WHAT IS A PRIVATE HOME SALE?
As a result of increased home prices, many homeowners decided to avoid the middleman and enter into Agreements of Purchase and Sale with buyers directly, via a private sale. Instead of using a real estate broker, sellers may opt to put up their own ads on various listing services, decide on the price, and organize all the documents that are required for the sale independently.
This new form of independence can definitely have its perks, however, there are also several risks associated with the private sale arrangement. Before examining the advantages and disadvantages of a private sale, it is best to understand the process behind it.
HOW WILL I BENEFIT BY SELLING MY HOME PRIVATELY?
A private home sale is not an unattainable feat. It is possible to successfully sell your home privately as long as you have the proper knowledge and are prepared to put in the extra effort.
As a result of this extra effort, you can save a large amount of money on the real estate commission, especially if the sale price of your home is high. Since real estate professionals take a percentage of the selling price as part of their commission, the higher the price of the home, the greater the fee the real estate agent will charge.
In practice, the standard commission rate for real estate agents typically ranges from 3.5% to 5% and is divided evenly between the buyer’s agent and the seller’s agent. However, it is common for a real estate agent’s commission to be lower to attract clients and be divided into different terms.
Generally, a 5% commission on a home that sold for $1,000,000 would equal a total of $50,000, or $25,000 for each parties’ agent. A private sale will allow you to save this large amount of money.
You may also consider selling your home without a real estate agent when you are selling to family members, friends, neighbors, or other acquaintances. In this situation, you do not require the services of a realtor as you have already found the buyer and the buyer typically knows the state of your home.
For more information on transferring properties between family members, please see our blog titled: CAN I GIFT MONEY TO MY ADULT CHILDREN FOR DOWN PAYMENT TO PURCHASE A PROPERTY IN ONTARIO?.
WHAT PROBLEMS CAN ARISE IF I SELL MY HOME THROUGH A PRIVATE SALE?
While you may choose to avoid the services of a real estate agent to save some money, selling your home independently will require you to put in more effort. The process is time-consuming and may be challenging for individuals who are not familiar with the real estate technicalities.
Before you rush into a private sale, please see some of the problems that you may face along the way.
THE ENFORCEABILITY OF THE AGREEMENT OF PURCHASE AND SALE
The Agreement of Purchase and Sale is the document that binds the buyer and seller to the real estate transaction and outlines the important details. The matters on the agreement should include the following:
- Purchase Price
- Deposit amount
- Deposit date
- Down payment amount
- Conditions that you and the buyer would need to have fulfilled prior to closing
- Closing date
- Costs
Since this Agreement is a valid contract, it is binding. This means that you may not be able to change or revoke it once it is created, and if there is a breach of contract, the breaching party may be sued for the contract’s enforcement. As a result, the Agreement of Purchase and Sale must be carefully drafted and reviewed to be sure that it matches the expectations of both parties to the transaction.
If the parties draft the agreement themselves, they might create a poor agreement due to the lack of legal and real estate knowledge. As a result, they will miss the important clauses that will allow the deal to run smoothly.
To avoid such potential issues, real estate lawyer should be hired. Although the services of a real estate agent are not necessary, in Ontario it is mandatory to have a real estate lawyer finalize your real estate transaction. A lawyer will conduct a title search on your property, will help discharge any mortgages you may have, will help uncover and clear up any encumbrances that may be on the property, and will transfer the title from the seller to the buyer to finalize the change in ownership. Only a lawyer is authorized to do these steps.
The real estate lawyer will also help prepare the Agreement of Purchase and Sale to reflect the desires of the parties as the lawyer has knowledge of all the technicalities of a real estate transactions and will ensure that the contract is properly created.
There should also be two lawyers in a real estate transaction; one acting for the buyer and one for the seller.
CONSEQUENCES OF INCOMPLETE PURCHASE AGREEMENTS
One common issue that may arise in the Agreement of Purchase and Sale is the misconception about the difference between chattels and fixtures.
A fixture is an object that is attached to the property permanently. Examples of fixtures are faucets, showers, and toilets.
In contrast, a chattel is a moveable object that may be removed without damaging the property. Such objects are furniture, refrigerators, and curtains.
The law in Ontario states that fixtures are included with the sale of the property unless specifically excluded, however, chattels are excluded unless specifically included in the Agreement. A problem may arise if the buyer assumes that a chattel was a fixture and will be included with the purchase, but the opposite turns out to the true. This may often happen with kitchen appliances as they are not automatically included in the sale unless expressly outlined in the Agreement. This simple misunderstanding and disagreement may lead to disputes and even litigation.
As the average person with little knowledge about real estate law, you are more likely to get caught up in such conflicts if a real estate lawyer is not hired early in the transaction
A real estate lawyer reduces the risk of a mistake or a dispute arising from the contract as the lawyer ensures that the conditions are written into the Agreement of Purchase and Sale correctly.
A LACK OF CONDITIONS
Another issue that commonly occurs in private sales is the lack of conditions listed in the Agreement.
Some conditions that should be included in an Agreement of Purchase and Sale are the conditions that the buyer may conduct a home inspection, finance, and insure the property prior to the closing date. These conditions may allow the parties to back out of the real estate transaction if the condition is not met.
For example, if the sale of the home is conditional upon the buyer successfully obtaining a mortgage to finance the purchase and the buyer is unable to fulfill the condition, the sale will be void. However, if such a condition is not included in the Agreement and the buyer fails to obtain financing, the buyer will not be able to back out of the deal which will likely result in the enforcement of the contract and in litigation between the parties. To see what other problems will occur in the event of a failed real estate transaction, please see our blog
Some other conditions that should be included in an Agreement of Purchase and Sale are the conditions that the buyer may inspect and insure the property prior to the closing date.
Additionally, depending on the type of home and property that is being sold or purchased, there are some other essential conditions such as a septic tank inspection, water potability test, and even a thorough environmental inspection.
While a real estate lawyer will consider including these conditions in the Agreement, a buyer and seller drafting the Agreement without legal advice may not be aware of their value and the devastating consequences of not having them included.
The Role of your Real Estate Lawyer
When you enter the world of real estate, you are opening yourself up to numerous issues that you may not be capable of dealing with if you are an untrained seller or buyer. However, an experienced real lawyer will be able to guide you on your journey to purchase or sell a home in an effective and efficient manner that would reduce your stress and ensure your transaction will not end up being disputed in court. Since a well-drafted and thought-out Agreement of Purchase and Sale is essential to a successful real estate deal, it is best to seek advice from a Real Estate Lawyer.
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