Offer Process For Purchasing a Property in Canada
Tuesday Aug 23rd, 2022
How is the process of purchasing a property in Canada?
Purchasing Canadian real estate is quite different from some other markets. For instance, in many Asian countries, there is often a constant negotiation between the buyer and the seller. After reaching a verbal agreement, the agreed terms are put onto a contract to be signed.
What is the purchasing process for purchasing real estate in Canada?
The negotiation process is different here in Canada. The negotiation is mostly held in a written offer, also known as Agreement of Purchase and Sales (APS).
When a perspective buyer is interested in a property, the agent who represents the buyers (buyers’ agent) will put together an offer based on the buyers’ wishes through the Agreement of Purchase and Sales. In order to negotiate between the two sides, for each offer there is an irrevocable time for the other party to accept. Irrevocable time is the time in which the condition that one party’s offer will stand before the time expires. If the other party accepts, then the letter of intent, aka the offer, will become a legally-binding contract.
If the other party respond back with changes, then negotiation continues.
If the other party does not respond before Irrevocable Time, then the negotiation ends and the offer becomes null and void.
When one side accepts the other sides’ last offer by signing off the APS, then the agreement has been reached.
Elements of the Agreement of Purchase and Sales
There are several important elements in the APS.
This is the amount to be offered.
Many buyers ask about how much time should be allowed between offer date and the closing day. Closing day is also known as the possession date. It is the day on which the buyer takes over the ownership and can take the possession of the property: either move in or rent out as an investment. The answer is, it depends on the buyers’ and sellers’ wishes. The seller and buyer need to agree on the date that buyer proposed in the offer. Typically, the closing day is between 30-60 days from the date of signing the agreement. The seller only receives all the money on the closing day, including the deposit, the balance of the down payment, and the mortgage that the bank releases. The deposit that the buyer paid along with the offer is held by the Listing Brokerage’s trust account. The sooner the closing day, the sooner the seller receives the full funds.
Of course, there are situations that the sellers may want a late closing date. For instance, the seller bought their next home which has a late closing day. The seller can only move out from current home on or after the closing day of the new home.
Typically the deposit is 5% of the sale price. The deposit is sent to the seller’s real estate brokerage in trust.
We often hear about the different conditional offers that are on offers. What are they?
Sometimes when a buyer has not contacted their financial institution or mortgage broker prior to preparing an offer, the buyer may not know whether he or she is finally approved for a loan, or with what amount. The buyer may ask for 3~5 working days so he or she can contact the financial institution to secure the mortgage or other financing means. If the buyer is unable to secure the financing, then under a financing condition the buyer can back out of the agreement.
This is more common when purchasing single family homes, as the perspective buyer will hire an independent home inspector to inspect the property. If there are major issues that the buyer find unsatisfactory, the buyer can back out of the agreement.
Status Certificate Review
This condition is seen more often in condominium properties, such as condo apartments, or condo townhomes. The status certificate allows the perspective buyers or their lawyers to review state of the condominium building through strata meeting minutes and other documentation. For example, if through the status certificate shows that the strata is in deficit, and may need substantial jump in future condo fees, then in this condition, if the buyer’s lawyers uncovers this situation and the buyers find unsatisfactory, they can back out of the agreement based on this condition.
Conditions are intended to protect perspective buyers
All conditions are intended to protect the perspective buyers. However, the more conditions imposed on the offer, from the eyes of the seller, there are more uncertainty.
If an offer is presented in a heated seller’s market, then the offer with many conditions will seem as less competitive and will be less likely to be accepted. Be sure to discuss with your buyers’ agent to learn more about how to put together an offer.
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