Offer to Purchase-Canada
The term "Offer to Purchase" is used here in the context of real estate transactions.
The elements of an offer to purchase
Offers are made from the Buyer to the Seller in writing and will form the basis of the contract.
- This depends on the market and the buyers but, generally, the price offered (Offer Price) is different from the asking price (Listing Price). The Offer Price can be higher or lower then the listing price depending on the market conditions, location and condition of the property at the time the offer is made. Another factor to consider is how accurately the Listing Price reflects the current market or perceived market price at that time. The Listing Price may or maynot be the current Market Price.
The number of buyers wanting homes exceeds the supply of homes on the market.
Smaller inventory of homes
Homes sell quickly
Prices usually increase
Buyers may have to pay more
Buyers must make decisions quickly
Conditional offers may be rejected
The supply of homes on the market exceeds demand.
High inventory of homes
Few buyers compared to availability
Homes on the market longer
Prices tend to drop
More time to look for a home
More negotiating leverage for buyers
The number of homes on the market is equal to the number of buyers.
Sellers accept reasonable offers
Homes sell within an acceptable time period
Prices generally stable
More relaxed atmosphere
Reasonable number of homes to choose from
- It is essential to research comparable pricing in the neighbourhood to ensure the Offer Price reflects the current Market Value of the property.
- Your real estate agent will be able to provide you with a Current Market Analysis or CMA for a property. A CMA generally consists of the SOLDS, FOR SALE and EXPIRED/TERMINATED comparable to the home that you wish to purchase within the area.
- Shows the buyer's good faith and will be applied against the purchase price of the home when the sale closes.
- Your real estate agent can advise you on a suitable amount to offer.
- These Include the total price the buyer is offering as well as the financing details.
- The buyer may be arranging his/her own financing if required or may ask to assume your existing mortgage if you have an attractive rate.
- Terms will also include the timeframe in which the transaction is to take place, including any clauses that may exist in the offer, together with a closing date.
- These might include "subject to home inspection," "subject to the buyer obtaining financing," or "subject to the sale of the purchaser's property."
- Condition clauses are a very important part of the Agreement and you should pay particular attention to ensure that the conditions, written into the offer, reflect the offer that you wish to make as they are legally binding once the contract has been made.
Inclusions and exclusions
- These may include appliances and certain fixtures or decorative items, such as window coverings or light fixtures.
- Inclusions and Exclusions are important when formulating your Offer Price.
Closing or possession date
This, generally, is the day the title of the property is transferred to the buyer and funds are received by the seller, unless otherwise specified (except in Manitoba and Quebec). Possession date is usually not the same day as closing date (at least not in B.C.). Check with your realtor.
Making an offer
- When it comes time to make an offer, your Real Estate Professional will provide current market information and help you draft a suitable offer.
- He or she will then communicate the offer to the seller (or the seller's representative) on your behalf.
- Sometimes there may be more than one offer on a property coming in at the same time (Multiple Offers). Your agent will guide you through this process.
An Offer to Purchase
- An Offer to Purchase is a legal document (Agreement of Purchase and Sale) which specifies the terms and conditions of your offer to purchase the home.
- The offer can be firm or conditional.
Firm Offer to Purchase
- This is preferable to the seller because it means you are prepared to purchase the home without any conditions.
- If the offer is accepted, the home is yours.
Conditional Offer to Purchase
- This means that you have placed one or more conditions on the purchase, such as "subject to home inspection," "subject to financing" or "subject to sale of buyer's existing home."
- In many instances, the Agreement of Purchase and Sale is null and void if the conditions have not been met. Usually this has to be within a stated time.
- Conditions can be waived if this provision has been added to the clause but there are some clauses that are 'Condition Precedent' whereby neither the Seller or the Buyer is entitled to waive the condition.
- Example of a condition clause;-
This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer's own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller not later than 6:00 p.m. on July 24, 2009 that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller within the time period stated herein.
- In the province of Quebec, an Offer to Purchase is referred to as a "Promise to Purchase."
This is one in a series of articles on Housing in Canada.