Friday, May 09, 2008    
Homebuying Step by Step
  - brought to you by Canada Mortgage Housing Corporation

STEP 7. Preparing an Offer
AN OFFER is more than A LEGAL DOCUMENT. IT’S an emotional EVENT. HERE'S how TO HELP make sure ALL THE DECISIONS YOU MAKE ARE good ONES.

Making an offer can be an intense experience. For instance, you may decide that this is the perfect home in which you will live happily ever after. It’s a lovely dream, but it may not come true - at least not in this house. Try not to get ahead of yourself by moving into a house in your mind’s eye before the deal is completed. Whenever an offer is made, you have to be prepared for it to be rejected.

Once you’ve found a home that meets both your needs and your price range, you can present the vendor with an Offer to Purchase or an Agreement of Purchase and Sale. This offer or agreement is legally binding. It should not be made casually. You may want to have a lawyer (or notary in Quebec) look it over to ensure that your interests are protected.

Your offer or agreement will include:

  • Basic details, such as your legal name, the name of the vendor, and the legal and civic address of the property.
  • The purchase price, In a first offer, price is negotiable, so you may want to start lower than your maximum affordable cost.
  • The chattel or items in the home which will be included in the purchase price. These may include window coverings, appliances or satellite dish. Whatever items are in or around the home that you think are included in the sale should be specifically stated in writing in your offer.
  • All financial details, The amount of deposit, any interest to be paid on it and details of mortgage financing.
  • The closing date. The day you take possession of the home. Usually 30 or 60 days from the date of agreement, but with some home sales, it’s often 90 days or longer.
  • Request for a current land survey of the property.
  • Expiration date and time indicates when the offer becomes null and void.
In addition, it is common to make a conditional offer. For example, you may make an offer that is good only on the condition that you obtain mortgage financing or that the house passes a home inspection.


This is the front and back of a standard Offer to Purchase (also known as an Agreement of Purchase and Sale). This document has to be filled out before the purchase of a home can be transacted.

The process of presenting an Offer to Purchase

The process of making an offer, receiving a counteroffer and then revising it again is not uncommon. However, it can seem like a bit of a roller coaster ride - exciting but tense too. Still, it’s all part of making the deal work best for the individuals and circumstances involved.

Your offer must be made with a deposit to the vendor or the vendor’s agent. This deposit will go toward the purchase price on the closing date. Deposits are usually no more than 10% of the purchase price. But a larger deposit may tell the vendor that you’re very serious about your offer.

A deposit on an unaccepted offer will be returned. If you cancel an accepted offer, you may lose your deposit.

YOU
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Your real estate representative helps you prepare an Offer to Purchase. This offer should include all the details of the sale.
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You may want your lawyer to look at the offer BEFORE you show it to the vendor, because it is a legally binding document.
       
   
Your real estate representative or lawyer will then present the offer to the vendor, who will accept, reject or make a counteroffer.
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VENDOR
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The vendor accepts your offer.
  
The vendor may make a counter-offer, asking a higher price.
  
The vendor may make a counteroffer, asking a higher price. If a counteroffer is returned to you at a higher price, ensure that you know exactly how much you can afford before you start negotiating. You don’t want to get caught up in the heat of the moment with costs you can’t afford.
         
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The deal is concluded
  
You sign the offer back to the vendor with a higher price than your original offer, but lower than the vendor’s counteroffer.
    
     
   
The vendor accepts this counteroffer.
  
You reject the counteroffer of a higher price and decide not to make a subsequent counteroffer.
     
   
The deal is concluded.
    
       
The sale doesn’t go through and your deposit is returned.
Tips on making an offer

  • You may want to submit a conditional offer, a standard contract with your own conditions. However, a clean offer with no conditions attached is often more attractive to the vendor because it is most straightforward.
  • Often the vendor will make changes and return your offer. This is called a counteroffer. You may accept, reject or even revise a counteroffer. Offers and counteroffers often make changes to closing dates or chattel - but most often they hinge on money.
  • It’s best to know what your absolute upper limit is before you start negotiating or you may get caught up in the action and offer more than you really can afford.
Buying a condominium

Resale condominiums You may wish to hire an independent inspector to check the condominium’s structure and its major systems or ask to see the building’s own recent inspection audit and make your offer conditional on a satisfactory report.

Ensure that the condominium is well maintained and managed and that security systems are effective. Tour the common areas and grounds and speak with other residents.

Consider the age of the building, what improvements and repairs have been done and when. Make sure to check that there is adequate money in the condominium’s reserve fund. In addition, you may wish to review the condominium’s declaration and bylaws.

Make your offer conditional on receiving an estoppel certificate. (Does not apply in Quebec.) There may be a fee for this document but it will provide information including the development’s finances and insurance, and give you an overview of the condominium corporation’s affairs. (In Quebec, the purchaser is entitled to request a statement of common expenses.)

You’ll want to know if there are restrictions on whether your unit can be renovated or leased.

Building your own home

If you are hiring a contractor or builder to construct your home, there are some special considerations. Custom-built homes are usually contracted at a predetermined fixed cost or on a cost-plus contract, which means you pay the builder the cost price of labour and materials and an agreed-upon overhead charge. That charge is either a fixed fee or a percentage of the cost of the job.

It is important to detail all trades used in construction of the home if you want to claim a rebate on the GST charged.

Know your financial limits before you start negotiating.
Always use a written contract with a builder. This contract should outline the payment schedule and other details of the construction process, such as who is responsible for dealing with public authorities, getting building permits and arranging wiring inspections.

Specify materials as precisely as possible. Be specific about finishes, the type of tile or broadloom. Provide brand names and model numbers, if possible.

A typical payment schedule begins with a deposit of 10% of the agreed-upon total cost of the home when work starts.

Payments are then made in scheduled installments, in accordance with the percentage of work completed.

Don’t make the final payment until the entire job is finished, inspected and approved by the building inspector.

In some provinces, construction lien legislation requires that you hold back 10% of the total cost of each payment to the builder until 45 days after the building is completed. This protects you from any liens against the property by subcontractors. Check for details of this legislation in your province. Finally, check for provincial and private programs that offer warranties for new homes.

The process of buying a home has its ups and downs. As long as you’re prepared for them, the ride can be exciting and rewarding. Especially on the day the deal is done! Know your financial limits before you start negotiating.
 

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