Putting it in writing for the seller
After much deliberation, you have finally selected the home of your dreams. What now? Do you knock on the seller’s door with a sack full of cash and demand the keys?
Not quite. Buying real estate isn’t like buying a pack of gum down at the variety store. There is a process to be followed, and the first step is to make a purchase offer.
Your real estate agent, working in close consultation with you, will prepare the Offer to Purchase. The Offer to Purchase is an important legal document that says you agree to buy the seller’s house (often contingent on certain conditions).
This process is not as straightforward as it sounds. You want the seller’s house, but to reach that point, you must be mindful of the seller’s reaction to any conditions you demand in the offer.
Types of home purchase offers
Your offer can be firm (without conditions), or conditional:
- Firm offer to purchase a home: This is usually preferable to the seller, because it means that you are prepared to purchase the home without any conditions. If the offer is accepted, the house is yours.
- Conditional offer to purchase a home: This means that you have placed one or more conditions on the purchase. Common conditions make the completion of the sale subject to a clean home inspection, subject to financingapproval, or subject to the sale of the buyer’s existing home. The house is not sold until all the conditions have been met.
As this purchase may well constitute the biggest outlay of dollars in your lifetime, you don’t want reckless disregard for detail to turn a real estate investment into a financial setback. Both you and the seller will want to take every precaution, stating any contingencies clearly, to avoid the possibility of legal issues later on.
The factors included in the offer
When you’re making an offer to buy a home, there are six main elements to consider:
Deciding how much to offer is one of the most difficult judgments to make. Offer too little (or offer too late), and you stand the chance of losing the house to another bidder (particularly in a seller’s market). On the other hand, nobody wants to pay more for something than it’s worth. Your ARA real estate agent can help you understand the local housing market by showing you what comparable homes are selling for, helping you assess the condition of the house, and determining the type of competition you may face from other buyers.
The deposit shows your good faith and will be applied against the purchase of the house when the sale closes. Your Ambitious real estate agent can advise you on an appropriate amount (typically 5%).
Terms include the total price offered and the financing details. You may arrange your own financing or ask to assume the seller’s mortgage, especially if it has an attractive interest rate.
Conditions are items that must be completed or fulfilled prior to the closing (such as a home inspection, obtaining financing, or selling your existing house). List anything you want the seller to pay for – carpet cleaning, warranties and any repairs or credits for damages, and so on.
- Inclusions and exclusions
Your offer may be contingent on certain items being either included or excluded in the sale. These items can be anything from appliances to decorative items, such as window coverings or mirrors (these are called chattels in legalese).
- Closing day
In Canadian real estate transactions, the closing day is generally the day the title of the property is legally transferred and the transaction of funds finalized, unless otherwise specified (except in Manitoba and Quebec). In British Columbia, the possession date is legally one to three days after closing.
When the negotiations are complete and all the terms are agreed upon, your real estate agent usually prepares a copy of the agreement of purchase and sale showing only the final terms. Once this process is complete, you and your real estate lawyer (or notary in Quebec) should review the offer to see that its terms are stated exactly as you wish before you sign it.
Careful attention to detail and consideration of the seller’s point of view should result in a happy outcome: your confident stride through the front door of your new house.