While there are similarities between real estate markets in Canada and America, there are some major differences between American and Canadian real estate transactions and how they’re conducted. In Canada, real estate transactions are relatively straightforward. Generally, your real estate agent, mortgage broker and legal representative help you in the purchase and transfer of title of a property. The complete transaction can be completed in as little as a week, although, it’s more typical to complete the process in 30 or 60 days. This isn’t the case in America, where the mortgage application can often take two or three weeks, alone, never mind other components of the transaction.
This small difference in the process, however, begs the question: What’s the difference between American and Canadian real estate transactions?
How is a typical Canadian real estate transaction conducted?
There aren’t many secrets when it comes to the transaction process followed by Canadian home buyers and sellers. Although each province may have minor differences, Realtors and consumers across the country tend to follow the same process. For the sake of clarity, we broke the process down into steps below:
- Get your finances in order: Once you have enough money to make the down payment, research mortgage pre-approval options offered by various brokers and lenders to finalize your house-hunting budget. Remember to crunch your own numbers and mortgage calculations do not take into consideration all the costs associated with living (just the costs associated with paying for a home).
- Hire a real estate agent: Ideally, you should hire a real estate agent who not only possesses appropriate certifications and licenses but one who also understands your needs as a seller or buyer and has local knowledge of the areas you want to concentrate your house-hunting efforts.
- Begin house hunting: Sellers can list their property on the appropriate Multiple Listing Services (MLS), and buyers can start their search on the same platforms.
- Negotiate an offer: Buyer’s agent will make an offer that includes price, the condition of the property and closing date and the seller’s agent will communicate this offer to their client.
- Hire a real estate lawyer or notary: Your real estate legal professional will help you finalize all closing documents and help determine whether the property has any liens or outstanding tax payments.
- If necessary, conduct a home inspection: You may need to complete a home inspection based on your personal preference or on request from your mortgage lender.
- Before the closing date: Your real estate lawyer will help you in completing all the necessary paperwork including insurance, property sale deed and will also inform you of any details obtained from the title search.
- Congratulations, it is possession day: Your lawyer will help you in completing the finalized paperwork, transferring or receiving all necessary payments, registering the title and receiving the keys and deed to your new property.
Both the Canadian Mortgage and Housing Corporation (CMHC) and the Canadian Real Estate Association (CREA) have guidelines that apply to the house buying process, which means your real estate agent, mortgage lender, and real estate lawyer should be in compliance of these guidelines and offer insightful advice and help along the way.
How is a typical American real estate transaction conducted?
The process of buying real estate in the U.S. is similar to Canada’s process but has some distinct differences. Like Canada, each state in the U.S. is responsible for overseeing real estate law, this means rules and processes can also differ slightly from state to state.
One thing that stays the same across each deal, however, is the transparency of information and the title transfer process. Our step-by-step guide, below, provides a bit of insight into the process of buying property in America:
- Get your finances in order: Once you have enough money to make the down payment, research mortgage pre-approval options offered by various brokers and decide on a budget depending on the amount that the lenders agree to offer.
- Hire a real estate agent: Ideally, you should hire a real estate agent who not only possesses appropriate certifications and licenses but one who also understands your needs as a seller or buyer.
- Begin house-hunting: Sellers can list their property on the appropriate Multiple Listing Services (MLS), and buyers can start their search on the same platforms, which are usually free to use. However, American buyers can also search for home sales data to gain an insight into the average cost of property in their desired neighbourhood.
- Hire a real estate lawyer: While real estate lawyers aren’t typically used for regular residential home purchases in the United States, they are commonly used with ‘for sale by owner’ (FSBO) properties, commercial real estate transactions or more complex residential property sales. If you do need to hire a lawyer, this person will help you finalize all closing documents and help determine whether the property has any liens or outstanding tax payments. If you don’t need to hire a lawyer, your mortgage broker and real estate agent will walk you through these final processes.
- Submit an offer and move funds into escrow: Once a proposal is submitted and the negotiation process is complete, the contract is signed and the buyer transfers the money into an escrow account, which is typically your real estate agent’s or broker’s bank account. Once the funds reach the escrow account, the closing process begins.
- Complete a home inspection: The purchase contract usually includes a clause stating that the buyer must complete a home inspection, either by themselves or with the help of a professional before closing the deal. In America, home sellers are often responsible for providing a warranty that the home and its major components are in good working order. This warranty will often last for a few years beyond the home sale and will require the seller to pay for any repairs or upgrades required if the home isn’t in good working condition. This is one of the biggest differences between American and Canadian real estate purchases and became a backbone of American real estate sales decades ago.
- Complete a termite inspection: In certain states, where the weather is warmer, it highly advisable to pay for a termite inspection of the property.
- Complete an earthquake inspection: In states more prone to earthquakes, it is highly advisable to pay for a separate earthquake inspection from a qualified inspector.
- Finalize the lending process: Although during step 1 of the process, the buyer already gets an insight into their financial standing, the lenders conduct a more in-depth review of the borrower and send an appraiser to inspect the property and decide its appropriate market value.
- Complete the title process: A title search will be done by your real estate lawyer to ensure that the seller is allowed to sell the property and that there are no liens on the property.
- Close the offer and take possession: Your real estate agent will help you in completing the paperwork, and the seller will provide the keys and sign the deed over to the buyer after receiving the payment.
The National Association of Realtors (NAR) makes the home buying process as simplified as possible while ensuring that their certified Realtors and agents follow all the necessary guidelines. “The most important part of the transaction is identifying the right property, said Jay Parker, CEO of Douglas Elliman’s Florida Brokerage. “The right real estate professionals, who are well informed and understand what each market offers, will suggest options that the buyers may not have even considered or have been aware of in their initial search.”
What are some major differences or similarities?
The most notable differences between real estate transaction processes occurring in USA and Canada are the way a property is transferred, the access to home sales data and the distribution of data after completion of the deal. Other differences, such as whether or not a homebuyer in the U.S. wants to pay for additional inspections such as earthquake or termite, or require sellers to honour home warranties, is on a case-by-case basis.
How is property transferred?
A big difference between American and Canadian real estate transactions is that American home buyers do not register the title change of a property but, instead, purchase title insurance to complete their transactions.
In Canada, “one of the material terms of the contract is that the buyer will receive a clear and free title of the property,” explains West Vancouver Zolo agent, Barry Allen.
As for similarities, both countries require the same financial security from lenders before the buyer makes an official offer and both use an MLS listing service to find or promote the property on behalf of the buyer or seller.
What data do I get?
In Canada, data collected during a real estate transaction is currently shared only with the real estate boards and their agents and property titles are registered using the Torrens System.
Strict privacy rules and regulations by real estate boards prevent buyers and sellers from knowing virtually any information about the other party.
A buyer may learn the seller’s name (from their Realtor, who shows them the listing on the MLS map that displays the seller’s name) and then use this information to conduct their own research but this is rarely done. The Realtor may also share sold history for a particular property, but that’s one of the very limited ways a Canadian buyer may get access to this information.
In America, it’s been a decade since data on individual real estate transactions was first made widely available to the public. Since then, a culture of transparency has been created where buyers can access a lot of information about a home prior to even seeing a home. Sold history, price per square foot, property taxes, Homeowner’s Association fees (if applicable), among other information is immediately available through websites, such as Zillow and Redfin, and once you make an offer both the buyer and seller must disclose a variety of private information (such as full legal name, current address) and this information is added to the sales package.
Will the Canadian transaction process change if historical data is disclosed publicly?
The main difference between American and Canadian real estate transactions is the overall transparency of information that is available to consumers. In the U.S., “once a deal is closed, the deed is recorded within the county where the property is sold, and then it becomes part of public records,” said Parker. “In certain circumstances, the recording of the deed will be mentioned in media, for example, when it is a large transaction, or when one of the parties is a high profile personality.”
In Canada, no one can publish sold data publicly, explains Barry Allen, Zolo-founder and West Vancouver realtor. This doesn’t mean the public can’t get access to this information — they can through a licensed Realtor or paying for a title search at a land registry office — but the information cannot be widely publicized. However, access to Canadian sold data may change if the Supreme Court rejects the Toronto Real Estate Board’s appeal and upholds the ruling currently in favour of the Competition Bureau. TREB is arguing that making the sales data public would be an invasion of privacy for the homeowners. The Competition Bureau is arguing that by keeping information behind gates, TREB and other boards are stifling competition and innovation.
If Canadian sold data does become publicly available in Canada, then specific property details, such as address, historical sale prices and potentially even seller details, will be open to public scrutiny. How do we know? Because this is exactly what happened in the U.S. a decade ago. In 2008, Zillow and Trulia won their court case to allow for more open access to real estate transaction data. In turn, this allowed these tech-disrupter websites to start publicly publishing information that was once only available by working with a Realtor. Initially, this prompted fears that Realtors would no longer be needed and that the profession would die out. Turned out these fears were unfounded. In a 2014 survey conducted by the National Association of Realtors (NAR), the trade association that represents all licensed brokerages and agents in America, it was found that 94% of all real estate transactions in the country were completed using a Realtor. So, despite the changes in what data is publicly available, real estate agents are still considered a valuable asset to sellers and buyers across the U.S.A.
This is good news for Canadian Realtors who are anxiously awaiting the court verdict on TREB’s case. And while data sharing rules are different between the two countries, the structure of the deals in Canadian and American real estate transactions is quite similar.