Below is everything you need to know about Real Estate Offers, from offer preparation, to how to win a bidding war.
The most important thing to consider when signing the Agreement Of Purchase and Sale is that it’s signed under seal. If you enter into the agreement and do not conform to the processes and laws outlined in this blog, you leave yourself open to lawsuits.
Each property is unique and every transaction is a little different, it’s up to your realtor to amend the offer to protect your interests. Pick your realtor carefully, don’t buy a home from a realtor that focuses on commercial properties and don’t buy a preconstruction condo from an agent that primarily sells resale homes.
What Are Offer Contingencies?
In most offers, the buyers insert contingencies (or clauses) which state that they will only complete the sale if certain conditions are met. This is where buyers protect themselves by ensuring they can get financing for this specific property, and that the home is structurally and mechanically sound. Some homes need more conditions, like condos or specialty properties. For example, if you were to place an offer on a home for $1,000,000 with the contingency that you are able to get satisfactory financing for the home within 5 days, and the bank declines to finance you on that home, you can walk away and receive your deposit back in full.
Common contingencies include:
Financing Clause: Most offers include a clause that gives the buyers a chance to get satisfactory financing for the specific home they are placing an offer on.
Home Inspection: We also recommend including a clause that gives you the chance to have a qualified home inspector inspect the home for mechanical and structural deficiencies.
Status Certificate (condos): This condition allows you to get a lawyer’s approval on the functioning of the condo board.
Specialty Clauses: There are an unlimited amount of clauses that can be added to an offer to protect your interests. If you’re buying in the country, you might need a condition to give you chance to inspect the well and septic tank.
We firmly believe in presenting our offers in person, because it gives us the best chance to create a good rapport with the Seller.
Prior to our meeting with the seller, we discuss with you what information you’re willing to divulge about yourself that could make the sellers feel they know you a bit better. We believe it’s small sentiments, like which school your children will be attending, that can create a bond between seller and buyer, and can help ease tensions in negotiations.
There are many tips and tricks that we use to create a better rapport with the sellers, and some of them include:
- Bringing the deposit cheque to the offer negotiations as a sign of good faith
- Having information that proves your ability to close, like a pre-approval letter
- Having a personal letter from you to the seller
Bringing The Deposit Once The Offer Is Accepted:
Even though the offer is signed under seal, there still needs to be a deposit. If you want to show good faith during offer negotiations, you can bring your deposit cheque with you. However, most buyers choose to bring a deposit cheque once their offer is accepted. The deposit is kept in a trust account until closing when it goes towards the downpayment of your home. It’s important to remember that not bringing the deposit cheque gives the sellers a chance to resell the home to another party and to sue you for the difference between your offer and the second highest offer, plus expenses and legal fees.
Offer Negotiations and Bidding Wars
Offer negotiations will significantly differ depending on whether we’re in a Seller’s Market or a Buyer’s Market.
- In a Seller’s Market, when there are more buyers than available listings, we encounter bidding wars often. To be competitive in this market, you need to consider removing your conditions of financing and home inspection. But have an honest discussion with your realtor, and mortgage broker, to ensure you’re protected before removing your conditions. Once you remove your conditions, you cannot back out of the deal.
- In a Buyer’s Market, when there are more listings than buyers, buyers have the upper hand. In this market, you can usually push for a better price, your preferred closing date, and 5 days to complete your financing and home inspection.
Potential Responses To Your Offer
There are three responses to your offer:
- Accepted: This is when the Sellers accept your offer and the deal is now binding.
- Counter your offer: This is when the Seller makes adjustments to your offer such as a different purchase price, deposit, or closing date. It’s then up to you to either counter their offer again, or accept their offer.
- Rejection: Sometimes the Seller will choose to outright reject the offer and ask that you improve your offer.
Important Notes About Offers:
- Time is of the essence with all legal documents. So listen to your realtor when they say you have 5 hours to respond to the seller’s offer.
- The listing Agent must disclose the number of offers, and cannot misrepresent this number. If you think the Listing Agent lied, you can contact the Real Estate Council of Ontario to review all the offers received by the Agent.
For personalized advice and assistance, contact our team.