are $570.48 ($571). For one year you end up paying $6,852.00. If taxes are $1,000.00, then total PIT is $7,852.00. If the GDS needed for the Bank is 32% the income you would need to qualify for this loan would be $24,531.25 ($7,852.00 divided by 32%).

• CLOSING COSTS are the monies you need to close the transaction. These include lawyer fees, Land Transfer Tax, title insurance, document registration etc. A good way to estimate this amount would be to calculate 1.5% of the purchase price. In our example then ($100,000.00 x 1.5%) closing costs would be approximately $1,500.00. Please note that there are currently government incentive programs that would help reduce these costs, i.e. rebate of the Land Transfer Tax for first time home owners. Check out http://www.budget.gc.ca/2009/plan/bpa5a-eng.asp#Personal or go to the Canada Revenue Agency Web site at www.cra-arc.gc.ca and search for "Home Buyers Plan".

• DEPOSIT At the time of submitting the offer to the seller, your sales representative will ask for a deposit. This is needed once the offer has been accepted and it will be deposited to the real estate trust account (for the seller) within 48 hours of acceptance. Five percent of the purchase price is usually requested but you would discuss this during the preparation of the offer.

• HOME INSPECTION is not included in closing costs and you can usually count on it being around $350-$450. Having a home inspection is becoming the standard procedure. You hire someone to come into the property you are buying and they spend several hours reviewing the wiring, shingles, and mechanics of the property so you hopefully have no surprises. You will receive a full written report from the home inspector.

• PRE-QUALIFIED VS PRE-APPROVED You should go to your Bank and review with them what they will allow you to borrow. "Pre-qualified" is where they say "yes, we will lend you money", but you have nothing in writing. "Pre-approved" is where they do a more in-depth review of your financing and they give you approval in writing that they will lend you $x if the property you are buying meets with their standards. (Note that the bank may require an appraisal and that usually is a cost to you - it varies bank to bank). When looking at starter homes there is usually a higher demand so being preapproved by the your lending institue puts you in stronger position to purchase.

When you go to the bank initially you should have a "package" which would include -
   1. current Canada Revenue Assessments showing income.
   2. letter from current employer showing employment details and wages.
   3. list of debts, credit cards, car loans, etc.

Once the offer has been accepted they will also need -
   4. copy of offer.
   5. copy of listing.