Monday, June 09, 2008

Canada Real Estate Practices

Canada Real Estate Practices


Canadian real estate agents work in much the same way in all of the provinces and territories. However, educational and licensing requirements vary provincially and agents are licensed by their provincial regulators.

The majority of Canadian real estate agents are Realtors®- i.e. are members of the Canadian Real Estate Association (CREA). Canadian Realtors place almost all of their property listings on the Multiple Listing Service (MLS), and as a result property listings are available to view by all Realtors in the marketplace.

Both the Land Titles (Torrens) System and Registry System are established and maintained through provincial legislation. While the Land Titles System provides a certified, accurate land record and guarantees title; the Registry system requires buyers to search titles based on a history of conveyances and satisfy themselves. Regardless of the system used, the information is computerized and publicly accessible in exchange for a user fee which varies with the municipality.

Real Estate Practices

Generally speaking, one Realtor will act on behalf of a seller and another will represent a buyer. Sellers typically pay the broker's commission and costs relating to the closing. Legal fees are shared by the buyer and seller.

The Realtor will draft the Contract of Purchase and Sale (the Offer), and do the negotiating between buyer and seller via the seller's Realtor. Typically, they then provide the contracts to the lawyer/notary who handles the legal aspects of the transfer of title. Along with the offer, the buyer brings a deposit to show good faith to the seller. The seller's agent is obligated to bring all offers to the seller's attention. If the offer is accepted and all the conditions are met, the offer becomes binding between the buyer and seller.

Mortgages are commonly used to purchase real property and second, third and fourth mortgages are permissible in Canada. Mortgages are available primarily from banks and lending institutions and the typical maximum term is 10 years, although the average consumer is usually in a 5-7 year term mortgage. At the end of the term, the outstanding balance is due but is usually renegotiated for a further term at the then current rate of interest.

Interest paid on a mortgage in Canada is not tax-deductible. And unless one has at least 25% of the purchase price of a home to put down or 50% for vacant land, mortgage insurance is charged by the lender. The percentage charged on the mortgage varies, depending on the amount put down, but starts at 3.25% for those putting only 5% down. Usually, the payments are simply worked into one's mortgage payments. Given that non-resident borrowers are limited to borrowing 65% of the property value; this added cost is non-applicable to a foreign buyer.

The closing process typically occurs less than 60 days following execution of the contract on resale property. Although there is no legal requirement to do so, the closing usually occurs through both the buyer's and seller's legal counsel.

All Realtors in Canada must pay a federal tax of 6%, called the Goods and Services Tax, on commissions earned, and in some provinces a provincial tax is levied as well. The seller pays for these taxes. Resale homes are not subject to the 6% federal tax, although one must pay it on new homes. If the new home is to be a primary residence, a rebate is offered.

Capital gains is payable on homes sold by non-residents. A capital gains tax of 25% is charged on the gain and, if not paid, the buyer's Realtor must withhold anywhere from 20 to 25% of the total sales price from the seller in order to ensure payment is made.

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A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate

Thinking of Selling? Best Mortgage Rates Current Home Prices Search MLS Newsletter
RE/MAX Realty Specialists Inc.
Providing Full-Time Professional Real Estate Services since 1987

BUS 905-828-3434
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  1. Undoubtedly the new morgage plan provides great possibilities to young couple who want to buy their first home. As working for a Toronto real estate company I have many clients who are keen on this new morgage plan and as the market suffers a slowdown they are able to consider their decision. Thanks for sharing with us your article it`s very instructive for those who are not familiar with the mortgage system in Canada.

  2. you are right on the mark, thank you for your comment, Mark