Real Estate Terminology Explained

While listening to your REALTOR®, lawyer or mortgage broker describe the real estate contract, and all the various real estate clauses in them, used during the process of trading houses, does it sometimes seem like they're speaking a foreign language? Real estate terminology and common real estate terms can certainly seem that way.

Do you hear real estate terminology you've never heard before, or may have, but still don't really understand? Have you ever heard real estate terms that you always thought meant something completely different than what you're now told?

Well, it's quite understandable since you don't buy or sell a home everyday. Fortunately, the older, confusing 'legalese' real estate terminology has been replaced with more common language.

To get you through your real estate contract for purchase or sale, here's a little primer for you on common real estate terminology, in alphabetical order.

Acknowledgment

At the bottom of the signature page of a real estate sale contract (more correctly called an agreement of purchase and sale - whether you're buying or selling), is an area where the parties to the agreement affix their signatures, address, phone number and lawyer's contact information. By signing here, the parties are simply acknowledging receipt of a true copy of the real estate contract, which is absolutely necessary to form a binding contract between the parties.

The address portion may be particularly important for the delivery of notices, unless a clause is included in the agreement designating the agents as authorized recipients of any notices between the parties.

Adjustments

When you buy a home, you obviously require a down payment. And unless you have sufficient cash to pay the entire purchase price, you'll also require a mortgage.

A deposit is submitted with your offer, or delivered to the listing brokerage upon acceptance of your offer by the seller. This deposit is credited toward the purchase price upon completion (closing) as part of your down payment. The balance of your down payment, in addition to the full mortgage advance from your lender, also paid to the seller on closing, is adjusted to reflect such things as prepaid property taxes, monthly condo fees or fuel oil.

For example, if your closing occurs in the middle of the month, and the seller has paid the full condo fee for the month, then you owe them two weeks worth of fees for the last two weeks of that month. Similarly, if the seller has paid property taxes until the end of the year, then it's your responsibility to reimburse them for the taxes applicable for that period of time from your closing date until year end.

Depending on when during the month your closing is scheduled to occur, adjustments could also include a partial month's interest on your mortgage. This is referred to as a mortgage interest adjustment.

If your 'new' home is heated with oil, the seller normally has the tank filled immediately prior to closing, and the cost of a full tank of oil is charged to you on the Statement of Adjustments prepared by your lawyer, and credited to the seller.

Amendment

This document is used when one or more of the terms of your real estate contract require changing after it's been executed by both the buyer and seller. Real estate clauses, the price or completion date may be deleted, inserted or changed. To be legally valid, it must be signed and dated by all parties to the agreement, with each receiving a true copy prior to the irrevocable (expiry) date of the amendment. It's also preferable to have signatures properly witnessed.

Buyer Agency

A written contract, called a Buyer Representation Agreement, creates an agency relationship between a buyer and a real estate brokerage. It explains services to be provided by the brokerage, establishes a fee arrangement and term, and specifies any obligations of the buyer.

Normally, the principle obligation of the buyer is to work exclusively with said brokerage during the term of the contract. The brokerage owes the buyer, his client, confidentiality, and owes a seller (who is not a client of the same brokerage) fairness and honesty. In many areas, buyer agency has become the default arrangement between buyers and their agents.

To learn more about buyer agency, visit the Toronto Real Estate Board buyer agency information page here

Chattels and Fixtures

The real estate terminology for items included and excluded in a sale are oft confused. In a typical agreement of purchase and sale, items such as appliances, carpets, plug-in electric lights, pool tables or curtains are often, but not always, included in the contract. As these are movable and not physically attached to the property, they are referred to as chattels. And unless specifically mentioned as being included in the contract, they are automatically excluded.

Fixtures, on the other hand, include such items as furnaces, air conditioners, drapery tracks, built-in appliances, installed broadloom, hard-wired electric lights, garage door openers, owned security systems, satellite dishes and swimming pool equipment. Anything that is physically attached to the property is automatically included in the purchase unless specifically excluded in the real estate contract.

Chattels, however, must be written into the agreement to be included in the sale, otherwise, they're automatically excluded from the sale.

If a furniture-type wall cabinet, for example, is physically attached to the wall, then technically, it's considered a fixture. So, the seller's REALTOR® would be wise to exclude it on the listing, otherwise, a seller might have to leave it behind.

A buyer may request a warranty (promise) from the seller that the fixtures and chattels will be in good working order on the date of completion, free and clear of any encumbrances (liens). The seller may refuse and, instead, demand the buyer buy them on an “as-is” basis.

Rental items, like hot water tanks, water softeners, and sometimes furnaces and air conditioners, are excluded from a sale. The buyer must agree to assume the rental contract(s) as part of the agreement. If there's no reference made to rental items, there may be a problem after closing when the rental company demands the rent payment. If unpaid, they typically have the right to remove their equipment from the property, or, depending on the terms of the rental contract, go after the previous owner.

Client vs Customer Relationship

The regularly used real estate terminology defining the relationship between a buyer or seller, and the brokerage, is often confusing for the public.

A brokerage may provide services to buyers and sellers as clients or customers. If a buyer or seller prefers to have their own representation, then they enter a buyer agency agreement or a listing agreement respectively, and become a client of the brokerage.

If a buyer or seller prefers not to be represented as such, then they become a customer of the brokerage. This would be documented in a customer service agreement.

Unlike a client relationship, the brokerage does not owe a customer the duty of confidentiality - only honesty and fairness. However, a brokerage can still provide many valuable services to a customer.

A buyer who chooses to be a customer must understand that their REALTOR® legally works for the seller as a 'sub-agent' and owes the seller confidentiality. So, anything said to their real estate sales person must be relayed to the seller. In the vast majority of cases, the buyer elects to be represented as a client since it's in their best interests to do so.

Commission

When a homeowner enters into a listing agreement with a real estate brokerage, authorizing the brokerage to market their property, the homeowner agrees, amongst other things, to pay the brokerage for its services by way of a commission. The amount of this fee is usually a percentage of the sale price of the property.

It could also be a flat fee, and is payable upon the date set for completion (closing) of the agreement of purchase and sale.

Sometimes, under the terms of a Buyer Agency Agreement, a buyer must pay a commission to their REALTOR®. In the vast majority of cases, however, the seller pays the buyer's agent, referred to as the cooperating brokerage (CB) in the agreement, through the listing brokerage. If the Buyer Agency Contract states that their agent is to receive a certain commission, as stated on a listing, and during negotiations, the CB commission is reduced, then the buyer could be held responsible to pay any difference between what was contractually promised in the Buyer Agency Agreement, and what is to be paid by the seller. This reduction must be indicated on the Confirmation of Cooperation and Representation, and agreed to by all parties, including the buyer.

Confirmation of Acceptance

Once the negotiations of an agreement of purchase and sale are complete, the last party to affix their initials to the document, must also add their signature, date and time on the appropriate line on the signature page. This confirms the final acceptance date and time, from which the clock begins to tick for any time-related conditions that may be contained in the agreement.

For example, typically, unless stated otherwise in the agreement, the deposit must be delivered to the listing brokerage within 24 hours from this date and time.

Confirmation of Cooperation and Representation

This standard form, executed by all parties to an agreement of purchase and sale, including the two REALTORS® on behalf of their respective brokerages, must form part of every real estate transaction when a brokerage is involved. It sets out the relationships between the buyer(s), seller(s) and brokerages, that is, who is working for whom.

It also states what commission will be paid to the cooperating brokerage representing the buyer. If there's no cooperating brokerage, it's called multiple representation. This is also stated on this form, wherein all parties provide their consent and acknowledgment to the dual agency relationship.

Completion Date

When a buyer and seller enter into an agreement of purchase and sale, along with numerous other terms and conditions, the agreement must include a completion date, that is when the balance of funds are to be paid by the buyer to the seller in exchange for possession and the transfer of clear title to the buyer. This is commonly referred to as the closing date.

Cooperating Brokerage

In most real estate transactions, there are two brokerages involved - the listing brokerage representing the seller, and the cooperating brokerage acting for the buyer. Sometimes, the same brokerage represents both parties, as a dual agency (multiple representation). In this case, there is no cooperating brokerage involved.

Deposit

This real estate terminology refers to monies submitted with, or upon acceptance of, an offer. It is often confused with the monies paid by the buyer on closing (along with the mortgage advance by the lender). It is not the down payment. It's usually made payable to the listing brokerage, held in their trust account and credited to the buyer on closing as part of their purchase price.

The deposit provides a level of comfort to the seller that the buyer will honour the terms of the agreement and close on the date agreed for completion.

Some brokerages insist on bank drafts or certified cheques, but non-certified is often acceptable. However, if a buyer fails to satisfy a condition in the agreement of purchase and sale, and a mutual release is executed, the return of their deposit may be delayed because the listing brokerage must await the clearing of the cheque before they can issue their own. So, it's a good idea to pay by certified cheque, bank draft or money order.

Dual Agency

Occasionally, a brokerage will represent both a buyer and a seller in the same transaction. Both parties must provide written consent to this arrangement prior to entering into any agreement of purchase and sale. Since the brokerage's loyalty is divided between each of the parties, who have conflicting interests, it's absolutely essential that a dual representation relationship be properly explained and documented.

Normally, a REALTOR® can discuss all the contractual terms with both parties, except for price and motivation, which must be kept confidential with each respective party. And of course, the REALTOR® must be fair and honest with each party without disclosing confidences.

Easements

An easement, which is registered on title, is a non-possessory interest to use for a specific purpose, real property owned by someone else. Often, utility companies have easements in order that they may enter upon a property to service their equipment.

Unlike a lease, an easement doesn't give the holder a right of possession of the property. A license, which is a lesser interest than an easement, only gives a holder a personal privilege to use the land of another for a limited purpose. For example, a license, which can be terminated more easily than an easement, is given when a landowner gives his neighbor verbal permission to park his car in his driveway.

An easement also differs from a license in that the benefits of most easements flow to an adjacent parcel of land - not to a specific person. As such, the owner of the adjacent land that benefits from the easement, will continue to enjoy the easement, even if he's not the initial owner of that property. A right-of-way, easement of support (pertaining to excavations), easement of light and air, and rights pertaining to artificial waterways are examples of an easement.

Encroachment

The right to an encroachment by one landowner over an adjoining owner's property is sometimes granted by express written agreement. Examples are when a window sill, eave, deck, porch or chimney extends over a side yard area. This is particularly common in older urban areas with narrow side yards. When the overhang is no longer present, the encroachment ceases to exist. No right to substitute an encroachment exists if one is lost, except by further agreement.

An agreement permitting the encroachment of an improvement onto an adjoining parcel of land that may be registered against the title of both properties affected by the encroachment.

Under an encroachment agreement, the owner whose land has been encroached upon by the improvement essentially forebears from exercising his/her legal right to require the improvement be removed from the land. Encroachment agreements are often encountered where one owner has inadvertently built a building, fence, or driveway over adjoining land.

An encroachment agreement may contain provisions that call for the removal of the offending improvement upon the occurrence of some future event, like destruction by fire or wind, or by a specific time. The market value of the property may be adversely affected to the extent that a risk exists and/or that the offending improvement might have to be removed at a certain time or in the event of partial or full destruction by fire or other cause.

Environmental Issues

Environmental issues (hazards) are significant factors in real estate transactions. REALTORS® must ensure accurate information is provided to clients and customers, and that due care is taken by advising them to seek expert advice from environmental auditors and environmental lawyers. No easy method exists to categorize significant hazards. In some instances, hazardous conditions have not gained widespread public awareness or condemnation. Consequently, REALTORS® are challenged with everyday marketplace negotiations complicated by vagueness and ambiguity.

Hazardous waste depots are provided in most urban areas for dropping off such items as spray paints, glues, cement, paint strippers, enamel and latex paints and stains, insecticides and herbicides, rodent poisons, thinners, unused medicines, nail polish remover, wood preservatives and rust removers. Hazardous products should not be disposed of as ordinary garbage or down drains. Considerable literature is available at the federal, provincial, and municipal levels to provide guidance on such matters.

Escape Clause

If you happen to come across this bit of real estate terminology, you're either a buyer offering conditionally on a house and have a house to sell, or a seller who has been presented with an offer from a buyer with a house to sell.

Because the term of a condition pertaining to the sale of the buyer's property is longer, it would be unreasonable for a buyer to expect a seller to accept an offer that included this type of condition without an escape clause for the seller being included in the agreement.

Typically, this type of condition is for a period of 30 to 60 days, during which time, the buyer is supposed to be aggressively marketing their home in order to fulfill this condition. If it weren't for the escape clause, the seller's home would be effectively off the market. However, with the escape clause, the seller may continue to market their home, and entertain offers from other buyers.

Another buyer of the same property, if they wanted to attempt to 'bump' the already accepted conditional offer, would have to include a clause stating that the acceptance of their offer by the seller would be conditional for a short period of time, typically 48-72 hours, upon the seller being released from a previously accepted agreement. The seller, through his REALTOR®, would then give the first buyer the required Notice to Conditional Buyer, instructing them to either waive (remove) their condition on sale (and possibly all conditions depending on how the clause was worded), or sign a mutual release.

If the buyer elects to waive the condition(s), whether or not the buyer has sold their own home (which is their option), they assume the risk of successfully selling their old home prior to having to close on their purchase.

It can be a stressful time for the buyer, especially if they're depending on the sale proceeds from their old home to close on their new one.

The buyer waiving their condition must also coordinate the closing dates of both their sale and purchase. If they fail to accomplish this through negotiations, they'll need to arrange for what is commonly referred to as 'bridge financing'. Banks will sometimes lend the buyer sufficient funds, on a short term, to close on their purchase, and using the future proceeds from their sale as security. The lender will ask the buyer to sign an irrevocable instruction to the buyer's lawyer to discharge this loan, including any accrued interest, upon closing, directly from the sale proceeds.

So, provided the buyer sells unconditionally their old home prior to having to close on their purchase, their worst case scenario is that they'll have some extra interest to pay, and maybe a small bank fee. If they fail to sell their home in time, then they either own two homes (if they have the resources), or they can't close on their purchase.

The ramifications of not closing on their purchase is beyond the scope of this article, but there could be serious legal and financial consequences of their default.

If the buyer elects to sign a mutual release instead, then the pressure is off, their full deposit is returned, the house is then sold to the second buyer under their agreed terms, and the first buyer is back to the drawing board. Their home search continues.

I've never met a seller who liked the idea of accepting an offer condition upon the sale of the buyer's property. When they do, they're either anxious because they've been on the market for awhile and will be more agreeable to accepting almost anything. Or the buyer's property appears extremely marketable, and is expected to sell quite easily.

In either case, the seller may demand a higher price from the buyer in order for them to grant the buyer what the seller perceives as a privilege. 'Ok - if I accept your condition, which allows you the relative luxury of time to sell your own home, then I want this much more. Don't want to pay it? Then I'm not accepting your offer.'

In markets where homes traditionally take more time to sell, homeowners are often more amenable to offers of this kind. But in hot markets, like Toronto real estate, it's often the buyer who accepts the risk by buying without it. Or else, they sell their present home before offering on another. Either way, the buyer accepts the risk of finding their new home before having to vacate their old. Usually, though, because it's a hot market, their old home will sell quickly if listed well by an experienced REALTOR®.

Another consideration in this type of situation is once a seller accepts such a condition with an escape clause, and the conditional sale is reported to the real estate board (which it's compelled to do by board rules), buyers and their agents may be inclined to avoid that listing. Even if they were to negotiate a successful agreement with the seller, the existing buyer may simply firm up, in which case, all the time and effort expended by the second REALTOR® and their buyer would have been wasted.

This was a long and detailed explanation, but it's a very important consideration, for both buyers and sellers. I recommend discussing this type of situation with your REALTOR® to determine which path would be best for you. Or you may contact me for advice.

Exclusive Listing Agreement

Before the introduction of the Multiple Listing Service (MLS)®, whenever a home owner wanted to sell their home, they hired a real estate brokerage to list their property. A listing contract was signed by the homeowner that included the address, asking price, expiry date of the contract and other real estate terminology. The brokerage installed a lawn sign, and began advertising it, usually in the newspaper. Eventually, either it would sell or the contract would expire.

Occasionally, an real estate sales person from another brokerage might spot the ad or sign, and ask if the listing brokerage would cooperate by allowing him to show that listing, and if an offer was generated, pay a cooperating brokerage commission.

This permission would be necessary because all listings during those times were always exclusive to just that one brokerage.

Nowadays, exclusive listings are rare because homeowners want the huge exposure offered by the MLS® system and the internet.

When an exclusive listing is created, it's usually because the REALTOR® already has a prospective buyer for the property. So, there's no need to share the listing. Of course, the seller must agree to this limited method of marketing their home.

Sometimes, a seller may prefer a quiet sale because they're in no rush, or they prefer their own agent sell it themselves. In any case, the exclusive agent, who is in no way compelled to cooperate with another brokerage, must share the listing with fellow sales people of their own brokerage. The listing contract actually belongs to the brokerage - not just the sales person who obtained the exclusive listing.

Highest and Best Use

The use which, at the time of the appraisal, is most likely to produce the greatest net return in money or amenities to the land over a given period. Net return may be monetary, as with an income property, or may, in the case of a single-family dwelling, take the form of amenities such as pride of ownership, comfort and convenience. In cases where a site has existing improvements, the present use may fail to meet the criteria of this definition. The highest and best use may be determined to be different from the existing use. The present use will typically continue, however, unless and until land value in its highest and best use meets or exceeds the total value of the property in its existing use.

The appraiser, in estimating market value, must consider not only the current use, but also the likely uses to which it is adapted and is capable of being used in the reasonably foreseeable future. Purely speculative future uses may not be considered.

Since owners normally utilize their property as advantageously as possible, and since economic pressures usually dictate the optimum or most profitable use, the highest and best use of a property will most often be its present use. However, this is not always the case. Instances exist where owners, for various reasons, do not use their property at its highest and best use. This is especially true along major new highways and rapidly expanding areas where sudden changes in demand occur and appropriate uses are necessitated. Also, the passage of time typically causes radical changes in optimum land usage.

Holdover Period

This bit of real estate terminology is included in a listing contract with a seller. It refers to the period following the expiry of the contract.

The duration is agreed upon between the REALTOR® and the seller(s), but is typically 60 to 90 days. If, during this period, the seller, or someone on behalf of the seller, agrees to or accepts an offer to purchase the subject property from a buyer who had been introduced to, or shown, the property by the listing brokerage, from any source, during the term of the listing, then the seller must pay the brokerage the contractually agreed commission.

After the expiry date of the listing, if the seller enters into a new listing agreement with another brokerage, then his liability to pay commission to the first brokerage is reduced by the amount of commission he must pay to the second brokerage.

For example, if the original brokerage commission was to be 5%, and the seller signs a new contract with a competing brokerage at 4%, and the property sells to a previously introduced buyer as described, then the seller may still be liable to pay the first brokerage a commission of 1% of the sale price plus HST.

This clause is included in all listing contracts to discourage the practice of a unscrupulous buyer, who was introduced to a listed property by a REALTOR® during the term of the contract, usually near the expiry date, from returning after the expiry date to attempt to buy the property privately, and to dishonourably exclude the brokerage and deprive it of its rightful commission.

Irrevocable Date

An irrevocable date is always included in an offer to purchase a property, or an amendment to an existing contract. If the recipient of the document fails to accept it during this open period, by affixing their signature(s), and prior to the irrevocable date, then the 'offer' effectively will expire. The offer cannot be legally revoked, or withdrawn, by the party making the offer once they sign it. But it is automatically revoked if not accepted by the recipient prior to this date.

Knob and Tube

Knob and tube wiring was used extensively in residential construction prior to 1950. The name derives from the ceramic knobs by which the wire is secured and the ceramic tubes through which it passed through wood-framing members such as joists. Insulation breakdown is the most frequent reason for replacement.

REALTORS® must be aware of recent concerns regarding knob and tube electrical systems. In particular, insurance companies are increasingly cautious both about 60-amp services and older buildings with knob and tube wiring. While some insurers will renew existing policies on such properties, a change of ownership and/or selection of a new insurer can mean a declined application. Older systems may not be inherently dangerous, but problems can arise with overloading due to new appliances and other modernization within houses. A fire inspection for older properties could result in expensive repairs on the electrical system.

Lawyer's Opinion on Title

This is a service provided by your lawyer, in the form of a letter, which states the lawyer's view of whether or not you have good and marketable title to your property. It includes search and inquiry results, along with any outstanding issues that may affect your title to the property in the future.

Legal Description

In any transfer of real property, including any and all documents pertaining to a transfer, the legal description must be included. This entails adding the municipal lot and plan numbers, possibly a block or reference plan number, or in the case of a condominium, the corporation, level and unit numbers. For a rural property, it would be the concession and lot or part lot numbers, possibly east or west half or something similar, approximate acreage, and the frontage, depth and any irregularities of the lot or parcel.

I usually include a brief description of the property too, like a detached brick dwelling with an attached double garage and paved private driveway. I realize many REALTORS® don't follow this practice anymore. So, call me a bit old fashioned, but it doesn't hurt, and may help clarify what is actually being purchased. It's best to use accurate, unambiguous real estate terminology.

Liens and Encumbrances

A lien is a form of non-possessory security interest granted over a property to secure the payment of a debt or performance of some other obligation. There are countless types of liens, but most common are mortgages, secured credit lines, mechanics liens or those granted as security for installed rental equipment such as a furnace.

An encumbrance is a legal term for anything that affects or limits the title of a property, such as a mortgage, lease, easement, lien or restriction. Also, those considered as potentially making the title defeasible (voidable) are also encumbrances. For example, charging orders from a court on behalf of a creditor, or a work order from the local municipality can result in a title transfer not being fulfilled without being satisfied.

Listing Agreement

This contract establishes an agreement between a brokerage and a seller (vendor). It creates an agency between the parties, and explains services to be provided by the brokerage, the fee for said services, and any seller obligations.

A listing agent must tell the seller anything known about a prospective buyer, including, if known, whether or not a buyer will pay more for the seller's property. The exception to this rule, however, is if the buyer is also a client of the same brokerage, that is under a Buyer Agency Agreement. Then, the 'dual' agent must maintain confidentiality on behalf of both clients in the transaction. A buyer working as a customer with a listing agent can expect fair and honest service from the seller's agent, and disclosure of pertinent information about the subject property.

Listing Brokerage

A real estate brokerage that enters into a contract with the titled owner, or someone legally authorized to act on the owner's behalf, to market a particular property in exchange for a commission, is referred to as the listing brokerage.

Sometimes, the listing brokerage also acts as the 'selling' brokerage, but is not referred to as such.

Usually, in the successful marketing of a property, there are two brokerages involved - the listing brokerage, representing the interests of the home owner, and the cooperating brokerage who does the same for the buyer. Usually, only the listing brokerage has the right to advertise the listing, including the placement of a for sale and sold sign on the property.

Occasionally, a seller and listing brokerage grant the right to advertise to a competing brokerage, but this permission must be in writing.

Market Value

The highest price in terms of money, that a property will bring to a willing Seller if exposed for sale on the open market, allowing a reasonable time to find a willing Buyer, buying with the knowledge of all the uses to which it is adapted and for which it can be legally used, and with neither Buyer nor Seller acting under necessity, compulsion nor peculiar and special circumstances.

Market value is not to be confused with market price, which is an accomplished or historic fact, as the amount paid or to be paid for a property in a particular transaction. Market price tends to closely align with market value in an efficient market system involving willing, informed Buyers and Sellers acting rationally and prudently, given reasonable periods of time with no undue influences. Successive market prices in the sale of comparable homes form the basis of estimating the market value of a particular property.

Mortgage

A mortgage loan is a loan secured by real property through the use of a document which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word 'mortgage' alone, in everyday usage, is most often used to mean mortgage loan. More simply stated, when someone wishes to purchase a home, and they have insufficient cash to pay the full price, they must borrow the balance from a bank or trust company (mortgagee). Mortgages can also be arranged with the services of a mortgage broker.

This loan becomes a mortgage and is registered on the title of the property, with monthly or weekly payments of blended principle and interest being made by the borrower (mortgagor). The amount of the payment is determined by the principle amount of the loan, the interest rate, and the amortization period, or the number of years it would take before the loan is fully paid. The rate of interest remains constant for the term of the loan, often one to 5 years or longer, or unless it's a variable rate mortgage, which usually varies directly with the bank prime lending rate.

A mortgage is the transfer of an interest in property (or the equivalent in law - a charge) to a lender as a security for a debt - usually a loan of money.

While a mortgage in itself is not a debt, it's the lender's security for a debt. This transfer of an interest from the owner to the lender is made on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.

Multiple Representation

This is another term for dual agency. It's possible for a brokerage to represent multiple parties, as happens when numerous buyers, who are not represented by their own agent under a buyer agency agreement, submit offers on the same listing. If a buyer is represented by a REALTOR® from the same brokerage who has the listing on the property, or if the listing REALTOR® also represents the buyer, a multiple agency is created. Technically, the brokerage is the 'agent', and not the salesperson.

Mutual Release

When the parties to a contract, whether an agreement of purchase and sale, listing, buyer agency or lease, wish to terminate and release each other from a contract, they enter into a mutual release. This document, when fully executed by all parties to the contract, sometimes including the brokerage(s), effectively puts an end to the agreement.

In the case of an agreement of purchase and sale, instructions to the deposit holder, usually the listing brokerage, are included regarding the disposition of any deposit paid previously by the buyer. Usually, but not always, the deposit is returned to the buyer without interest or deduction.

Notice to Conditional Buyer

If a buyer submits an offer on a property that is conditional upon the sale of their present property, it'll include an escape clause for the seller. The seller will continue to market the property while the buyer is busy trying to sell their present home.

If the seller receives another offer they deem acceptable, the seller can accept it, conditional upon being released from the agreement they have with the first buyer. Through their REALTOR®, they'll deliver to the buyer, or to their address or agent, a Notice to Conditional Buyer.

Once delivered, the buyer will have 48 hours, or whatever time period was established in the agreement of purchase and sale, to either waive (remove) the condition or conditions (depending upon how the clause was phrased in your purchase agreement), or execute a mutual release. If the buyer signs a waiver, they've bought a house. If the latter, they're out, and will receive a refund of the deposit paid with the offer.

Notice of Fulfillment

When a buyer submits an offer, it'll contain at least one condition, and probably more, especially if they're buying a rural property. For example, time is needed to arrange a new mortgage. And a home inspection condition would also be a wise inclusion. Once firm, written approval or commitment is obtained from the lender for a mortgage, or a satisfactory report from the home inspector is received, the document to signed is called a Notice of Fulfillment. This is delivered to, and signed by, the seller, acknowledging that the condition(s) has been fulfilled, and the purchase is now unconditional.

In common practice, however, many REALTORS® mistakenly use a form called a Waiver. This form actually just removes the condition from the agreement of purchase and sale. It fails to state that the condition was fulfilled. The two forms ultimately accomplish the same result, but in a different way. If there's any legal conflict later, such as a misunderstanding regarding mortgage approval, a buyer agent might regret not having had the buyer execute the proper form in which the buyer confirmed that they actually fulfilled the condition, and didn't simply remove it. If I were the listing agent for the property involved, I'd also prefer to know that the buyer did indeed fulfill it.

It may be a mute point, but nevertheless, why not use the correct form to be clear?

Null and Void

In law, both of the words 'null' and 'void' mean of no legal effect. A real estate transaction which is void is of no legal effect whatsoever, or an absolute nullity. The law treats it as if it had never existed or happened. For example, when a condition for the benefit of a buyer contained in an agreement of purchase and sale is not fulfilled, the buyer declares the contract null and void, or as having never existed.

In practice, once an agreement of purchase and sale is so declared (which is accomplished by the real estate terminology as one of the real estate clauses in the contract), a mutual release is prepared normally by the buyer agent, signed by the buyer, and delivered to the listing sales person for the seller to execute. The two authorized representatives of the brokerages involved will also affix their signatures, and the deposit is normally returned to the buyer.

Power of Sale

This is the process used by a lender (mortgagee) as their primary debt recovery method in Ontario, Newfoundland, New Brunswick and PEI. A method called judicial sale, which is more costly and time consuming because it requires the commencement of a legal action against the mortgagor (borrower), has been adopted as the primary debt recovery method in BC, Quebec and the prairie provinces. In Nova Scotia, the most popular method is foreclosure, but is still considered judicial as the court must still be involved.

Power of sale proceedings in Ontario are fairly fast because of the rights of the lender documented in the mortgage.

Power of sale is also referenced in the Ontario Mortgages Act, which refers to two different types of power of sale - contractual and statutory. It's a contractual power of sale if the mortgage document includes this provision. It's statutory power of sale (which is rarely used) if a mortgage document does not include a power of sale clause, and the mortgagor has defaulted for at least 3 months.

When a home owner defaults by more than 15 days on their responsibility to make the monthly or weekly payments as agreed in the mortgage document, the lender has the right to deliver a written Notice of Sale under Mortgage, which contains details of the mortgage along with a payment demand by a certain date, to anyone with an interest in the property. This group might include subsequent encumbrancers (i.e. second mortgagees), statutory lien holders and those who have informed the lender in writing of their interest. The notice must contain a warning that if the mortgagor fails to redeem (bring the debt current) by a certain date, the lender intends to sell the property. The lender cannot proceed any further during this redemption period.

For a contractual power of sale, the mortgagor has 35 days (45 days for statutory) to redeem the mortgage. If the mortgagor fails to do so, the lender can seize the property and evict the mortgagor.

Once the redemption period expires and the mortgagor has failed to rectify the default, the lender can sell the property. Under power of sale, the property can be sold by auction, private contract or tender. Typically though, the property is listed with a real estate brokerage on the Multiple Listing Service (MLS®), sometimes after obtaining appraisals.

Once the property is sold, the lender must account to the mortgagor as well as all subsequent encumbrancers. The Mortgage Act requires that the sale proceeds first be applied to the cost of conducting the sale (legal and property management fees, real estate commissions, etc), then to debt interest and costs owing under the mortgage, then to the outstanding principle, then to monies due to subsequent encumbrancers and finally, to return tenants’ security deposits if the property had been rented during the marketing period.

After all of these responsibilities have been fulfilled, any remaining balance must be returned to the mortgagor. And since municipal governments have first claim for property tax arrears, they must be paid before anyone.

While I make every attempt to keep the information contained herein accurate and current, I cannot guarantee the accuracy, completeness or timeliness of any information provided.

Property Assessment

Periodically, a home owner receives a Notice of Assessment with a value applied to their property. The local municipality or tax authority, determines the tax (mil) rate, which, in conjunction with this assessed value, establishes the amount of property taxes payable for that property.

In Ontario, the organization for establishing this value is the Municipal Property Assessment Corporation (MPAC). In arriving at this value, they consider the improvements to the property, as well as the sale prices of comparable homes in the area, much the same as what a REALTOR® would do to establish an estimate of fair market value.

An assessment increase doesn't necessarily translate into higher taxes. And there are appeal options if the home owner disagrees with the assessment increase. In Ontario, it's called a Request for Reconsideration.

Radon

An invisible, odourless and tasteless gas produced by the decay of uranium that occurs naturally in the earth's crust. The gas itself is not dangerous, but becomes hazardous when it breaks down into progeny that cling to dust and soil particles. These radioactive particles also attach themselves to lung tissue when the radon gas is inhaled. Outdoors, radon is diluted, however, indoor levels of concentration can reach hazardous levels. Basements are often tested for the presence of this gas.

Right-of-Way

The right to pass over land owner by another party, more or less frequently, according to the nature of the easement.

Representations and Warranties

All contracts contain representations and warranties. They're basically the underlying matters or facts as they're being presented in terms of the contract. When selling real estate, the sellers represents themselves to be the owners, who have the legal authority to sell the property. And they warrant that the property is as they represent it to be.

A representation is defined as an account or statement of facts, allegations or arguments. They present everything from its past to its present status and are created to induce someone to enter into the contract.

A warranty moves from the present to the future. In real estate, when a seller warrants something, they're promising that the 'item' is free of defects, and will repair or replace it if found otherwise for a specified amount of time into the future. The warranty obligates the seller to the terms of the contract.

Warranties can be either expressed (written) or implied (verbal or assumed). Implied have less force in court. So, a buyer should insist on any warranty being expressed, that is written into the agreement of purchase and sale.

Used together in an agreement of purchase and sale, the terms 'representations' and 'warranties' are assurances that the seller gives to the buyer that the buyer can rely on as factual.

Requisition Date

A closing, or completion date is the date when funds are exchanged for a transfer/deed and possession of the property.

A requisition date, often referred to as a title search deadline date, is the last date upon which a buyer's lawyer can require the seller to clear up any title problems. This may be important, especially if the buyer intends to mortgage the property. The lender will require clear title before advancing any funds.

Sheriff's Execution Search

This vital function is performed by the law office handling a closing. It's done for the current owners (soon to be previous), as well as all named buyers of the property, and discloses any unsatisfied judgments (claims) that may have been filed which may create a lien or interest in the subject property. If any of the parties to the transaction are aware of any judgments against them, they should inform their lawyer at the earliest convenience.

SPIS

A Seller Property Information Statement is a statement designed in part to protect Sellers by establishing that correct information concerning a property is being provided to prospective Buyers of their property. It assists buyers in the decision-making process.

Spousal Consent

Under the Family Law Act, if a spouse is not named on the title to the property, then that non-named spouse must consent to the sale by affixing their signature to the agreement where appropriate, and to all other pertinent documents in order to give full force and effect to the sale. This refers not only to married couples, but also common-law relationships, provided the non-titled spouse has resided in the property for a certain period of time as described in The Act. So, no spousal approval, no sale. Anything otherwise would be fraudulent.

Status Certificate

When a buyer makes an offer on a condominium, they want to know that they're not buying into an unhealthy corporation.

Formerly called an Estoppel Certificate, this is a document prepared by the property management of the condominium, upon the written request by the seller, buyer or one of their REALTORS®. It's no longer necessary for it to be ordered in the name of the buyer for it to be legally reliable to them.

A Status Certificate is a brief report on the current financial and legal health of the corporation. When buying a resale condo, it's wise to include a condition in the agreement of purchase and sale, providing the buyer's lawyer the opportunity to review and approve this certificate.

It includes information such as arrears or planned increases in the monthly condo fee, any major work planned for the building, and if the reserve fund balance is sufficient for said work. It also includes info on any outstanding legal judgments or executions against the corporation, and whether the condo corp is currently involved in any legal proceedings. If any major claims exist against the corporation, and its insurance is insufficient, management and the board of directors can either increase the common expense fee, or levy a special assessment against the individual unit owners.

A package of documents that normally accompanies the Status Certificate will include its financial statements, declaration and by-laws. The financial statements offer a good indication of its fiscal stability, with actual and estimated costs. They'll also show expenditure trends, and include receipts from previous years. The current budget will identify the corporate income as well as the reserve fund balance. The declaration details the structure, rules and regulations, and the by-laws explain corporate functioning.

It must also include a list of all contracts in which the condo is a party, such as management and maintenance contracts. A buyer may request copies of these contracts.

And an insurance certificate will be included, along with a statement declaring the number of known leased units in the complex. This may have an effect on the buyer's decision whether or not they wish to continue with the purchase.

A buyer's lawyer will review the Status Certificate and all accompanying documents, and advise their client on whether or not they should proceed with the purchase.

Under the Condominium Act, management is permitted 10 business days to prepare it, and charges a fee of $100 including HST. Who pays for it is certainly negotiable. But to be fair, since the buyer's lawyer might have to order an updated one if the closing is longer than 60 days, I feel the seller should pay for the first one.

When an owner lists their condo for sale, it would be prudent to order a status certificate right away. Obviously, any buyer will be requesting it in their offer anyway, and the seller can save valuable time after accepting an offer. If there's an objectionable issue contained in the certificate, the seller or their REALTOR® will have the early opportunity to seek clarification from the property manager of any issues, so as to be able to offer an explanation to a prospective buyer or their agent.

Survey

The term 'survey' is loosely used, and sometimes erroneously, to refer to a Survey, a Surveyor's Real Property Report (SRPR) or a Reference Plan (RP).

An SRPR is a legal document that shows the location of all improvements (buildings, decks, pools, fences, etc) relative to the boundaries of the subject property. It usually includes an illustrated plan along with a written report of the surveyor's opinion regarding any concerns. In a real estate transaction, it may be relied upon by all parties to the transaction as an accurate representation of the property.

An RP is a graphical representation of a description of land and is necessary for a severance. It shows the boundary and dimensions and any physical or documentary evidence that could affect property title, like the location of fences, hedges, retaining walls or overhead wires in relation to the boundaries. Evident or registered easements and rights-of-way would also be shown. Buildings and any improvements would generally not show unless they were used for boundary positioning or they encroach on the subject property.

For further information on this topic, visit The Association of Ontario Land Surveyors here

Survive and Not Merge on Closing

In an agreement of purchase and sale of real property, a buyer usually wants assurance that any chattels or fixtures included in the agreement will be in good working order when they take possession. They want to know that what they're paying for will be as represented by the seller.

However, once a transaction is closed, when the transfer/deed has been exchanged for the closing funds, the realty sale is completed. And so are all the obligations by both parties. Under the Doctrine of Merger, all obligations have merged, or have been fulfilled, completed and satisfied, unless some provision was included in the contract.

To provide a buyer with assurance that any seller warranty in the contract will be effective, the buyer must insist that some reference for a warranty to survive closing be included in the real estate contract.

The usual clause added states that the 'warranties and representations shall survive and not merge on completion of this transaction, but apply only to the state of the property at completion of this transaction'.

Here's an example: If a seller warrants that the kitchen appliances will be in good working order, and there's no reference to this warranty surviving closing, then once the deal is completed, and the appliances are malfunctioning, the buyer is out of luck. If your agent had chosen to include the correct real estate terminology, that is the survival clause, then the buyer would have had a 'reasonable' time following closing to ensure they're in good working order. If they're not, then the buyer has a remedy.

They may make a claim against the seller for the cost of repairing or possibly even replacing the defective appliance. Normally, though, these situations can be cleared up through the assistance of the real estate agents involved.

Another example: You buy a home with an in-ground swimming pool. It's winter when you and the homeowner enter into an agreement of purchase and sale that is set to close in the spring. Obviously, the buyer cannot test the pool in winter, and wants to be guaranteed that the pool will be in good working order when they open it in the spring.

So, just add a future spring date after closing, in the warranty clause in order to give you, the buyer, with reasonable time to satisfy yourself of its proper operation when you open the pool by that date. The warranty will not merge on closing, and will survive until said date. If there's a problem, you then have a remedy.

Termites

These insects feed on wood and moisture, and are found chiefly in tropical climates, but have been known to exist in North America since the mid 20th century. They live in sophisticated social colonies in the soil - not in wood. In colder climates, their colonies are usually located below frost level, and close to a moisture source. They travel through wood, following the grain, and soil, or via shelter tubes that they construct to avoid drying out their bodies by exposure to the open air. Tubes, small fragile, sandy-coloured tunnels across open surfaces, are made of earth, debris and an excreted material which holds the tubes together.

They tend to eat in parallel galleries inside any type of wood, preferably damp or rotted, and leave a smooth honey-combed appearance.

Title Insurance

This is an insurance policy typically offered to a buyer by his lawyer to protect against certain situations that could occur.

Such situations that might limit or affect the use, marketability or forced removal from the property, might be restrictive covenants, zoning, being located on conservation authority lands, encroachments of your building onto adjoining property, defects which would be discovered by a local authority search, improvements built without a permit, a future forgery claiming an interest in the property, future construction of an encroachment onto the lands, or matters which would be revealed by an up-to-date survey. Also, taxes, special assessments, utilities and condominium arrears would be covered in most title insurance policies.

It's an insured statement of title or ownership of real property provided by a title insurer for a specified, usually onetime, premium. Title insurance is relatively new in Canada, but has flourished for years in the USA. Its growth within the American market is due in part to ineffective land registration systems in various states, along with a dramatic rise in the secondary mortgage market, one involving the sale of title and equitable mortgages in the marketplace. Lenders and investors acquiring this mortgage paper require confirmation of various title matters concerning the property being mortgaged. Title insurance simply offers an expedient, relatively inexpensive method to satisfy this need.

The Canadian experience with title insurance is just now unfolding. The growth of secondary mortgage market activity, certain limitations within the selected provincial land registry systems, and title opinions provided by lawyers have led to increased use of this insurance.

Title insurance can simplify real estate transactions. For example, the title policy may eliminate the need for an up- to-date survey, thereby providing savings to the Buyer and possibly avoiding delays in closings. Title insurance is often promoted as a method to avoid last minute title defect problems that may destroy the sale. Advocates cite the benefit of title insurance for a lender, who receives certain assurances.

Coverages dealing with both marketability and governmental or court orders include virtually all of the things which a lawyer would normally do on a residential transaction. And usually in a very cost effective way. The savings in the cost of a survey, searches and inquiries alone, make it a financially sensible proposition. And there's virtually no wait time. So, closings are facilitated with this insurance coverage.

Title Search

A title search is a process that is performed primarily to ensure that a seller has the right to sell or transfer a property. It provides information regarding any restrictions or allowances pertaining to the use of the land, such as real covenants or easements. Also, if any liens exist on the property which need to be discharged at closing, such as mortgages, municipal tax arrears or mechanic's liens.

Anyone can perform a title search since documents concerning conveyances of land are a matter of public record. However, it's advisable to hire a title company or lawyer to conduct an exhaustive title search. A title report may show recorded legal rights to the property such as a right to share a driveway given by a previous owner to a neighbor. Or the municipality may have the right to strips of the property for installation of power or communication lines, or water or sewer pipes.

In North America, a property buyer usually purchases title insurance, which protects the buyer from any title problems, like missed liens, that may arise after a sale. The title insurance company issues a report and insurance policy in support of its findings. A search is normally performed on a purchase of real property, or when an owner wishes to mortgage his or her property, and is completed prior to closing, and before the Requisition Date included in the contract.

UFFI

Urea formaldehyde foam insulation is a colourless, chemical compound found in certain resins, glues and bonding agents, and for REALTORS®, is most commonly associated with insulation. It's a low density foam made from plastic resins, a foaming agent, and compressed air. At time of installation, it has the appearance and consistency of shaving cream. While normally identified as a white or cream-coloured substance, at least one product contained blue dye.

A controversy arose from the curing process when the product was injected into walls and other areas in residential property, and formaldehyde gas was released. The product was banned in 1980 because of potential health concerns, after an estimated 100,000 Canadian homes were insulated, mostly between 1975 and 1979 under government homeowner incentive programs.

Nowadays, the general consensus is that UFFI is a minimal health concern. However, The Canadian Real Estate Association (CREA) has urged its members to stay informed, not to treat UFFI as a non-issue, and maintain UFFI references in listing documents and agreements of purchase and sale.

Vacant Possession

This term means that the property, usually occupied by the homeowner or tenant, is for sale on the understanding that the present occupants will vacate (move out) prior to completion. The seller must remove all chattels not included in the agreement of purchase and sale. The buyer can then move into the property immediately upon closing.

An alternative is when a property is sold subject to an existing tenancy. When an investor, for example, buys a tenanted property, and agrees to assume the tenant, then vacant possession will not apply. Or there may be part vacant possession, with only certain rooms, levels or a basement apartment occupied by a tenant.

Landlord and tenant legislation is complex and can change from time to time with new housing legislation. So, it's a good idea to thoroughly understand your responsibilities as a landlord, or your rights as a tenant, prior to committing to this path.

If a buyer wishes vacant possession of a property that is currently tenanted, they may not be able to evict the tenant, and certainly not prior to closing since the buyer is not the landlord. The buyer will have to appoint, in writing, the seller to act as their agent to provide the tenant with appropriate notice to vacate. And even then, the tenant may not comply.

Waiver

When a buyer purchases real property, the offer often includes certain conditions. They may have to arrange a mortgage on the property, or have a home inspection performed, or investigate potability of the well water or have a house to sell. When these conditions are fulfilled, they may sign a waiver form which effectively removes the condition(s) from the agreement of purchase and sale. Technically, if the condition has actually been fulfilled, the correct form to execute would be a Notice of Fulfillment of Condition, but waivers are often used in its place.

A waiver would be used correctly if the buyer wanted to remove a condition even if that particular condition had not yet been fulfilled. For example, if the buyer decided not to pursue a home inspection even though they had the right to do so as per a condition in the contract. In such a case, they would just sign a waiver.

To learn more about the Ontario Residential Tenancies Act, visit the Ontario Ministry of Municipal Affairs and Housing

Zoning

These are rules for controlling land usage, established by various levels of government. They deal with how specific parcels and individual lots of land may be used. Zoning is the setting aside of land for certain predefined purposes and uses. In an urban area, for example, some land is zoned as residential and other land as commercial. If one wishes to sell or buy property in an area, how the property is zoned, be it commercial or residential, could be an important part of the sale. Each zone type, sometimes referred to as a zoning district, has its own set of restrictions regulating how the land in that zone type may be used.

One of the main reasons for zoning requirements is to ensure that adjacent lands have compatible uses. Most people would not want a noisy, unsightly factory next to their home. Each type of zone has its own restrictions as to the kind of activity that can occur there to ensure compatible activities. here.

The information presented herein is not intended
to replace the advice of your own real estate agent,
nor to solicit anyone currently under contract to another brokerage.
© copyright 2009. All rights reserved.
No reproduction permitted without permission.

SBI!

Confused About Real Estate Terminology?

Real estate terminology can be very confusing.