Selling a home is a huge financial decision. You want to get it right. Learn what to consider before putting that “For Sale” sign up, and the steps involved in selling your home.
You can go it alone or hire a real estate agent
You can sell your home yourself. Many do, usually to save on the cost of paying a real estate agent.
But there are good reasons to use a real estate agent. It’s likely they’ll get you a higher price and sell your home more quickly. They’ll save you time by handling all aspects of the sale. And they can help you navigate a complex process, advising on questions such as:
- What facts should I disclose?
- What paperwork do I need?
- What about the existing mortgage?
- How can I be sure I’ll get my money?
If you decide to use a realtor, pick someone you trust and are comfortable with. Talk to friends, neighbours and colleagues who have recently bought or sold a home. Who did they work with and how did the experience go?
Signing a “listing agreement”
If you hire a real estate agent, you’ll have to sign a “listing agreement.” This is a contract between you and your realtor, setting out the terms of the arrangement you’ve agreed on.
When a realtor lists your home, they are advertising it. Most realtors use a multiple listing agreement. This gets them on to a database that’s widely used by other realtors. It alerts a network of realtors and potential buyers to your listing.
Your realtor’s duties to you
When a realtor is acting only for you in selling your home, they have the following duties:
- undivided loyalty to you
- to obey all your lawful instructions
- to account for all the money and property you place in their hands
Paying your realtor
Your realtor’s pay (or commission) can be a flat fee or a percentage of the sale price of the home. In BC, many realtors charge 7% on the first $100,000 of the sale price, plus 2.5% on the rest.
Usually, the commission is taken from the sale proceeds of the home when the sale is completed. Your realtor then shares it with the buyer’s realtor. This means you pay both realtors’ commissions out of the sales proceeds.
Under the BC standard purchase contract, even if you choose to sell your own home, you must pay the buyer’s realtor.
If you have a mortgage on your home
If you have a mortgage on your home, you’ll need to figure out what to do with it. One option is to pay off the mortgage when you sell your home. However, most mortgages have restrictions on paying out early. A “prepayment penalty,” such as three months’ worth of mortgage payments, often applies. Or you may want to explore whether a buyer can “assume” (take over) your mortgage. This way you’d avoid any prepayment penalties.
Ask your lender, or check your mortgage contract, to find out the terms and conditions of your mortgage. Sometimes a lender will ignore the prepayment penalty if you take out a new mortgage with them on the new home you buy.
If you get an offer to purchase
“Two offers to purchase came in at the same time. The first offer was $30,000 lower than our asking price. The buyer had mortgage pre-approval, and was eager to close the deal. The second offer came in at our asking price. There was no bank involved, but the buyer vaguely said he needed a few months to get his finances sorted. Of course we would have liked the extra cash, but who knew if the second offer would fall through? In the end, we negotiated a better price with the first buyer. We were happy to lock it in.”
– Paula, New Westminster
If someone wants to buy your home, they’ll give you an offer to purchase. This is a written contract setting out the terms of the sale. It’s usually done with a standard form called a contract of sale and purchase.
Your realtor must bring all written offers to you for your consideration. You can choose to do any of the following:
- Ignore or reject the offer.
- Accept the offer as it stands: Once you and the buyer sign the offer, it’s a legally binding agreement. This means you must each perform your obligations under the contract (or risk being taken to court).
- Negotiate the terms: The terms a buyer proposes are all negotiable. For example, you might only be interested in an offer if the purchase price is higher. Or if the completion date is sooner.
If you change a buyer’s offer in any way, it becomes a counteroffer. This cancels the buyer’s original offer. The risk of making a counteroffer is that the buyer can reject it and walk away altogether. If this happens, you can’t turn around and accept the buyer’s original offer.
Once you accept an offer or counteroffer, the contract for purchase and sale becomes legally binding. Make sure you understand the legal promises you’re making. You can do this by reading our easy-to-understand explanation of the BC standard contract of purchase and sale.
If the offer includes subject clauses
Subject clauses are conditions that must be met before a sale can happen. Buyers often include these in their offers, giving themselves time to assess certain risks before committing to the purchase. Offers are often made subject to the buyer:
- getting financing (for example, a mortgage)
- getting a property inspection, and being satisfied with the results
- selling their home
From a seller’s perspective:
- The buyer will propose a deadline for removing the subject clause. You’ll want to keep the “subject removal period” relatively short but still reasonable.
- Make sure the buyer’s “subject to” clauses are specific. The law says that a person must, in “good faith,” make all reasonable efforts to remove subject clauses. It’s easier for a buyer to get out of clauses with vague or broad language.
For example, don’t accept an offer that’s “subject to buyer obtaining satisfactory financing.” Instead, ask the buyer to put specific details or goals in the clause, such as the interest rate and principal amount the buyer is seeking to finance.
You must tell the buyer about any defects you’re aware of
As a seller, you must tell a buyer about any material latent defects that you know about. Being dishonest about what you know can lead to problems in the future. Legal issues may arise if the new owner discovers problems that you were aware of but didn’t tell them about.
A material latent defect means a defect that can’t be detected by a reasonable inspection of the property. This includes a defect that makes the home potentially dangerous or unfit to live in. This might include a history of flooding, structural damage to the property, or any work done without permits.
Typically, sellers disclose known defects to the buyer in a property condition disclosure statement. Learn more about your obligations when telling buyers key information about the property.
What’s included in the sale
When someone buys your home, all the fixtures go along with it, unless you and the buyer agree otherwise. Generally, a fixture is anything that’s attached to the home such that removing it would cause damage. The bathroom sink is an obvious example. The appliances — washer, dryer, fridge and stove — aren’t fixtures.
Defining a fixture can be difficult. You and the buyer may not agree on what is and isn’t part of the home. In the contract, list any items that you wish to take with you; make it clear that they’re not included in the purchase price. Better yet, before you put the home up for sale, replace items that you’d prefer to keep.
On the “completion date”
The contract of purchase and sale will specify the completion date for the sale. This is the day that ownership of the home transfers and you receive the purchase price.
On the completion date, you will:
- Sign the transfer documents. Make sure you understand what you’re signing. If you use a lawyer or notary, they should review the documents with you and explain them to you. Learn more about the documents you’ll be asked to review or sign on closing.
- Receive payment in full. Your lawyer or notary will confirm that all payments you’re responsible for have been made. This step involves ensuring you have no further obligations relating to the property, for example, dealing with your old mortgage.
A good lawyer or a notary can help protect your legal interests when selling your home. The buyer’s lawyer or notary will do most of the work. As the seller, you can expect to pay about $600-$700 in legal fees.
Step 1. Set the sale price
Figure out what your home should sell for in today’s market. You may want to contact some real estate agents who work in your area. They’ll look at your home and tell you what price they would list the home for and what they’d expect it to sell for. This service is generally free.
If you want more certainty, you can get a professional appraisal done. An appraiser will give you a value for your home based on what comparable homes in your area have sold for and what it would cost to replace yours. The cost of an appraisal is usually between $200 and $750.
There are costs to selling your home. These include staging costs, advertising and realtor commissions. There are also costs associated with paying off your mortgage. Before you settle on a sale price, ask your realtor to prepare an estimate of the proceeds you could expect to receive on completion of the sale.
Step 2. Find out the details of your mortgage and property
If you have a mortgage on your home, find out:
- how much is owing on the mortgage
- whether the buyer can assume the mortgage
- if the mortgage includes a prepayment penalty
To find out these details, check your mortgage agreement and statements. Or check with your lender.
Ask your realtor or lawyer or notary to conduct a title search before you put your home on the market. If you find any other financial charges, you’ll need to set money aside to pay these off before you can transfer ownership.
Step 3. Sign the listing agreement
If you hire a realtor, you’ll be asked to sign a “listing agreement.” These are often standard contracts. The realtor may not have a lot of room to negotiate terms. But pay particular attention to the following terms:
- Who the realtor is representing: In BC, realtors can’t act for both a buyer and a seller in the same transaction. There’s an exception for property in a remote location that’s under-served by real estate agents.
- The length of the agreement: Many realtors prefer that the listing agreement continue for three months, but you can choose to list your home for a shorter period. If your home hasn’t sold within that time, you can either extend the term of the listing agreement or change realtors.
- The realtor’s pay: The listing agreement sets the amount of the realtor’s commission, as discussed above.
The realtor will provide you with a copy of the agreement. Keep it for future reference.
Step 4. Consider any offer to purchase
If you get an offer to purchase, review it carefully. You can choose to ignore, reject, accept any offer, or make a counteroffer. Consider the dynamic combination of factors that each offer presents, including the following:
- Purchase price: Before your home goes on the market, consider whether you’ll accept offers less than the full asking price. How low will you go?
- Subject clauses: Be sure you understand the effect of any subject clauses (explained above). There’s always the risk that a deal will fall through if a buyer doesn’t remove a subject. Would you prefer to accept an offer without any subjects?
- Financing considerations:
- Mortgage pre-approval. If a potential buyer is pre-approved, there’s less chance of financing falling through. Note that pre-qualifying for a mortgage is not the same as pre-approval.
- Deposits. A larger deposit may indicate that the buyer is serious. And if the deal falls through, you won’t leave empty-handed.
- Unusual arrangements. Watch out for financing arrangements that may put you at risk. For example, a buyer may ask you to transfer the home to them, on the agreement that they’ll pay for it in future instalments. This effectively makes you their lender. Talk to a lawyer about the risks.
- Who you’re selling to: People buy property for different reasons. Sellers are often emotionally attached to their homes. Would you prefer to sell to a family who will live in the home rather than an investor?
- Timing risks: Generally, sellers want to keep time frames shorter. For example, an earlier closing date may mean less chance for the deal to fall through.
You may want to have a lawyer check the offer before you sign the contract. Your realtor can also help you assess any offers. In the end, the decision is yours.
Step 5. Complete the sale
On completion date, you will sign the documents and receive your money. You can learn more about the documents you’ll be asked to review or sign.
You’ll turn over your keys on the “possession date.” After that you’ll no longer have access to the property. The possession date is usually a couple of days after completion.
Do I have to pay a commission even if my real estate agent doesn’t sell my home?
It depends on the terms of your listing agreement. If you’re not sure whether you have to pay your realtor, re-read the listing agreement. Normally, your realtor is entitled to their commission when you accept an offer to purchase. Examples of where you may still have to pay a commission include the following:
- you sign an offer to purchase, and the transaction later falls through
- you sell the home yourself while the listing agreement is active
- the home sells after the listing agreement has expired, and the realtor had previously shown the home to the buyer or was the “effective cause of the sale”
A lawyer can help you avoid situations where you have to pay a commission even where the realtor doesn’t sell your home.
Do I have to pay capital gains tax?
If your home is your principal residence, you typically won’t have to pay tax on any profit (capital gain) you make when you sell it. This is called the principal residence exemption.
The exemption might not apply if at any time while you owned the home it was not your principal residence. A lawyer or tax accountant can advise on whether the principal residence tax exemption applies to you.