Selling Your Home (No. 405)
|This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Nathan Ganapathi and Anna Kurt, Ganapathi Law Group in October 2017.|
Selling a home is the biggest financial decision most people make. Learn what to consider before putting up the “For Sale” sign, and the steps involved in selling your home.
Key things to consider
You can go it alone or hire a real estate agent
You can sell your own home yourself. Many do. The costs of hiring a real estate agent can be substantial (as the seller typically absorbs the cost on the sale of a home).
But there are advantages to working with a real estate agent. Agents are keenly aware of market trends and can help you get the best possible price for your home. They are connected to networks of potential buyers you would have a hard time reaching on your own. And they can help you navigate a complex process, advising on questions such as:
- What facts must you disclose?
- What paperwork is required?
- What about the existing mortgage?
- Who ensures you will get your money?
What to consider in signing a “listing agreement”
If you hire a real estate agent, you will be asked to sign a “listing agreement”. This is a contract between you and your real estate agent, setting out the terms for selling your home.
Most real estate agents use a multiple listing agreement. This means your agent can advertise and show your home to agents from other real estate agencies (and not just their own). In this way, many potential buyers can learn about your home.
Most listing agreements are standardized forms from the local real estate board. The agent may not have a lot of room to negotiate terms. But there are a few terms to pay particular attention to:
- Who the agent is representing: A real estate agent can be hired as an agent for the seller, as an agent for the buyer, or (as we explain shortly, in very limited circumstances) as an agent for both the seller and the buyer.
- The length of the agreement: Many agents prefer that the listing agreement continue for three months, but you can choose to list your home for a shorter period. If your home doesn’t sell within that time, you can either extend the term of the listing agreement or change agents.
- The agent’s pay: The listing agreement sets the amount of the agent’s pay, or commission. In BC, commissions can be a flat fee or a percentage of the sale price of the home. We explain these two options shortly.
The real estate agent’s duties depend on who they are acting for
All real estate agents must act honestly and with reasonable care and skill in performing their work. They also have other duties that depend on who they are acting for.
A real estate agent can be hired as an agent for the seller, as an agent for the buyer, or (in very limited circumstances) as an agent for both the seller and the buyer. Under the law, an agent has to explain how these options change their duties to you.
When an agent is acting only for you, as your sole agent in selling your home, the agent has these duties:
- a duty of undivided loyalty to you
- a duty to keep your confidences
- a duty to obey all your lawful instructions
- a duty to account for all the money and property you place in their hands while acting for you
Under the rules in BC, real estate agents in the province can not practice dual agency. This means they can not act for both a buyer and a seller in the same transaction, or for two buyers who have conflicting interests. The sole exception to this rule is for property in a remote location that is under-served by real estate agents and it is “impracticable” for the parties to be represented by separate real estate agents.
Before practicing dual agency under this exception, a real estate agent must make a disclosure to both parties to the transaction. The disclosure must inform them of the duties and responsibilities of the agent to the clients, and the risks associated with a dual agency relationship.
The agent typically gets paid after the sale of your home
In BC, a real estate agent’s pay (or commission) can be a flat fee or a percentage of the sale price of the home.
A common approach is for an agent to charge 7% on the first $100,000 of the sale price, plus 2.5% on the rest. For example, if your home sells for $400,000, the commission under this approach would be $14,500:
- 7% of $100,000 = $7,000
- 2.5% of $300,000 = $7,500
- Total commission = $14,500
As the seller, you pay this commission to your agent. Your agent then shares it with the buyer’s agent. The commission is typically deducted from the sale proceeds of the home at the time the sale is completed.
If you have a mortgage on your home
If you have a mortgage on your home, you will need to deal with the mortgage in some way in selling your home.
One option to explore is whether a buyer can “assume” (meaning take over) the mortgage. If a buyer can assume the mortgage, this can save you money, avoiding the costs of paying out the mortgage on the sale.
Another option is paying off the mortgage when you sell your home. Many mortgages have restrictions on paying out the mortgage early. Some have a “prepayment penalty”, such as three months worth of mortgage payments.
Sometimes a lender will waive the prepayment penalty if the buyer takes out a new mortgage with them, or if you take out a new mortgage with them when you buy a new home.
To find out if your mortgage can be assumed or includes a prepayment penalty, check your mortgage contract. Or check with your lender.
For more on mortgages, see our information on mortgages and financing a home purchase (no. 408).
If you get an offer to purchase
After our kids left for university, we decided to downsize. We got four offers on our home at the first open house. I had no idea there was so much to consider. Between the “subject to” clauses, the offer prices, the closing dates — it was dizzying. And that was before we even figured out the financing part of it.
If someone offers to buy your home, they will present an offer to purchase. This is a contract setting out the terms of the sale of your home. It is usually written on a standard form provided by the local real estate board. Once you and the buyer sign the offer, it is a binding contract of purchase and sale.
Your real estate agent is under an obligation to bring all written offers to you for your consideration. If several offers are brought to you at once, you are under no obligation to accept any one offer over another.
If there is anything you don’t like in an offer (including the price or the “completion date”), you can write in your own terms instead. This becomes your counteroffer. This is considered to be a new offer altogether. It becomes a binding contract of purchase and sale if the buyer accepts. If the buyer doesn’t accept your counteroffer, there is no agreement.
If the offer includes a “subject to” clause
“Subject to” clauses are conditions that must be met before a sale proceeds. Common “subject to” clauses a buyer may include in their offer are:
- subject to the buyer getting financing (for example, a mortgage)
- subject to the buyer getting a property inspection
- subject to the buyer selling their home
If you get an offer with a “subject to” clause, make sure the buyer has only a short time to remove the condition. Your home may be off the market for the time it takes the buyer to remove the condition, and you will likely want to keep that period short.
As well, the “subject to” clause should be specific. Don’t accept a general clause, such as “subject to buyer obtaining satisfactory financing”. If the buyer changes their mind, all the buyer has to do to get out of the deal is to say they couldn’t get satisfactory financing. Instead, put details in the clause about the financing — the interest rate and principal amount the buyer is seeking to finance — as well as a deadline for when the buyer must remove the clause. A lawyer who practises real estate law can be helpful in this process.
You must disclose any defects to a buyer
As a seller, you must disclose any “material latent defects” about your home to a buyer. A material latent defect means a defect that cannot be discerned through a reasonable inspection of the property. This includes a defect that makes the home:
- dangerous or potentially dangerous to the occupants,
- unfit for habitation, or
- unfit for the purpose for which the buyer is acquiring it, if the buyer has made this purpose known to the seller.
Common examples of material latent defects include:
- the basement leaks when it rains
- structural damage to the property
- underground storage tanks are located on the property
- problems with the potability or quantity of drinking water
- damage caused by the illegal use of the property (for example, a marijuana grow operation)
Failure to disclose material latent defects can result in future problems, including legal issues if the new owner discovers problems that you were aware of and did not disclose.
What things in the home are included in the sale
When someone buys your home, all the fixtures go along with it, unless you and the buyer agree otherwise. Defining a fixture can be difficult: generally, a fixture is anything that’s attached to the home to the point where removing it would damage the home or require repair. The bathroom sink is an obvious example. As objects like chandeliers are sometimes items that homeowners are interested in taking with them after the sale of their home, it is important these fixtures are explicitly excluded from the contract of purchase and sale. Better yet, before you put the home up for sale, replace the chandelier with a simple, inexpensive replacement.
The appliances — such as your washer, dryer, fridge and stove — aren’t fixtures. They aren’t included in the sale unless you and the buyer agree otherwise. You may be able to use them as bargaining tools if the buyer wants them.
On the “completion date”
The contract of purchase and sale will state the “completion date” for the sale. On that day, legal ownership will transfer from you to the new owner in exchange for the purchase price of the home.
It is the normal practice for the buyer’s lawyer or notary public to prepare the documents needed to transfer the legal ownership. You, as the seller, may want to engage a lawyer or notary to act for you. Among other things, they can protect your interests by:
- checking the documents prepared by the buyer’s lawyer and explaining them to you
- ensuring your old mortgage has been properly discharged, if this is required
- ensuring you have no further obligation regarding your old mortgage if it is being assumed by the buyer
- confirming all payments for which you are responsible have been made
- arranging for you to sign the transfer documents
The process to sell your home
Step 1. Get a valuation of your home
You will want to know what your home is worth and what should it sell for in today’s market. One way to find out is to get a professional appraisal. This will give you a value for your home based on what comparable homes in your area have sold for and what it would cost to replace your home. The charge will vary with the appraiser, but is often between $200 and $750.
Another way to learn the value of your home is to contact some real estate agents who work in your area. They will look at your home and, for no charge, tell you what price they would list the home for and what they’d expect it to sell for. Keep in mind that realtors are not professional appraisers. You may decide to pay for the greater certainty of a professional appraiser’s opinion.
Step 2. Find out the details of your mortgage
If you have a mortgage on your home, find out:
- how much is owing on the mortgage
- whether the buyer can assume the mortgage (as we explained above)
- if the mortgage includes a prepayment penalty (also explained above)
To find out these details, check your mortgage agreement and statements. Or check with your lender. If the mortgage can be assumed, ask your lender if the buyer will need a certain income to qualify.
Step 3. Decide if you are hiring a real estate agent
Decide if you are going to sell your home yourself or hire a real estate agent.
If you decide to use a realtor, pick someone you trust and are comfortable with. Word-of-mouth is a good way to find a realtor you can work with. Ask friends, neighbours and work colleagues who have recently bought or sold a home who they worked with and how that experience went. The internet is a good way to locate realtors who specialize in properties and regions that may be of interest to you.
You can use the licensee search from the Real Estate Council of BC to see if an agent is currently licensed.
Step 4. Sign the listing agreement
If you hire a real estate agent, you will be asked to sign a “listing agreement”. We explain what to watch for above, under “Understand your legal rights”.
The agent will provide you with a copy of the agreement. Keep it for future reference.
Step 5. Consider any offer to purchase
If you get an offer to purchase, review it carefully. Be sure you understand the effect of any “subject to” clauses (explained above).
You may want to have a lawyer check the offer before you sign it. A lawyer can alert you to problem areas or signs of real estate fraud.
Step 6. Complete the sale
Sign the documents, receive your money and turn over your keys. Your home is sold!
Do I have to pay a commission even if the real estate agent doesn’t sell my home?
Normally, your real estate agent is entitled to be paid their commission when a buyer signs an offer to purchase, and you accept it. The buyer is someone who is “ready, willing and able to buy your home”. If the transaction later falls through, that doesn’t necessarily affect the agent’s right to be paid. The terms of the listing agreement will be key.
If you sell the home yourself while the listing agreement is active, you may have to pay the commission. Check the terms of the listing agreement.
You may even have to pay the commision is the home sells after the listing agreement has expired — if the agent had previously shown the home to the buyer or was the “effective cause of the sale”.
A lawyer can help you avoid situations where you have to pay a commission even where the realtor doesn’t sell your home.
Do I have to pay capital gains tax?
If your home is your principal residence, you don’t have to pay tax on any profit (capital gain) you make when you sell it. This is called the principal residence tax exemption on capital gains.
If at any time during the period you owned the home, it was not your principal residence, you might not be able to benefit from this tax exemption. A lawyer can advise on whether the principal residence tax exemption applies to you.
With more information
The Real Estate Council of BC, the body that licenses real estate agents in the province, offers a guide on “Selling a Home in British Columbia”.
- Web: recbc.ca
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