After reading several of our mortgage guides and thinking about the home buying process, you may be asking yourself this question: How do I offer to buy a home from a seller? The answer to this question is that you must give the seller a formal offer to purchase. As part of our goal to make sure you are fully educated about mortgages in Canada, we have put together this guide to help you understand how to make an offer to purchase when you finally find the home you want. It will come in especially handy once you find a home that interests you, but you should keep this information in mind even as you begin the mortgage approval process by visiting our other Canadian mortgage rates page and clicking on the interest rate you prefer.
The offer to purchase is a formal and legal document that stipulates your intent to buy the home. With the offer to purchase, you will present a check that confirms your interest in the property. Because it is a legal document, you will lose your deposit if you pull out of the offer after it has been presented for any reason other than what is stipulated in the legal offer to purchase itself. If the conditions of the offer to purchase are satisfied and you move forward with the deal, the deposit will apply to the purchase of the home.
When you make an offer, you can choose either a firm offer to purchase or a conditional offer to purchase. The firm offer to purchase stipulates that you will buy the house as-is for the price you are proposing, and sellers generally prefer such offers to conditional offers. Firm offers to purchase, however, are somewhat rare. Most people submit a conditional offer to purchase a home that stipulates that they will buy the home provided some conditions are met. Some of the conditions may be a satisfactory home inspection, the sale of your existing home and more. If these conditions are not met, you are free to walk away from the deal without losing your deposit.
Once you have found a home and have decided the top price you are willing to pay for it, it is time to put together an offer to purchase. In most cases, your real estate agent will help you do that using an offer to purchase real estate form. You may also put together an offer yourself using our offer to purchase template. If possible, you should have your lawyer look over your form before you submit it to the seller, especially when a real estate agent does not help you with the offer.
This information must be included in your offer to purchase:
• Identifying Information — This information includes your name, the name of the seller and both the legal address and the street address of the residence.
• Chattel — This is everything you want included in the purchase price that is not the actual residence itself. For example, if you want to keep the appliances that are already in the home you want to buy, you will list the appliances as chattel in the offer to purchase.
• Offering Price — Obviously, you must list the price you want to pay. On your first offer, you should propose an amount lower than your price limit to leave room for negotiation.
• Closing Date — On closing day, you sign all the papers and take over the home. Most closing dates are scheduled at least 30 days from the date the offer to purchase is signed.
• Financial Information — This includes things such as your deposit, how the mortgage will be financed, whether the offer is conditional upon loan approval and so on.
• Current Land Survey Report — The land survey report is usually provided by the seller.
• Conditions — Conditions refer to anything that must be true for the deal to be valid besides the seller’s acceptance of your offer to purchase. For instance, if you do not want the house unless a home inspection is done, you will list this as a condition in your offer to purchase. Many offers to purchase include stipulations that the seller will pay closing costs, that repairs will be made and so on.
• Expiration Date — The expiration date tells the seller when he or she must respond to your offer. If the seller signs after that expiration date, you are no longer legally bound to the agreement.
After you have put the offer together, you or your real estate agent will give it to the seller or the seller’s real estate agent. At that point, the seller may respond in one of three ways:
• The seller may accept the offer as written.
• The seller may reject the offer as written.
• The seller may give you a counter-offer.
You are likely to get a counter-offer or rejection the first time you submit your offer to purchase. If that happens, you should not get discouraged because a response other than acceptance does not mean you have lost all hope of securing the property. If the order has been rejected, the reason is likely that your offered price was too low for the seller or that there were too many conditions in the offer. Consider raising the price or eliminate some conditions, and resubmit the offer. A counter-offer from the seller will show you that he or she is seriously interested in doing business with you, and at that point, you can either accept the offer to purchase, or you can respond to the seller’s counter-offer with a counter-offer of your own. Essentially, you and the seller can negotiate back and forth until you agree on terms.
When you are negotiating, you should understand that the seller wants to get as much as possible and give up as little as possible. The same is true of you as well. Here are some tips for successful negotiating:
• If you intend to counter-offer the seller’s counter-offer, wait until you are close to the expiration date to reply. That will indicate to the seller that you may be willing to walk away, giving the seller an incentive to give you more of what you want in order to complete the sale.
• Offer a price based on recent home sales that is fair but below the limit you are willing to pay. A fair price shows that you are truly interested in the home. A price below your limit gives you room to accept the seller’s counter-offer in case the seller asks for more money. It also gives you wiggle room for negotiations.
• Include some conditions that are not absolute must-haves. That way, you can offer to set aside some of the conditions during negotiation and provide the seller with confidence that he or she is not giving away too much by accepting a lower price than was originally listed.
To finish our guide to the offer to purchase in Canada, let us look briefly at what happens once the seller has accepted your offer to purchase real estate form. Once you and the seller have agreed on the offer, you will have your real estate agent or lawyer prepare the agreement of purchase and sale that lists the terms you and the seller have both agreed to. You and the seller will then sign the agreement. At that point, you can begin to prepare for closing by contacting the movers, setting up new accounts for the home with the utility companies and so forth. You will need to give your lender a copy of the agreement so that they can finalize your loan and set up an escrow account to hold the funds for your purchase until closing. On closing day, you will finally take possession of the residence you purchased.