Because verbal agreements are not legally binding, written contracts form the basis of every real estate transaction. The process begins with a written proposal; the proposal should specify not only purchase price but also the terms and conditions of the transaction. Such conditions might include an amount the seller has promised to contribute toward your closing costs or the fact that the deal is contingent on the sale of your current home. If all the details aren’t part of the written contract, you won’t have legal grounds for making sure that they’re fulfilled.
If you choose to use an Edmonton REALTOR® to help you buy your home, he will have a standard purchase agreement and can help you created a legally binding offer that includes all applicable information. Your REALTOR® will also help you with all aspects of the process, including all issues related to the offer, any counteroffers, negotiations, and closing. Some provinces require compliance with particular disclosure laws, and if those apply to your situation, your REALTOR® will make sure your seller complies.
If you choose not to employ help from a real estate agent, you need
to be certain that the purchase offer or contract you create is in
conformity with province and local laws and includes all the necessary
Once the offer has been signed by the prospective buyer, typically your real estate agent, the seller’s real estate agent, or both agents present it to the seller. (Occasionally, lawyers draw up such contracts, as well.)
What is in an Offer?
If your offer is accepted as-is, it will become a legally binding contract, also known as a purchase agreement, earnest money agreement, or deposit receipt. Because of the offer’s potential to become the official contract for the real estate transaction, it must be thorough and include the following categories of information: legal concerns, financial provisions, and contingencies and provisions.
- the address and legal description of the property in question
- all terms of the agreement
- the seller’s willingness and ability to provide a clear title
- type of deed in question
- time frame during which the offer is valid
- the target date for closing the sale
- the agreed upon sale price
- the amount and form of earnest money provided, along with provisions for its return
- any provisions for prorated utility costs
- party responsible for funding title insurance, property survey, inspections, etc.
Contingencies and Provisions
- provision for final walk-through inspection by buyer, prior to closing
- provisions for any province-mandated requirements such as review by attorneys or specific disclosures
- any contingencies based on the buyer’s financing
- any other agreed-upon contingencies
Contingencies or “Subject to” Clauses
By listing contingencies in your offer, you’re basically making an offer “subject to” certain conditions’ being met. These are the most common types of contingencies mentioned in purchase orders:
1. The Buyer’s Financing
Basically, this kind of contingency makes the contract binding, only if the buyer can secure the financing necessary to purchase the property.
2. A Home Inspection
An offer will typically include provision for the buyer to receive a satisfactory report from an inspector within 10 days of the offer’s acceptance. Without such a report, the contract becomes void.
In order to handle negotiations favorably, you need to know whether you’re in a strong bargaining position. You may be poised to negotiate a discounted price if you meet any of these criteria:
- You plan to pay cash, as opposed to requiring a loan.
- You’ve been preapproved for a loan and do not need to sell another home before you can buy.
- You can close at a time that’s particularly desirable for the seller
By contrast, if you’re trying to buy a house in a “seller’s market,” you’ll want to offer the list price or more if you see a great house hit the market.
In determining what kind of negotiating position you are in, it may help to find out why the house is up for sale. Because the following issues may make a timely sale particularly attractive to the seller(s), they may be more likely to accept negotiations under these circumstances:
- The house has been vacant for some time.
- The sellers are divorcing.
- The home is part of an estate sale.
This term refers to money you, the buyer, will deliver to the seller along with your offer, in order to show “good faith” that the offer is a serious one. The earnest money is usually held by a real estate agent or a lawyer. If the deal goes through, that sum becomes part of your down payment.
The Seller's Response to Your Offer
If the seller signs your written offer, as it stands, it will become a binding contract as soon as you are informed that it has been accepted. However, if the offer is rejected, the sellers cannot hold you to its terms.
Often, the seller approves of the offer with one exception, such as the sale price or proposed closing date; in such a case, you will receive a counteroffer, which includes the seller’s desired changes. Upon receipt of the counteroffer, you will need to decide whether to accept or reject it; you can also make another counteroffer.
The process continues until both parties agree upon the details of the contract and one party signs the other’s proposal, signifying unconditional acceptance of the terms.
Withdrawing an Offer
You may be wondering whether you can revoke an offer it has been made. Usually, you can, until it is either accepted or you have been informed of its acceptance. Before you attempt to withdraw any offer you have made, though, you should consult someone well versed in real estate law; otherwise, you risk forfeiting your earnest money or, worse, being sued.
A Seller’s Guide to Offers
Calculating Your Net Proceeds
When you receive an offer on the property you’re selling, you have three options: accept it as it stands, refuse it outright, or make a counteroffer. As you consider various purchase offers, you’ll do well to evaluate the total amount of money you’ll receive upon completion of the deal. The sale price is not the only detail to consider, so you’ll want to look at each offer in its entirety, including all provisions and contingencies.
In order to calculate your net proceeds, start with the proposed purchase price, and subtract amounts needed to cover each of the following:
- Your present mortgage
- Any additional liens on the property
- Your broker’s commission
- Any legal costs, such as an attorney
- Fee for having taxes transferred
- Any unpaid property taxes or utility bills
- Amount needed for any surveys, inspections, closing costs, or repairs
Upon receipt of a purchase offer from a prospective buyer, you should remember that unless you accept it as-is, the buyer is not bound in any way. If you’re particularly motivated to sell, you need to know that any change, no matter how minor, will take the form of a counteroffer, which will risk you’re losing the opportunity to sell.
While each local area has its traditions regarding who pays for what, you can feel free to negotiate with the buyer regarding costs associated with the following provisions: home inspections, property surveys, buyer’s closing costs, points to the buyer’s lender, buyer’s broker fees, repairs, and home-protection policies.
While it may seem unfair for the seller to pay for some of the items listed above, many first-time homebuyers lack the funds to cover these costs. If you’re motivated to sell, helping cover some of those may be in your best interest.