Ready to Buy?
Making an Offer to Purchase
Once you have found the home you would like to purchase,
you need to present the vendor with an Offer to Purchase
or an Agreement of Purchase and Sale. As your home is probably
your biggest investment, it would be wise to work with your
real estate agent and/or a lawyer/notary in preparing your
offer. Remember that the Offer to Purchase or Agreement
of Purchase and Sale is a legal document and should be carefully
prepared.
Any offer or agreement will typically include:
- Your legal name, the name of the vendor and the legal
civic address of the property.
- The purchase price offered.
- The chattels that will be included in the purchase price
(e.g.: window coverings, appliances or a satellite dish).
Whatever items in or around the home that you think are
included in the sale should be specifically stated in your
offer.
- The amount of deposit.
- The closing day (date you take possession of the home)
— usually 30 to 60 days from the date of agreement. It can
also be 90 days or longer.
- Request for a current land survey of the property.
- Date when the offer becomes null and void.
- Any other conditions that go with the offer, including
property inspection and approval of mortgage financing.
The process of making an offer, receiving a counteroffer and
then revising it again is not uncommon. The whole process can
seem like a roller coaster ride — exciting, but stressful.
It's all part of making the deal work best for you and the vendor.
Steps for the Offer to Purchase
| You |
| Your real estate representative helps
you prepare an Offer to Purchase.This offer should include
all the details of the sale. |
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 (1), make a counteroffer (2) or reject (3). |
| Vendor |
Situation 1
The vendor accepts your offer. The deal is concluded. |
|
|
| Situation 2
The vendor may make a counteroffer, asking for
a higher price or different terms. |
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.
The deal is concluded. |
Situation 3
The vendor may make a counteroffer, asking for a higher
price or different terms. 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. |
You reject the counteroffer and decide
not to make a subsequent counteroffer. |
The sale doesn’t go through and your
deposit is returned. |
When you make an Offer to Purchase, your real estate agent
or your lawyer/notary will most likely add certain conditions
to it, making it a conditional offer. This means that the
contract will only become final when the conditions are met.
The following three conditions are generally standard in an
Offer to Purchase, especially for first-time buyers:
- A satisfactory home inspection report
- A property appraisal
- Lender approval of mortgage financing to finance the purchase
Once these requirements are met, the conditions are removed
and the Offer to Purchase becomes final.
Home Inspection
It is always a good idea to have the home you are buying
inspected by a knowledgeable and professional home inspector.
The inspector will go through the property and perform a comprehensive
visual inspection to assess the condition of the house and
all of its systems. When you receive the home inspection report,
you and your real estate agent will have to discuss how required
repairs may affect the sale price that was agreed upon.
New Home Warranty Programs
A home inspector is not used as frequently for new homes
if the builder provides a New Home Warranty. Warranty coverage
varies from one province to another, but typically covers
labour and materials in your new home for at least one year
after completion. It is also intended to address structural
defects for a minimum of five years, and up to ten
years with some extended coverage options. A dollar cap is
common. Before you sign a contract for a new home, contact
your New Home Warranty Program office for a list of registered
builders in your area.
For Condominiums or Strata Units
To buy a resale condominium or strata unit, you will have
to get a satisfactory Estoppel Certificate or Certificate
Status (does not apply in Quebec). This should be included
as a condition in the Offer to Purchase.
Mortgage Approval
A pre-approved mortgage certificate is not a guarantee of
being approved for the mortgage loan. Even if you have a pre-approved
mortgage certificate, you must still meet your lender during
the conditional offer period to get a final mortgage approval.
To ensure that the process goes smoothly, make sure you bring:
- A copy of the property listing
- A copy of the signed Offer to Purchase
Your lender will update/verify your financial information,
the property and other information required to complete the
mortgage application. Your lender may require an appraisal
and/or a survey. Title insurance may also be required. Your
lender will also inform you on the various types of mortgages,
terms, interest rates, amortization periods and payment schedules
available.
Depending on your down payment, you may have a conventional
or high-ratio mortgage.
A conventional mortgage is a mortgage loan that does
not exceed 75% of the lending value of the property. The lending
value is typically the lesser of the property’s purchase price
and market value. Your down payment is at least 25% of the
purchase price or market value.
If you contribute less than 25% of the home price as a down
payment — and as little as 5% — you will
need a high-ratio mortgage. This type of mortgage usually
requires mortgage loan insurance, which is available from
CMHC or a private company. Your lender may add the mortgage
insurance premium to your mortgage or ask you to pay it in
full upon closing.
Fixed, Variable or Adjustable Interest
Rate
Mortgage interest rates are either fixed, variable or adjustable.
A fixed rate is a locked-in rate that will not increase for
the term of the mortgage. A variable rate fluctuates based
on market conditions while the mortgage payment remains unchanged.
With an adjustable rate, both the interest rate and the mortgage
payment vary based on market conditions.
Closed Mortgage
A closed mortgage may be a good choice if you'd like to have
a fixed payment that will allow you to adjust your budget
to your new lifestyle. However, closed mortgages are not flexible
and there are often penalties or restrictive conditions attached
to prepayments or additional lump sum payments. It may not
be the best choice if you decide to move before the end of
the term or if you want to benefit from a potential decrease
of interest rates.
Open Mortgage
This type of mortgage is flexible and can usually be pre-paid
by any lump sum or paid off at any time without penalty. An
open mortgage can be a good choice if you plan to sell your
home in the near future or to pre-pay with large lump sums.
Most lenders will allow you to convert to a closed mortgage
at any time, although you may have to pay a small fee.
Term
Your lender will also inform you on the term options for
the mortgage. This is the length of time that the agreed-upon
mortgage contract conditions, including interest rate, will
be fixed. It can vary from six months to ten years.
Choosing a longer term (e.g.: five years) gives you the
chance to plan ahead and protects you from interest rate increases
while you adjust to homeownership. Weigh your options carefully
and don't be afraid to ask your lender to work out the differences
between a one, two, five-year term or longer term.
Amortization
This is the amount of time over which the entire debt will
be repaid. Most mortgages are amortized over 15, 20 or 25-year
periods. The longer the amortization, the lower your scheduled
mortgage payments, but the more interest you pay in the long
run
Payment Schedule
A mortgage loan is often repaid in regular payments, either
monthly, biweekly or weekly. Payment schedules that are more
frequent can save some interest costs by reducing the outstanding
principal balance more quickly than with monthly payments.
The more payments you make in a year, the lower the overall
interest you have to pay on your mortgage.
Keep in mind that mortgages may have important payment features
that can save you money and let you be mortgage-free sooner.
Once the Offer is Accepted
Once all the conditions of the offer are fulfilled or dropped,
it is time to start thinking ahead and making arrangements:
- Give notice to your landlord if you are renting.
- Start looking at moving options — hiring a professional
or doing it yourself.
- Make necessary address changes (utilities, services, post
office).
- Arrange for property insurance.
An offer will usually include a clause that allows the buyer
to revisit the property a couple of times before closing (after
all the conditions are fulfilled) so that he/she can:
- Measure for window treatments.
- Measure for special-sized furnishings.
- Bring in a tradesperson for a renovation or remodelling
estimate.
Arrange for these visits in advance to make sure your real estate
agent is available.
Kingston Home Buyers Guide
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