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Buyers need to know some important real estate terms:
Buying a home, whether for the first time or the fifth time, can be a little confusing. This glossary of some of the most common real estate terms that you're likely to encounter will help you better understand the language of real estate.
Adjustment Date: The day from which all calculations of interest, tax adjustments, utility bill adjustments (if applicable) are made to the credit of either the purchaser or the vendors. This is usually (but not always) the same as the possession date.
Amortization: The number of years it takes to repay the entire amount of the mortgage.
Appraised Value: An estimate of a property's market value, used by lenders in determining the amount of the mortgage.
Appreciation: The increase in a property's value over time.
Assessed Value: The value of a property, set by the local municipality, for the purposes of calculating property tax.
Blended Mortgage Payments: Equal or regular mortgage payments, consisting of both a principal and an interest component.
Broker: A real estate professional licensed by British Columbia to facilitate the sale, lease or exchange of property.
Buy-down: When the seller reduces the interest rate on a mortgage by paying the difference between the reduced rate and the market rate directly to the lender or to the purchaser.
Closing: The real estate transaction's completion, when the parties involved agree that all legal and financial obligations have been met and the deed to the property is transferred from the seller to the buyer.
Closing Costs: Expenses in addition to the purchase price for buying and selling a property.
Condominium Common Property, or Common Elements: The portions of a condominium development owned in common (shared) by the unit owners, e.g.: pool, exercise room, lobby, etc. A strata fee is charged to every unit owner for the use of the common property.
Condominium Ownership: Shared ownership in a strata-titled property. Owners have title (ownership) to individual units and a proportionate share in the common property.
Conventional Mortgage: A first mortgage issued for up to 75 per cent of the property's appraised value or purchase price, whichever is lower.
Conveyance: The term used to describe the process of transferring the vendor's title to the purchaser and indicates all the necessary steps to complete the transfer. A conveyancing lawyer is a lawyer (or notary) responsible for the conveyance process (this is normally the purchaser's lawyer).
Counter offer: An offer made by the vendor (seller) back to the purchaser altering one or several terms and/or conditions of the offer as originally written.
Debt Service Ratio: The percentage of a borrower's income that can be used for housing costs. Gross Debt Service (GDS) Ratio is the amount that a lender will permit a borrower to use from his/her gross income in order to qualify for a loan for housing costs, including mortgage payment and taxes (and condominium fees, when applicable). Total Debt Service (TDS) Ratio is the maximum percentage of a borrower's income that a lender will consider for all debt repayment (other loans and credit cards, etc.) including a mortgage.
Deed: A legal document that conveys (transfers) ownership of a property to a buyer.
Easement: A legal right to use or cross (right-of-way) another person's land for limited purposes. A common example is a utility company's right to run wires or lay pipe across a property.
Encroachment: An intrusion onto an adjoining property. Common examples are a neighbour's fence, storage shed, or overhanging roof line that partially (or even fully) intrudes onto your property.
Equity: The difference between the price for which a property can be sold and the mortgage(s) on the property. Equity is the owner's stake in the property.
Foreclosure: A legal process by which the lender takes possession and ownership of a property when the borrower doesn't meet the mortgage obligations.
High-ratio Mortgage: A mortgage that exceeds 75 per cent of the loan-to-value ratio; must be insured by either the Canada Mortgage and Housing Corporation (CMHC) or a private insurer like the Mortgage Insurance Company of Canada (MICC) to protect the lender against default by the borrower who has less equity invested in the property.
Land Transfer Tax: Payment to the provincial government for transferring property from the seller to the buyer. See Property Transfer Tax.
Lien: Any legal claim against a property, filed to ensure payment of a debt.
Mortgage: A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt.
Mortgagee: The lender.
Mortgagor: The borrower.
Mortgage Insurance: Government-backed or private-backed insurance protecting the lender against the borrower's default on high-ratio (and other types of) mortgages.
Mortgage Life Insurance: A form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.
Multiple Listing Service® (MLS®): A current and comprehensive listing system for relaying property information to the Fraser Valley Real Estate Board's REALTORS®. This service offers the widest exposure to properties listed for sale.
Open Mortgage: A mortgage that can be prepaid or renegotiated at any time and in any amount, without penalty.
Prepayment Charge: A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than is set out in the mortgage agreement.
Prepayment Option: The ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.
Principal: The mortgage amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.
Property Disclosure Statement (PDS): The PDS enables sellers to disclose known defects. If the seller decides not to complete the PDS and does not disclose known defects, he or she is still held liable. The PDS also serves as a checklist for buyers enabling them to address concerns about the property's condition on the spot. The PDS was developed by the British Columbia Real Estate Association.
Property Taxes: This levy is affected by location and is determined by local property tax assessment practice. Tax assessments are conducted by local government. They are paid on an annual basis.
Property Transfer Tax (PTT): Payment to the provincial government for transferring property from the seller to the purchaser. In the 1994 provincial government's budget, the PTT was eliminated for first-time buyers under certain circumstances.
REALTORS®: Real estate professionals who are members of the Real Estate Board and the British Columbia and Canadian Real Estate Associations. Only these professionals can call themselves REALTORS®.
Rights of Way: Are indicated on title at the Land Title Office; often for use of utilities or city or municipality in order to make repairs to pipes, etc.; no permanent structure may be built on a right of way.
Statements of Adjustments: Closing statements in a real estate transaction which set out the sources of funds which make up the purchase price, adjustments to and from the purchase price, the final amount required from the purchase and the amount due to the vendor. Lawyers will prepare a statement for the vendor and the purchaser.
State of Title Certificate: A copy of the title which lists charges against the property, e.g.: liens, mortgages, rights of way, etc.
"Subject-to" Clause: A statement of a condition to be fulfilled before the contract will become firm and binding; must include a specific deadline for removal.
Title: The legal evidence of ownership in a property.
Title Search: A detailed examination of the ownership documents to ensure there are no liens or other encumbrances on the property, and no questions regarding the seller's ownership claim.
Utility Taxes: Examples may include water, sewer and garbage (may include recycling levies).
Variable-rate Mortgage: A mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of the payment goes to interest. If rates go down, a larger portion of the payment is applied to the principal.
Vendor Take-Back Mortgage: When sellers use their equity in a property to provide some or all of the mortgage financing in order to sell the property.
Zoning Regulations: Strict guidelines set and enforced by municipal governments regulating how a property may or may not be used.
Why should I use a REALTOR®?
It's not likely that you can afford to gamble with the largest single investment you may ever make in your lifetime, namely the purchase of your home.
Here is the list of top reasons why most people use a real estate agent:
1. Real estate agents have market knowledge. Because of their access to the most recent market data, agents are able to give you advice on realistic purchase and listing prices. Plus, they can provide you with a report of comparable homes for sale and historic market data, so that you can ensure you’re getting the most for your money.
2. Real estate agents offer additional ways to find and sell homes. When looking for a new home, real estate agents have the inside scoop on the latest listings – sometimes even before they hit the MLS. Through their relationships, they’re able to quickly assess the seller’s situation in order to give you advice on offer negotiation tactics.
3. They negotiate for you. One of the most difficult tasks whether buying or selling a home, is handling the negotiations. Many times, real estate agents can help you to get creative with your offers, so that you end up with a deal that has your best interests in mind.
4. They will help you negotiate inspections. If you’re planning on buying a new home, expect for your inspector to find things that need to be fixed before closing. Your real estate agent will help you wade through your inspection report and decide which items should fixed prior to closing.
5. Real estate agents will connect you with trusted partners. As you buy or sell a home, you may need to hire additional professional services, including: inspectors, lawyers, moving companies, plumbers, title companies and more. Let your real
estate agent recommend people that they have a good reputation in your community.
6. They will help you stay objective. Whether buying or selling a home, it’s important to stay objective during negotiations in order to get the best deal.
What is PTT and what other taxes are charged on a property purchase?
Property Transfer Tax (PTT) is a registration tax that applies to all property transfers and is paid to the Government of BC. The tax is 1% on the first $200,000 and 2% on the remainder. First-time home buyers may qualify for an exemption, depending on the purchase price of their home. Link to a detailed booklet is here.
On April 1, 2013, the 12% Harmonized Sales Tax (HST) in BC was replaced by the 5% federal Goods and Services Tax (GST). The GST applies on the purchase of a new home after March 31, 2013. In addition, a 2% BC Transition Tax may apply to the purchase of a new home where construction or substantial renovation is at least 10% complete as of April 1, 2013, and ownership or possession of the new housing transfers before April 1, 2015. The 2% BC Transition Tax does NOT apply to sales of vacant land, new commercial units or REALTOR® commissions. The 5% GST is also paid on services relating to the purchase or sale of a home, such as commissions, moving costs, appraisals and legal fees.