When we’ve found a home that’s right for you, it’s time to make an offer. Depending on market conditions, you may have to act quickly, before another buyer steps ahead of you.
Making the Best Deal
When deciding what to offer for a property, current market prices are the most important factor. We can provide valuable assistance in this regard – counselling you on market conditions, price ranges and negotiating strategies.
To help you make a more informed decision on price, we will prepare a comparative market analysis (CMA) on the property you are interested in buying.
This will give you a better sense of whether the seller’s listing price is higher or lower than prices of comparable properties and help guide your decision of how much to offer for the home.
If the property seems overpriced, the CMA will help you determine a more reasonable price. It is rarely advisable however, to present an excessively low offer on any property. This strategy is more likely to backfire, prompting strong negative reactions from the seller and reducing your likelihood of successfully negotiating a purchase.
Beyond price there are several other factors that can enter into your negotiating position. For example, your bargaining position is strong (the seller will look favorably on your offer) if:
- You are an all-cash buyer
- You are pre-approved for a mortgage
- You do not have to sell your current home, or meet other contingencies, before you can complete the purchase.
With these factors in your favour, you may be able to negotiate a lower price. On the other hand, in a “hot” seller market, if your “perfect” home comes on the market, you may want to offer the list price (or more) to beat out other offers.
We may be able to learn more about the seller’s situation and motivations. Knowing factors such as whether the house is already vacant, how long it has been on the market, and reasons for selling could help you determine how eager the seller may be to complete a transaction.
Making an Offer
Negotiations begin with an initial offer and conclude with acceptance of the final offer. Real estate transactions require a written contract, which conveys an initial written offer. A cheque as a deposit must accompany an offer.
Your offer will specify price, plus all the terms and conditions of the purchase you want to negotiate. We provide a very valuable service by helping you use standard forms that are kept up-to-date with changing real estate laws.
What Does an Offer Contain?
Keep in mind that if the seller accepts your initial offer, or a subsequent counteroffer, it becomes a binding sales contract, known as the Agreement of Purchase and Sale, and serves as a blueprint for the final sale. That’s why it’s important that your initial offer contains the terms and items you want. The more demands you make of sellers, the less favourably they may look on your offer. Some things, however, should be included in most purchase offers, such as:
- Property address (including its legal description).
- Sales price and terms (cash and monies acquired for the purchase through a mortgage).
- Clear title (ownership).
- Date for closing, the actual transfer of title (*if you have a rate lock on your mortgage, make sure closing occurs before it expires.)
- Deposit, whether cheque draft, wire transfer or promissory note, with provisions for how it will be refunded to you if the offer is rejected or kept as damages by the seller if you are found in breach of the contract.
- Prorated amounts for payment of real estate taxes, utilities, assessments and other costs that may be incurred by the seller before closing but not billed to the property until afterwards.
- Who will pay for surveys, inspections, and similar costs associated with the transaction.
- Provincial/territorial requirements, such as environment review, hazard and property condition disclosures.
- Provision for lawyer review.
- Final walk-through inspection shortly prior to closing (if applicable).
- Length of time that the offer is valid.
A contingency is a term or condition that must be met for an offer to become a binding contract. Contingencies always weaken an offer. Yet some are considered normal. Some common purchase offer contingencies include:
- Approval of agreed-upon third-party inspections within a stipulated period of time after the seller’s acceptance of the offer. This allows you to “walk away” from the contract if you find the inspection unsatisfactory. (See step 7 for more information on inspections.)
- Obtaining specific financing terms, such as interest rate and the duration of the mortgage. If you can’t find the mortgage terms you’re looking for, as specified in your offer, you cannot be bound by a contract based on your offer.
- Securing a specific job. If buying this home depends on consideration for a job transfer you’ll want to include this provision.
- Selling your current home. Sellers may view a contingent sale unfavourably, but an accepted offer on your home will improve your negotiating position.
Other Important Questions
What is the deposit? This is a cash deposit you make when submitting your written offer on a property to show your “good faith.” Sellers are understandably suspicious of offers that are not accompanied by such a deposit. The amount expected can vary by the negotiating situation and from market to market.
Your deposit money is typically held by one of listing brokerage or the seller’s lawyer. If your offer is accepted, these funds become part of your down payment at closing. If negotiations fail to result in a sales contract, your deposit money is usually refunded, based on the wording of the Agreement of Purchase and Sale.
What are Seller Disclosures? Be aware that the law regarding real estate is still “caveat emptor” –buyer beware. Generally speaking, sellers are only required to disclose material latent defects, i.e. defects that cannot be discovered in a reasonable inspection and are sufficiently serious to cause hard. Seller disclosure statements (if available in your area) may be useful, but be cautious in relying on them. Buyers should always conduct their own inspections to verify any statements made, and to satisfy themselves that there are no other problems with the house. Make sure you read and understand these documents, because your recourse options will be limited once you sign any disclosures.
What if there are multiple offers? If other buyers are interested in the same property the seller may be comparing your offer to others. Multiple offers do occur, even in a slow market.
If you learn that you in a multiple offer situation, don’t panic and immediately review your offer. You may wish to withdraw your initial offer and resubmit a new offer with changes to your offer price and terms to compete with the other buyer(s) bidding on the property. Stay involved for at least one round of negotiations, but also establish your maximum price.
The Seller’s Response to Your Offer
Remember that sellers have already decided how much money they want from the sale of their property, and have probably planned a negotiating strategy. When your offer is presented, the seller’s options are to:
- Accept. If, after reviewing your written offer, the sellers sign their unconditional acceptance, then you will have a binding contract as soon as you are notified of the offer’s acceptance.
- Reject. If the sellers reject your offer, you are released of any obligation. The sellers cannot later change their minds and expect to bind you to a contract based on that offer.
- Counteroffer. If the sellers like most aspects of your offer, they may present a written counteroffer that includes the changes the sellers want to make. You are then free to accept their counteroffer, reject it, or make your own counteroffer to their counteroffer. This process can repeat itself as many times as it takes for you and the seller to agree on the terms of the Agreement of Purchase and Sale.
A counteroffer becomes a binding contract when either 1) you sign unconditional acceptance of the seller’s counteroffer, or 2) the seller signs unconditional acceptance of your counteroffer. At this point, negotiations are over and the terms of the sale are final.
Withdrawing an Offer
Can you take back an offer? In most cases the answer is yes, right up until the moment your offer is accepted. In some cases, you can withdraw an offer before you’ve been notified of its acceptance. If you want to withdraw your offer after acceptance, be sure to do so only after consulting a lawyer who is experienced in real estate matters. You want to avoid losing your deposit or a lawsuit for damages the sellers incurred because of your actions.
Next: Obtain a mortgage.