A written proposal is the foundation of a real estate transaction. Oral
promises are not legally enforceable when it comes to the sale of real estate.
Therefore, you need to enter into a written contract, which starts with your
written proposal. This proposal not only specifies price, but also all the
terms and conditions of the purchase. For example, if the seller offered to
help with $2,000 toward your closing costs, make sure that's included in your
written offer and in the final completed contract, or you won't have grounds
for collecting it later.
REALTORS® have standard purchase agreements and will help you put
together a written, legally binding offer that reflects the price as well as
terms and conditions that are right for you. Your REALTOR®
will guide you through the offer, counteroffer, negotiating and closing
processes. In many provinces certain disclosure laws must be complied with by
the seller, and the REALTOR® will ensure that this takes place.
If you are not working with a real estate agent, keep in mind that you must
draw up a purchase offer or contract that conforms to provincial and local laws
and that incorporates all of the key items. Provincial laws vary, and certain
provisions may be required in your area.
After the offer is drawn up and signed, it is usually presented to the
seller by your real estate agent, by the seller's real estate agent, if that's
a different agent, or often by the two together. In a few areas, sales
contracts are drawn up by the parties' lawyers.
What is in an Offer?
The purchase offer you submit, if accepted as it stands, will become a
binding sales contract (known in some areas as a purchase agreement, earnest
money agreement or deposit receipt). So it's important that the purchase offer
contains all the items that will serve as a "blueprint for the final
sale." The purchase offer includes items such as:
address and the legal
description of the property
sale price
terms: for example, all
cash or subject to you obtaining a mortgage for a given amount
seller's promise to provide
clear title (ownership)
target date for closing
(the actual sale)
amount of earnest money
deposit accompanying the offer, whether it's a cheque, cash or promissory
note, and how it's to be returned to you if the offer is rejected - or
kept as damages if you later back out for no good reason
method by which real estate
taxes, rents, fuel, water bills and utilities payments are to be adjusted
(prorated) between buyer and seller
provisions about who will
pay for title insurance, survey, termite inspections, etc.
type of deed to be given
other requirements specific
to your province, which might include a chance for an attorney to review
the contract, disclosure of specific environmental hazards or other
province-specific clauses
a provision that the buyer
may make a last-minute walkthrough inspection of the property just before
the closing
a time limit (preferably
short) after which the offer will expire
contingencies, which are an
extremely important matter and that are discussed in detail below
Contingencies - “Subject to” Clauses
If your offer says "this offer is contingent upon (or subject to) a
certain event," you're saying that you will only go through with the
purchase if that event occurs. Here are two common contingencies contained in a
purchase offer:
The buyer obtaining
specific financing from a lending institution: If the loan can't
be found, the buyer won't be bound by the contract.
A satisfactory
report by a home inspector: for example, "within 10 days
after acceptance of the offer." The seller must wait 10 days to see
if the inspector submits a report that satisfies the buyer. If not, the
contract would become void. Again, make sure that all the details are
explicitly stated in the written contract.
Negotiating Tips
You're in a strong bargaining position, that is, you look particularly
welcome to a seller, if:
you're an all-cash buyer
you already have a
preapproved mortgage and you don't have a present house that has to be
sold before you can afford to buy
you’re able to close and
take possession at a time that is especially convenient for the seller
In these circumstances, you may be able to negotiate some discount from the
listed price.
On the other hand, in a "hot" seller's market, if the perfect
house comes on the market, you may want to offer the list price (or more) to
beat out other early offers.
It's very helpful to find out why the house is being sold and whether the
seller is under pressure. Keep the following considerations in mind:
every month a vacant house
remains unsold represents considerable extra expense for the seller
if the sellers are
divorcing, they may want to sell quickly
estate sales often yield a
bargain in return for a prompt deal
Earnest Money
This is a deposit that you give when making an offer on a house. A seller is
understandably suspicious of a written offer that is not accompanied by a cash
deposit to show "good faith." A real estate agent or an attorney
usually holds the deposit, the amount of which varies from community to
community. This will become part of your down payment.
Buyers: the Seller's Response to Your Offer
You will have a binding contract if the seller, upon receiving your written
offer, signs an acceptance just as it stands, unconditionally. The offer
becomes a firm contract as soon as you are notified of acceptance. If the offer
is rejected, that's that - the sellers could not later change their minds and
hold you to it.
If the seller likes everything except the sale price, or the proposed
closing date, or the basement pool table you want left with the property, you
may receive a written counteroffer including the changes the seller
prefers. You are then free to accept it, reject it or even make your own
counteroffer. For example, "We accept the counteroffer with the higher
price, except that we still insist on having the pool table."
Each time either party makes any change in the terms, the other side is free
to accept, reject or counter again. The document becomes a binding contract
only when one party finally signs an unconditional acceptance of the other
side's proposal.
Buyers: Withdrawing an Offer
Can you take back an offer? In most cases the answer is yes, right up until
the moment it is accepted, or even in some cases, if you haven't yet been
notified of acceptance. If you do want to revoke your offer, be sure to do so
only after consulting a lawyer who is experienced in real estate matters. You
don't want to lose your earnest money deposit or find yourself being sued for
damages the seller may have suffered by relying on your actions.
Sellers: Calculating Your Net Proceeds
When an offer comes in, you can accept it exactly as it stands, refuse it
(seldom a useful response) or make a counteroffer to the buyers with the
changes you want. In evaluating a purchase offer, you should estimate the
amount of cash you'll walk away with when the transaction is complete. For example,
when you're presented with two offers at the same time, you may discover you're
better off accepting the one with the lower sale price if the other asks you to
pay points to the buyer's lending institution.
Once you have a specific proposal before you, calculating net proceeds
becomes simple. From the proposed purchase price you can subtract the following
costs:
payoff amount on present
mortgage
any other liens (equity
loan, judgments)
broker's commission
legal costs of selling
(attorney, escrow agent)
transfer taxes
unpaid property taxes and
water and other utility bills
if required by the
contract: cost of survey, termite inspection, buyer's closing costs,
repairs, etc.
Your present mortgage lender may maintain an escrow account into which you
deposit money to be used for property tax bills and homeowner's insurance. In
that case, remember that you will receive a refund of money left in that
account, which will add to your proceeds.
Sellers: Counteroffers
When you receive a purchase offer from a would-be buyer, remember that
unless you accept it exactly as it stands, unconditionally, the buyer is free
to walk away. Any change you make in a counteroffer puts you at risk of losing
that chance to sell.
Who pays for what items is often determined by local custom. You can,
however, negotiate with the buyer any agreement you want about who pays for the
following costs:
termite inspection
survey
buyer's closing costs
points paid to the buyer's
lender
buyer's broker fees
repairs required by the
lender
home protection policy
You may feel some of these costs are none of your business, but many buyers
- particularly first-timer buyers - are short of cash. Helping them may be the
best way to get your home sold.
