Buying Versus Renting

Why use your hard-earned cash to pay the landlord’s mortgage when you could be using the rent money to buy a home of your own? That’s a question many people ask themselves when they start thinking about moving out of the rental market to home ownership. It’s a big step. For most people, taking out a mortgage is the biggest financial commitment they will ever make. But buying your own home has always made sound financial sense. Here are some facts to think over when considering home ownership as opposed to renting.

You may not need as much money as you think to get into the home market. Qualified buyers can buy a house with as little as five per cent down through the Canada Mortgage and Housing Corporation’s (CMHC) and the GE Capital mortgage insurance scheme. You may also be able to use RRSP funds as part of your downpayment.

A

Adjustment Date
The date agreed to by both parties for the allocation and adjustment of property taxes, interest, utilities, rents and other appropriate items. This date is usually the same as the possession date. (See Seller’s and Buyer’s statements).

Agreement For Sale
The Seller agrees to sell the property to a Buyer on credit terms. Normally the Seller carries the financing himself and the Buyer arranges a payment with the Seller. The Seller remains on the title as registered owner. Very similar to a first mortgage. The agreement for sale is the registered contract.

Amortization
A term applied to a predetermined schedule for installment mortgage payments where these is a gradual debt reduction. Combines interest and principal in a fixed monthly payment. The most common amortization period is 25 years for a residential mortgage.

Appraised Value
A report made by a qualified person giving an estimate of value, based on experience, comparable sales and pertinent data relating to the property.

Asking Price
The price placed on the property for sale by the Seller.

Assessed Value
Used for the purpose of assessing property tax by a local municipality, this property value is assessed by the B.C. Assessment Authority.

B

Blended Payments 
Payments consisting of principal and interest components, paid during the amortization period of a mortgage.

Buy Down
When the interest rate on a mortgage is higher than current rates, sometimes the rate can be reduced by payment to the lender of a lump sum that represents the interest differential from the present to the end of the mortgage term.

Buyer’s Agent 
A person or firm representing the Buyer. The Buyer is the Buyer Agent’s client and a Buyer’s Agent has a primary allegiance to his or her Buyer.

Buyer’s Statement Of Adjustment
The statement indicates the balance of cash (after all adjustments) required to complete the transaction.

C

Caveat
A note placed on the register in the Land Titles Office at the instigation of a person who claims a certain interest in the land. In B.C., a caveat remains in force for only 2 months, then lapses.

Chattels
Personal property not attached or affixed to the land or property. Also refers to appliances, etc. in a rental property.

CMHC 
Canada Mortgage and Housing Corporation. A Crown corporation which provides information services and mortgage loan insurance.

Commissions
In B.C. it is illegal to receive “net” commissions (i.e. any amount of monies given on the sale of the property over and above the agreed price.)

Completion Date
The date on which the Seller is entitled to the net proceeds of the sale and the Buyer is entitled to the transfer of the title. Real Estate commissions and legal fees are paid out at this time.

Consideration
Something done or promised (i.e. deposit money) to be done by one party in return for something done or promised to be done by the other party (i.e. the transfer of title to the property).

Co-Op Suite
A co-op is a company formed to create and operate defined living spaces within a building. A Buyer purchases shares in the company that normally owns the building. The purchase of these shares usually entitles the owner to the sole use of a suite in a co-op building through a long term lease or shareholder’s agreement.

Counter Offer
A response from the Seller to an offer from the Buyer. Legally this is an offer to sell.

CTAM
Cash to a new mortgage to be arranged.

D
Debt-Service Ratio
The measurement of debt payments to gross household income which may include, in addition to the main wage earner’s salary, salaries of other wage earners, commissions, bonuses, overtime, etc.

Deposit
Monies taken at the time of acceptance as a sign of good faith. These monies are held in a real estate company’s trust account pending the completion of the purchase and are credited towards the purchase price.

Dual Agent
A real estate broker or salesperson who acts as agent for both the Seller and the Buyer in the same transaction. Both Buyer and Seller are the agent’s clients.

E

Encumbrances
Anything that affects or limits the title to property such as a mortgage, lease, easement, etc.

Equity
The difference between the price for which a property could be sold and the total debts and mortgages registered against it.

F

Fixtures
All things attached to the property or growing on it. To avoid this dispute, specify in writing any items that will not be included in the sale of the property. Better yet, remove them prior to offering the property for sale.

FSR
Floor Space Ratio. A City zoning term that defines the maximum allowable square footage to be built or occupied in a building in relation to its lot size.

G

Gross Debt Service
The amount of money needed to pay principal, interest, taxes and sometimes, energy costs. If the dwelling unit is a condominium, all or a portion of common fees are included, depending on what expenses are covered.

Gross Debt Service Ratio
The percentage of gross annual income needed to cover payments associated with housing payments. (Mortgage, principal and interest, taxes, secondary financing). Primarily used by the mortgagee (lender). Most lenders prefer the GDS be no more than 30% of a purchaser’s gross annual income (before deductions).

Gross Taxes
The total amount of taxes owing as per your B.C. Assessment and municipal property tax bill before any deductions are made.

H

Highlight Sheet
An information and marketing sheet given to the public and other sales agents that outlines details of the property for sale.

High Ratio Mortgage
A situation where the loan exceeds 75% of the appraised value. This loan must be insured by C.M.H.C., G.E. Capital (Mortgage Insurance Canada) or other insuring agencies for a fee.

L

Lease
A lease is a rental for a fixed period of time. Leases over 3 years duration should be registered in the Land Titles Office.

Listing Agreement
A contract between a Seller and a real estate company whereby the real estate agent agrees to find a ready, willing and able Buyer for a listed property on certain terms stipulated by the Seller. The Seller agrees to pay a stated amount of commission if the salesperson is successful.

M

Market Value
The highest price paid for a piece of property which has been exposed ‘for sale’ in the open market allowing a reasonable time to find a Buyer.

MLS® Listing
Multiple Listing Service. A listing service handled by the Real Estate Board that issues print and online listing information comprising details of properties for sale on MLS® in our market areas.

Mortgage
A specific form of security for a debt, more specifically, property or chattels as security for payment of a debt. The borrower is the mortgagor and the lender is the mortgagee.

Mortgagee
The person or financial institution lending the money, secured by a mortgage.

Mortgagor
The property owner borrowing the money, secured by a mortgage.

Mortgage Insurer
In Canada, high-ratio mortgages (those representing greater than 75% of the property value) must be insured against default by either CMHC or private insurers. The borrower must arrange and pay for the insurance, which protects the lender against default.

N

Net Taxes
The amount owing after allowable deductions made such as homeowners’ grant, and senior citizen’s deductions.

O

Offer
Offer to Purchase. A promise made by one party, the offeror, to another party, the offeree. A legal agreement which offers a certain price for a specified piece of real estate.

Open Houses/Agents’ Opens
An agent’s open is an open arranged by the listing agent to allow all other agents in the area to view the property for their prospective Buyers, normally on a weekday morning. A public open house is usually held for a two hour time period between 1 and 5 p.m. on weekends when the listing agent will be present and potential Buyers will be encouraged to drop in. (Sellers are advised to be absent during these times.)

P

P.C.D.S. or P.D.S. 
See Property Disclosure Statement.

P.I.T.
Principal, Interest and Taxes. A method of combined mortgage payment.

Possession Date
The date the Buyer is entitled to possession of the property at twelve noon that day, subject to existing tenancies.

Pre-Approved Mortgage
A situation where a mortgagee (lender) will appraise a property prior to putting it on the market and set the ceiling mortgage funds that it will lend to a Buyer who meets its internal qualifications.

Property Disclosure Statement 
The Property Disclosure Statement is designed to protect all persons involved in real estate transactions. It provides a written record of representations made and, as importantly, not made, allowing the Seller the opportunity to review the condition of your property so you’re less likely to overlook a defect. Disclosure can make the property more attractive to potential Buyers who often require completion of this form to reduce any risk of misunderstanding.

S

Seller’s Agent 
The Seller’s Agent, also known as a Listing Agent, represents the Seller under the listing agreement with the Seller, typically through the MLS® system. In dealing with prospective Buyers — customers– the Seller’s Agent can provide a variety of information and services to assist the Buyer in his/her decision-making. The Seller’s Agent does not represent the Buyer.

Seller’s Statement Of Adjustments
The statement indicates the balance of cash to be forwarded to the Seller after all adjustments.

Seller Take-Back Mortgage
A situation where a Seller will agree to hold the mortgage in the case of a Buyer who may or may not qualify for a conventional mortgage, or as a way to attract Buyers by offering a lower interest rate. The Seller must be secured in his loan.

Seventy-Two Hour Clause
A protection clause for the Seller who accepts an offer which is subject to the sale of a property that the Buyer owns. The Buyer must remove his subjects within 72 hours or the Seller has the right to deal with the new offer to purchase. This clause is sometimes written as either a 24 or 48 hour clause.

Strata Property
The Condominium Act permits air space to be divided and fee simple titles created from that air space.

(A) Strata Suites: each strata lot (i.e. suite or office) is traced out on a strata plan that is filed in the land Titles Office. Each strata owner owns a fee simple title to his suite plus a share of the common property (i.e. hallways, land).
(B) Strata Duplex Or Townhouse: Strata owner owns fee simple title to a unit plus has exclusive use of limited common property (balcony, sundecks, yards, etc.).
(C) Bare Land Strata: Exists where a large parcel of property is divided into strata lots (i.e. homesites) and recreation facilities etc. are provided in the development as common property.

Unit Entitlement Of Strata Lot
Indicates the share of an owner in the common property and is used to calculate strata owner’s contribution to common expenses.
Strata Corporation
Strata owners collectively become the strata corporation and elect a strata council to run the daily operations of the project.
Strata By-Laws
Strata corporation have by-laws providing control, management, administration, use and enjoyment of the strata lots, common property, facilities and assets. These by-laws, may among other things, restrict the right of an owner to rent out his strata lot or restrict the keeping of pets.

Subject Offer
A legal agreement where there are certain conditions that must be met, before the agreement becomes firm and binding on both parties.

T

Term
Mortgage time period (usually 1-5 years). Upon expiration of this time period the mortgage becomes due and payable (without penalty) or the mortgage rate is renegotiated for a further agreed upon term.

Title Registration
The legal title to an interest in land (by an innocent Buyer) is not disputable once it is registered in the Land Titles Office. Indefeasible or absolute security is given to registered titles in fee simple in British Columbia. This is not so in Ontario, for instance, where lawyers must take the trouble and expense of investigating the history of the title back to the original grant from the Crown to check for fraud, etc. or in Washington State, where a Buyer must purchase an insurance policy form a private title insurance company to protect his title to property.

Trust Accounts (Escrow)
An account set up by the real estate firm or Seller’s solicitor who acts as stakeholder on behalf of the Seller, to hold deposit funds. The money can be arranged to bear interest for the Buyer in certain circumstances.