UNDERSTANDING PROPERTY TAXES WHEN YOU PURCHASE A PROPERTY
Whether you buy or sell property, there will be an adjustment for property taxes between the buyer and seller. This column will explain how payment of property taxes is addressed by your lawyer in different real estate transactions.
I will first address the most common scenario – that is when you purchase or sell a resale property. Whether you are buying or selling, a document called a statement of adjustments will be prepared by the seller’s lawyer. This document will adjust for the property tax payment between the buyer and seller to the date of closing. If the seller has prepaid the property taxes beyond the closing date, the seller will receive a credit for the amount of its overpayment on the statement of adjustments. Similarly, if the seller has underpaid, the buyer will receive an appropriate credit on the statement of adjustments. In addition, the seller will provide the buyer on the closing date with a signed undertaking which states that the seller will pay all property taxes in accordance with the statement of adjustments. A tax certificate obtained by your lawyer will confirm whether or not taxes are actually paid up to date, or whether there are any unpaid taxes. In lieu of a tax certificate, if you have instructed your lawyer to arrange for a title insurance policy for you, you will have insurance coverage for any tax arrears arising from the seller’s period of ownership.
If you are buying a newly constructed condominium or house, the process will be different as the municipality assesses the land value of the property and will first issue a land tax bill to the builder. Typically, the builder will pay the land tax bill for the property for the calendar year of the closing and will receive a credit on the closing date for the buyer’s share of the land taxes from the closing date until the end of the calendar year. At the time of closing, however, the municipality will not have assessed the value of the building or house portion of the property. This may not occur until one to two years after the closing date. Once the taxes for the building or house portion have been assessed, the municipality will issue a supplementary tax bill which will be mailed to the property address. The buyer will be responsible for payment of the supplementary tax bill. Sometimes, however, the builder will estimate the supplementary taxes for the calendar year of the closing and will take a credit on the closing date for the buyer’s share of the supplementary taxes, even though the supplementary taxes have not yet been assessed or billed. In such circumstances, the buyer, once it receives the supplementary tax bill should send such a bill to the builder for reimbursement. As with resale properties, if you have instructed your lawyer to obtain a title insurance policy on your behalf, you will have insurance coverage for any tax assessments or re-assessments arising from the builder’s period of ownership, if the builder does not pay its share of the taxes.
Adjusting for property taxes between the parties is just one of the functions that your lawyer will perform on your behalf.
SIX THINGS TO KNOW ABOUT REAL ESTATE DEPOSITS
When you make an offer on a house you have to put down a deposit. Here are some things to keep in mind.
Here are some answers to common questions about deposits when you are buying a house.
When must a deposit be paid?
In Ontario, the standard real estate contract gives the buyer two choices; you can pay the deposit immediately when you make an offer, or you can agree to pay it within twenty four hours after the seller accepts it. Most buyers prefer the second option. If you are in a bidding war, you will be encouraged to come up with the deposit immediately, to show good faith to the seller.
Can the buyer get out of a deal by refusing to pay the deposit?
No. Once the deal is accepted, you can’t change your mind. If you do, the seller can sell the property again and if he gets less money than you were going to pay the seller can sue you for the difference, plus legal fees.
What happens if the deposit is paid late?
The seller has the right to cancel the deal. This is because all time limits matter in a real estate contract and if you are late, even by a few minutes, the seller can try and cancel. I have seen this happen many times, especially when the seller knows that there is another buyer out there who will pay more money. If you need more time to come up with your deposit, say so in your offer.
How much should a buyer pay as a deposit?
This is a tough question, and will largely depend on where your home is located. In Toronto, deposits are now usually up to 5 per cent of the sale price. In Brampton, it is closer to 2 per cent. In some areas of Ontario, deposits can be as little as a few hundred dollars.
Why does the deposit go to the seller’s real estate agent and not the seller?
If the seller goes bankrupt or disappears with the deposit, the buyer is not protected. When the deposit is held by the real estate brokerage, it is in trust and is also protected by insurance so even if the brokerage goes bankrupt, the buyer can get their money back.
If the buyer is unhappy with their home inspection, can the seller refuse to return the deposit?
This happens more than you think. A deposit cannot be released unless both the buyer and seller agree. If a seller believes the buyer did not act in good faith in trying to satisfy their condition, whether it is a home inspection, financing or a condominium status certificate review, they can refuse to release the deposit. This means it stays in the broker’s trust account until a judge decides who gets it, which can take years. As a precaution, buyers should consider making two deposits in their offer, a small one of say one per cent when the offer is accepted, and a second larger deposit once the condition is satisfied.
Understand the rules about deposits before you sign any real estate contract. It is expensive to change your mind later.
Retrieved from: www.thestar.com/business/personal_finance
TIGHT MARKET CONDITIONS PROMPT STRONG PRICE GROWTH
TORONTO, June 4, 2014 – Toronto Real Estate Board President Dianne Usher announced that both the number of home sales through the TorontoMLS system and the average selling price were up strongly in May compared to a year ago.
Total TorontoMLS sales for May 2014 amounted to 11,079 – a new high for the month of May. This result was up by 11.4 per cent compared to 9,946 sales reported in May 2013. The average selling price for these sales was $585,204, representing an 8.3 per cent year-over-year increase compared to the average price of $540,544 in May 2013.
“We are now at the peak of the spring market when we generally see the greatest number of sales and the highest average selling prices. Based on the May statistics, buyers have been more active this spring compared to last year. Despite strong price growth so far in 2014, many households remain comfortable with the monthly mortgage payments associated with the purchase of a home, as borrowing costs have remained at or near record lows over the past few months,” said Ms. Usher.
Average selling prices varied across the Greater Toronto Area, depending on geography and home type. A detached home in the City of Toronto sold, on average, for $943,055. In the surrounding GTA regions, the average detached price was $648,439. The average price for condominium apartments was $401,809 in the City of Toronto and $307,307 in the surrounding regions.
“The listings situation in the GTA did not improve this past May. With listings down and sales up compared to last year, competition between buyers increased. The result was price growth well-above the rate of inflation, especially for singles, semis and townhomes,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.
“It is also important to point out that even though the condo apartment market segment remains comparatively well-supplied, as new project completions have generally led to an uptick in listings, we have seen enough buyer interest to prompt strong condo price growth as well,” continued Mercer.
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