01 Sep Risks Associated With Buying Power of Sale Properties
Whether you’re hunting for your first home or you’re a seasoned real estate investor, you’re likely looking for a good deal. One strategy to get bargain-basement prices is to look for homes that have been foreclosed, or more commonly seen in Ontario, homes being sold under a Power of Sales.
What are the risks with buying Power of Sales properties? Canada AM real estate expert Sandra Rinomato explored the issue recently in her article: Power of sale and foreclosure: What are the risks?
After reading Rinomato’s article, we thought we would explore the topic further. In our research, we found that luckily for the buyer, there aren’t too many risks involved. Most revolve around due diligence. Here are the top risks we think buyers need to watch out for:
“As Is, Where Is”
This wording is found on just about every Power of Sales MLS description. It means exactly that; the property is being sold as it is, where it is, with no warranties, guarantees or legal assessments. Items may not be in working order, and the structure may not be to code. What you see is what you get.
When you see “as is, where is”, treat it like a buyer beware warning. Test every system and appliance. Have a professional inspection done, as it will be your best source of information on the condition of the property. Going over the home with a fine tooth comb can take a few extra hours upfront, but can save you major time and money later-on.
“Buyer Is Responsible To Verify Any Information”
This wording is also often found in Power of Sales clauses. There’s a risk that the provided information is either incomplete or wrong. Power of Sales properties are not sold by the owners. To protect themselves, lenders add this clause, which relieves them from being sued later on for not having the details right. As the buyer, all responsibility falls on you.
Yes, it’s possible to buy a home through a Power of Sales that is tenant occupied. Be aware that Ontario tenant laws apply, so have your lawyer explain what you must do to legally terminate the tenant agreement and evict, so you can move in.
Although there isn’t an extra charge for HST when buying a re-sale home in Ontario, it is possible to pay the tax on the CMHC if applicable, and on services received like your legal fees, real estate fees, inspections and more. Any HST owing becomes the buyer’s responsibility.
How Can I Protect Myself?
Having a real estate lawyer review all offers, counteroffers and other documents is an important step. He or she can point out which clauses may be a concern, and what legal recourse you will have if anything goes wrong. Your lawyer can also do a quick title search to learn about possible liens against the property.
Make all offers conditional on financing, a satisfactory home inspection and on your lawyer approving all of the terms, conditions and clauses. This gives you, the buyer, a legal “out” if a problem is found. Never waive conditions before getting your lawyer’s go ahead. For more tips, please see our Power of Sales page or call us at 416-639-0786 with your questions!