Canada – U.S. Real Estate: The Transaction Process

Author: Dr Margot Weinstein, CIPS, TRC, FIABCI, Broker & Educator U.S .and Canada share the longest border in the world. So, it is only natural for agents to learn the real estate transaction process for U.S. citizens buying in Canada as well as Canadians purchasing in America. I have been working with international clients and teaching international real estate courses for many years. Here’s what you need to know.

Understand the Residency Requirements

An American citizen does not need a visa to visit or travel through Canada. Restrictions are only linked to the length of your clients’ stay.  If your client stays in Canada for six months or less each year, the government considers the person a non-resident, but he/she can still open a bank account and buy property. If your client lives in Canada for more than six months each year, he/she must apply for immigrant status.

The Transaction Process

Most real estate agents in Canada are licensed, self-employed and earn fees in the form of a commission. Commission rates vary from 3-7 percent, depending on property types, and are different around the country. Most provinces in Canada do not have restrictions on foreign ownership of property. However, some places do limit the amount of land one is able to own. Properties can be found on the internet via property websites. Common terms used by Canadian real estate professions you should know:

• Buyer is often referred to as the purchaser.
• The seller is often referred to as vendor.
• Principal is a person who has engaged an agent to act for and on his/her behalf either to buy or sell a home.
• Dual agency is a real estate agent who is representing both the buyer and seller in the same transaction. In this situation, the agent promises confidentiality, loyalty and full disclosure to both parties simultaneously.

Thus, it necessary to limit these duties in the situation, if both parties consent. When buying a house in Canada, an offer must be made in writing so all aspects of the transaction are clearly outlined within the offer. Once the buyer has signed the document, it becomes legally binding. If your client withdraws from the offer at this stage, you may lose your deposit and may also be sued. Make sure that all items that are to remain in the property (i.e. fixtures, carpets and appliances etc.) are written on the offer as ‘chattels included.’ I also recommend that REALTORS® include two clauses in the contract that state that the offer will only proceed:

• Subject to building inspection
• If the buyer is able to meet the financial obligations.

Similar to real estate transactions in the U.S., after the offer is complete, it is presented to the seller and negotiations are prepared. This may include changes in price, completion date and chattels. The changes are initialed by the seller and returned to you (the buyer) for your initials. The resulting Agreement of Purchase and Sale will state the purchase price and the deposit. The deposit is placed in a trust account and is credited towards the purchase price once the offer has been accepted by both the seller and the buyer and the transaction is complete. An excellent book to read to learn more about Canada is Real Estate in Canada: What, When, Where and How to Buy, by Ozzie Jurock.

Cultural Nuances

Although there is a great deal of similarity in cultures between the U.S. and Canada, there are subtle differences that can impact your communication:

• For French Canadians, material is printed in both French and English.
• Canadians are extremely polite: Say “Sorry” on average 45,000x a day.
• If you are from U.S., don’t use the phrase “we Americans.”
• Personal space and body movement or gestures differ between the English and the French provinces and cities.
  • In English areas, body movement is minimal. Typically, there no touching other than handshakes, and personal space – how close someone stands is about two feet.
  • In French areas, people stand closer together. They regularly touch and gestures are more expressive.
  • Restrain your arm gestures when meeting and talking with Canadians – other than with French Canadians. To learn more about Canadian culture, I highly recommend you read the following two books: Kiss, Bow, Or Shake Hands: The Bestselling Guide to Doing Business in More Than 60 Countries and  Kiss, Bow, or Shake Hands, Sales and Marketing: The Essential Cultural Guide―From Presentations and Promotions to Communicating and Closing, by authors Terri Morrison and Wayne A. Conway.

Banking, Currency and Mortgage Rules

Moody’s has ranked Canada’s banking system number one in the world for financial strength for past several years. CAD is Canada’s sign of money.  Exchange Rates can change daily. Real estate prices shown on www.REALTOR.ca are in Canadian dollars. For currency daily exchange rate, check out Bank of Canada’s Daily Currency Converter.

Key differences in banking in Canada

• Foreign banks cannot register mortgages in Canada. Therefore, any mortgage would have to be raised via a Canadian mortgage broker.
• For permanent residents and Canadian citizens, a mortgage typically can be obtained at 75 percent of the purchase price over a 25-year term.
• Qualifying for a mortgage depends on your credit rating, assets, income and savings. A real estate agent can help a client look for a mortgage broker.
• Non-residents typically take out a 65 percent mortgage and have to pay 35 percent as a down payment.
• While in U.S., the mortgage lasts for 30 years without a renegotiation. Canadians mortgages are calculated on a 25-30 year amortization rate, and the contract is usually renegotiated every five years.
• In U.S., your client can deduct mortgage interest payments, but he/she cannot deduct them in Canada.

Legal aspects of The transaction

I strongly urge your client to hire a competent lawyer to help with any real estate transaction. In some circumstances, if your client does not file proper documents, he/she may be required to pay double taxation. And, if purchasing property in Canada as a U.S. citizen, your client may be required to file tax forms to the Canada Revenue Agency (CRA). The borrower will require the services of a Canadian lawyer or notary public to prepare the mortgage documents and registration at the Land Titles office. To find a suitable lawyer, go to www.canadian-lawyers.ca or read A Tax Guide for American Citizens in Canada, by Carswell. Other valuable links to resources are listed below or available in my power point presentation.

• Canadian Real Estate Lawyers
• Canadian Real Estate Association
• Canada Revenue Agency
• Taxes for Non-Residents – Canada Customs and Revenue Agency

Finally, according to NAR, Canada and China have been the fastest growing source of international clients for REALTORS® in the U.S. 86 percent of Canadians pay cash and only 14 percent finance real estate transaction in the United States. For more information on working with Canadians, read my complete PowerPoint Presentation, and check out my book, Real Estate Success: 12 Leadership Strategies to Make Money Regardless of the Global Economy.