When you are ready to take that critical step and commence the process that will lead you to your dream of home ownership, the very first process is the submitting of a legally proper Offer To Purchase, which is also known as an Agreement Of Purchase And Sale form. Within this form will be all of the details pertaining to the specifics of your offer, carefully spelled out in a clear and unequivocal manner. Once you are assured that the information on the form represents the totality of what you are willing to offer, with absolutely no gray areas, you can now date and sign the document.
It is extremely important to keep in mind that this form is a binding legal document, and you cannot violate its terms simply because you've changed your mind or found a better deal. An Offer To Purchase is not a document which is drafted lightly, as lack of adherence to its terms has landed many prospective buyers in court.
The Three Options You May Be Confronted With
At this point, the document is presented to the seller who has three options:
- Accept the offer and proceed to the transaction.
- Reject the offer and not give any indication of the reasons why.
- Reject the offer, but make a counter offer which outlines what the seller is willing to accept.
In the first two options, there is nothing more to do with that particular offer. If it is accepted, you can now begin the process that leads to closing, but if the offer is rejected outright, you may have to consider drafting a new offer but you will have to do so without the benefit of knowing what the seller has in mind. Of course you can also walk away at that stage with no further liability or responsibility.
In the third option, you can either accept the seller's counter offer, or begin the process of negotiations. The negotiations for an offer can be completed in a few hours, or have been known to drag on for weeks, even months. It all depends on how flexible the parties are and how motivated both buyer and seller are to close the deal.
Never Engage In An Offer Without Legal Advice
It is extremely important to engage trusted professional advisors during the negotiation phase, such as a reputable, experienced real estate agent or lawyer, or both. Negotiating an offer can often be a very sensitive matter and something as simple as a phrase in the wrong place can cost you thousands of dollars.
The seven basic elements of an offer must be completely understood and it is imperative that you are firmly convinced that all of these elements have been met to your satisfaction prior to going ahead with a residential real estate transaction.
This is the most critical part of any Offer To Purchase and is the one which usually either smooths or hangs up the negotiation phase. Of course the seller wants as much as possible for their property and the buyer wants to pay as little as they can get away with. That is just part of the way the game is played. However, it is not necessarily the seller or buyer which determines the fair price for the property but the prevailing real estate market at the time. As many sellers have found especially in the last couple of years in Canada, the price a property can fetch can vary as much as 40% from one year to the next.
This is not the down payment, but the good will deposit also known as earnest money. This deposit will be held in trust by your real estate agent and will be applied in its entirety towards the eventual down payment. The deposit will also be returned to you in full should the offer be rejected. Many buyers disregard the importance of this deposit and feel that they can just place a couple of hundred dollars of deposit on a half-million dollar property. Although this is not necessarily impossible, it is undesirable from a variety of viewpoints. First of all, this relative pittance telegraphs to the seller that you are not overly serious about your offer, or worse, you lack the liquid financial capital to successfully complete the transaction, thus you are just "fishing" for a deal. The "acceptable" amount varies widely from region to region. In some areas of Canada, $500 is sufficient earnest money to secure a fully detached home, while in other areas, the expectation may call for 2% of the total purchase price or even more. Consult with your realtor as to the prevailing acceptable range of earnest money deposits in your area.
There must be a date in every Offer To Purchase which is the expiry. If the offer is not countered or accepted by that date, it is no longer valid. This date is critical to both buyer and seller. For the buyer it gives a clear indication that there will be an answer one way or another within a predetermined time span, and for the seller, it means that if they are serious about selling the property they need to take steps to ensure that the buyer is mollified.
The terms contained within the Offer To Purchase is another major sticking point in the negotiation phase as it consists of some elements which are actually outside both the buyers' and the sellers' control. There are a myriad of inclusions and exclusions to consider, plus closing dates and financial details which not only may change through the process of the transaction, but are almost guaranteed to be different than what is originally believed.
The conditions of an Offer To Purchase are also some other major reasons why a successful real estate deal will fail to materialize. Unless all of the conditions such as financing, surveys, home inspections and so on are fully satisfied, then the home cannot be considered sold, or in real estate parlance "sold firm."
Inclusions & Exclusions
There are few sections of an Offer To Purchase which provoke so much stress and ill will as the Inclusions and Exclusions, where the definition of what constitutes a fixture which must stay with the home is specified in great detail. Generally anything which is nailed, cemented, glued, screwed, or bolted to the property is considered a fixture it behooves the wise buyer to take absolutely nothing for granted. Although it is rather obvious that a standalone kitchen refrigerator or laundry washing machine is a free standing appliance thus not necessarily an integral part of the home, sellers may consider built-in dishwashers, trash compactors, and even kitchen cabinets and medicine cabinets as elements to be stripped prior to turning over the keys. It pays dividends to take time to go through each and every room in the house and list absolutely everything that could conceivably be removed as an Inclusion or an Exclusion, according to your preferences.
This is the expected date that all of the various elements which constitute the real estate transaction will be finalized, all adjustments will have been taken into consideration and the balance of the funds for the property have been deposited to the seller, and the title has been transferred to the proud new owner. This date in most cases is also the date whereby the current occupants must have moved out of the property and the new owners can move in. It is important to realize that closing dates can slip due to many reasons, mostly centering around financing and the housing chain. A lender may not be willing or able to meet the closing date for various reasons, and the previous house of the buyer may not have yet sold, or the deal on the new house of the seller may not have yet closed. When buyers and sellers become extremely inflexible and unwilling to consider slippage of closing dates, it invariably leads to trouble and some times to court: that is just another reason why you should never undertake a real estate transaction without experienced professional legal counsel.