Home buyers meeting with a lawyer.
When graphic and web designer Andy Stanleigh bought a house in Oakville, Ont. last summer, he learned the value of having a real estate lawyer on call.
A few days before closing, Mr. Stanleigh and his wife received a surprise letter from the vendor's lawyer, saying that they needed to immediately pay nearly $1,100 in property taxes. The letter stated that the vendors had paid the final property taxes for the year, and so the Stanleighs needed to reimburse them before the house sale could close.
It was a stressful moment, coming on the brink of finalizing the sale. But his wife's mother, who is a legal secretary for a real estate lawyer, called the city and found out that the venders actually owed the city $500 in unpaid property taxes, which meant the Stanleighs did not in fact owe them any money.
The couple's real estate lawyer drew up a letter insisting the vendors pay the outstanding taxes immediately and send proof of payment. The vendors complied and the sale went through.
"But if I was a first-time home buyer and didn't have a lawyer, I might have taken [the letter] at face value and said 'Okay, this is one of the things you have to do to close, here's the money,'" said Mr. Stanleigh.
Frequently, Canadian home buyers don't bring in a lawyer until a deal is done. We sign on the dotted line, then take our purchase agreement to a lawyer who does a title search, registers the deed and handles the transfer of funds. We know we need a lawyer to do this but no one wants to spend any more on legal fees than they have to, right?
As it turns out, hiring the right lawyer, early in the home-buying process, can actually save you time, risk and most importantly, money.
Vancouver-based real estate guru Don Campbell of the Real Estate Investment Network says your real estate lawyer in not an expense you should skimp on. "This is one of the largest financial transactions a Canadian will ever make, and it pays to ensure it is done right and that all of [a buyer or seller's] legal rights and protections are adhered to."
Shayle Rothman is a Markham, Ont.-based real estate lawyer at RealEstateLawyers.ca. He says getting a lawyer to review the paperwork ahead of time can make a huge difference. "Because instead of using the word 'encroachment,' [the vendors] used the word 'easement,'" he said. In that case, Mr. Rothman's client would have to pay more to correct the problem after the fact, including the cost of title insurance, extra legal fees and the drafting of encroachment agreements.
A real estate lawyer can also protect your interests when it comes to financing, says Toronto real estate lawyer Jay Teichman.
"I would always put down [in a purchase agreement] that I want the offer conditional on the buyer getting the financing he wants," he said. "As opposed to just, 'conditional on financing.' For example, if the bank offers a mortgage rate of 6 per cent as opposed to 3 per cent, a home buyer might want the ability to opt out of the deal.
"You don't want to be stuck in a situation where financing is foisted upon you," says Mr. Teichman.
A lawyer is particularly important when it comes to purchasing a property that has not yet been built. Home buyers will need a lawyer's help to decipher the 30 to 50-page purchase agreements that are common with condo purchases, says business lawyer Albert Luk of Devry Smith Frank LLP in Toronto.
Mr. Luk says that especially in large urban areas like Toronto and Vancouver, a softening market has prompted many developers to offer sales incentives. However, those incentives might look quite a bit different than home buyers expect once they are written into a legal document, says Mr. Luk.
"For example, a lot of developers are saying, we will give you one or two years free of maintenance," he says. "In agreements that we have reviewed, it doesn't mean you'll get two years of free maintenance, it actually means there will be a rebate against the purchase price equal to what the developer thinks the first two years of maintenance will be."
"You do need to look at those types of details."
Condo or new home buyers can get another unpleasant surprise when their final purchase price ends up much higher than originally thought, says Mr. Rothman. Builders might sell you a home for $300,000, for example, but that doesn't include the many added charges that can be added on, like warranty protection against occupancy delays or structural defects, water meter and hydro installation, property taxes, landscaping, development charges, education levies. This can add thousands to a home purchase.
"If it goes to a real estate lawyer first, they would say, 'Let's cap the closing costs,' because you want to know what you're going to pay," says Mr. Rothman.
Walter Melanson is the Director of Partnerships at PropertyGuys.com, the popular Moncton, N.B.-based website that allows you to forgo a real estate agent and handle a property sale yourself. Mr. Melanson says that they consider a lawyer to be an essential part of home-selling.
"We think the lawyer is the person who is the most unbiased in the transaction," he said. "Their fees aren't dependent on the price you get."
As a part of signing up for the Property Guys site, clients are appointed an experienced real estate lawyer who practices in your province for no extra fee, provided you close the deal with them.
If, on the other hand, you do decide to work with a real estate agent, they – as well as family, friends and co-workers – might be able to recommend an experienced lawyer, says Robert Lapper, CEO of the Upper Canada Law Society. "Obviously, the best references are from former clients who are satisfied with the service they received."
Always check with your provincial law society to ensure a prospective lawyer is in good standing, says Mr. Lapper, or to find a lawyer near you. For example, Ontario residents can use the Law Society Referral Service, which will give you the name of a lawyer or paralegal within or near your community who will provide a free consultation. The Law Society also has an online Directory of Certified Specialists.
Mr. Rothman suggests your lawyer should spend at least 90 per cent of their time on residential real estate (as opposed to someone who does the odd transaction), and should give you a written quote including disbursements.
In most large urban regions, professional fees can range from $700 to $2,000, plus the costs of title insurance, land transfer tax, title searches, and other out-of-pocket expenses. Most lawyers will charge an extra $300 to $800 if they have to register a mortgage at the same time. Purchasers will usually pay more than vendors given their lawyers will have to carry out more work.
Mr. Teichman says prices can vary depending on whether you are buying a condo or house, a new construction or resale. The important thing, he says, is to get an all-inconclusive quote. "Lots of lawyers call their quotes all-inclusive or use words like 'no surprises' but they don't all include the registration charges, title insurance premium, courier charges, the mortgage work on a purchase transaction and HST."
When it comes to price, Mr. Luk says you aren't necessarily doing yourself any favours by choosing the lawyer with the lowest fees. "A race to the bottom, when it's a complicated transaction, when the purchaser is buying for the first time, may not be in the purchaser's interests."