Making an offer to buy a home is not something most people do on a regular basis. The process is usually stressful and exciting all at the same time. Buyers need to remember to keep their emotions in check and keep in mind that this is a big investment; making a rash decision may come back to haunt you!
More at Canadian Business Online:
(Opens new window)
The processIf you are using a realtor to buy a home you will usually sit down with your agent to draft the Offer To Purchase. This is the legal document outlining the purchase price, closing date and all the other terms and conditions of your Offer. Remember that if it is not in the Offer To Purchase, then it's not included in the transaction.
If you are buying a home privately (without the help of a realtor), I would strongly suggest you hire a lawyer to draft the Offer To Purchase for you. You might want to negotiate the main issues with the vendor first, but make sure it is followed by a written agreement so that you are fully protected.
If you are buying a home from a new home builder you always want to have your lawyer review the Offer To Purchase. The documents that most new home builders use are twenty to thirty pages long and are filled with details that you need to know about before you agree to the terms of the Offer. It is not uncommon for purchasers to discover that their new home will end up costing several thousand dollars more than they expected once all the hidden costs are added up.
Once the Offer is made the vendor can choose to accept it as presented, sign it back with amendments, or they can choose to not accept the Offer at all.
If the vendor chooses to sign back your Offer with amendments then the ball is back in your court. You can choose to accept all their changes, make your own changes, or you can choose to walk away.
Once all the negotiating is done, and the Offer has been accepted by both parties, it is time to start dealing with any conditions attached to the Offer to Purchase.
ConditionsIncluding conditions in an Offer allows either party to resolve certain issues that cannot be dealt with during the negotiations. Some of the more common conditions are:
• Subject to the purchaser arranging satisfactory financing within x number of days.
• Subject to the sale of the purchaser's current home.
• Subject to the purchaser completing a satisfactory home inspection
• Subject to the vendor buying a new home within x number of days
• Subject to the vendor or purchaser's lawyer reviewing the Offer To Purchase.
Any of these conditions provide a possible "out" for either party.
Most vendors would like to see as few conditions attached to an offer as possible because they want to be assured that you are serious about buying their home. In a competitive real estate market some purchasers will choose, or be pushed, into not including any conditions in their Offer. This may help get their Offer accepted but it may come back to haunt them if they have a problem arranging financing or if a defect in the property would have been discovered had they taken the time to get a home inspection done.
Things to look out forMost real estate agents will usually try to attach short periods of time to an offer or counter offer. This is a sales tactic to help put an artificial deadline on the process. This often leads to late night negotiations and you really have to question if all parties are making informed choices when they are making decisions like these at two o'clock in the morning. I would suggest that you try not to fall into this trap. Be firm with your agent and tell them you will only make decisions on an offer during daylight hours or before 10 p.m., etc. Not only will this allow you to get a good night's sleep but it will eliminate the need to make hurried decisions on a major investment.
Don't rely on a pre-approved mortgage as a guarantee that you will be approved for a mortgage on the home you are buying. Quite often the banks do a very sloppy job of pre-approving people. They may approve you based on what you declare as your income but they may not ask for verification of this income. If your income sources include over time, bonuses, car allowances or if you are self-employed, you may find that your definition of income and the bank's definition are completely different! Sometimes the banks don't even bother to do a credit check during the pre-approval process. If you have had credit problems in the past these may impede your ability to get the financing you were relying on.
If you get into a bidding war on a property you have to be careful that the final sale price is not out of whack with other sales in the area. There have been cases recently where people have won the bidding for a house but paid substantially more than an appraiser would value the home for. This can create problems arranging the financing you need.
Buying a home is a big investment, so you want to make prudent and rational decisions every step of the way! If you start with a well thought out Offer to Purchase everything else will fall into place.
Andy MacDonald (BA Econ.) is president of MortgageBroker Inc. He has more than two decades of financial services experience and has long been an advocate for consumers within the mortgage industry. Visit his Web site at MortgagesInCanada.com.
