Buyer’s Journey: Make an offer and Negotiate

A realistic scenario involves making an offer, negotiating the terms and putting it all down on paper. Buying a home is no small deal, and the purchasing process is far more complex than the majority of other items you might buy in your lifetime

First Right of Refusal

If you already own a home and are thinking of moving, sometimes it is difficult to know which process you should start first. Looking for a new home, or listing your existing home for sale. If you choose to start searching for a new home first it is important to have a clear picture of how the finances are going to work.

Most people can’t afford to hold 2 mortgages. Therefore a new home purchase would be conditional on the sale of the other home. To do this you can make an offer to purchase with a condition to sell your other home. These conditions almost always is accompanied with a first right of refusal.

This condition means that if you can successfully sell your other home within a certain time frame you can firm up the purchase. The house is yours. On the flipside however, the seller can continue marketing their home for sale. It should another acceptable offer to purchase is received they have only to give you a predetermined advanced notice to fulfill or waive your condition otherwise your offer gets forfeited in favour of the seller accepting the newer offer. Often this notice is as short as 24-48 hours.

Chattels & Fixtures

Fixtures are items that are physically attached to the building such as curtain tracks, blinds, and light fixtures. These items should be included in the sale of the home unless otherwise specifically noted in the offer to purchase and sale as exclusions by the seller.

Chattels are items that are not fixed to the building but can be written as inclusions to the offer to purchase and sale. Common examples are kitchen and laundry appliances, or pieces of furniture. Sometimes distinguishing between what is a fixture and what is a chattel can be difficult. For example, a water treatment system (such as an under the counter filter system) might be thought of as a chattel item, but if it’s directly plumbed into the water lines then it should probably be considered a fixture.

It is best not to leave any room for doubt and interpretation for these kinds of items and have them clearly described as inclusions or exclusions accordingly.

SPIS

In Ontario buyers can request a document from a seller known as a Seller Property Information Statement (SPIS). This document is a detailed questionnaire where the seller provides information concerning the house and its history. It provides disclosure of any known issues with the home and provides buyers with an added measure of protection.

In cases where a seller misrepresents information on the SPIS and is later discovered by the buyer, there may be an opportunity for the buyer to seek recourse. Sellers are not required to complete this form, and they may refuse to complete it to mitigate their future risk. Ask your agent when it would be appropriate to request a SPIS.

Survey

A property survey provides a detailed description of the boundaries of the property along with any easements or rights-of-way. They also provide measurements for the location of structures and systems on the property such as buildings, wells, and sceptic systems. It is always a good idea to request any such surveys that the seller might have in their possession as part of the offer to purchase of sale.

Financing Clause

Even if you have been preapproved for a mortgage, having a financing clause in your offer to purchase isn’t a bad idea. It provides you with added protection. Most of the times a mortgage lender has a list of conditions that must be satisfied before the final mortgage is approved.

One mortgage condition that sometimes create problems is the need for a home appraisal. If the home appraisal comes back with a value (price) less than the agreed upon purchase price, then the lender might not grant the mortgage.

Home Inspection Clause

The most common condition is the request for a home inspection. The wording of this clause can be very important. To provide the highest amount of protection to the buyer the clause should include a phrase such as “conditional upon…the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion.” This means that the buyer can exercise this condition and be freed from the contract regardless of the size of deficiencies in the inspection report.

Closing Date

In an ideal world a buyer and seller would agree immediately to the same closing date, but life isn’t often this way. More often there are life circumstances that lead either the buyer or seller to prefer a different closing date. A difference in closing date might mean that one party has to live a week or two without a home, move twice, or perhaps carry a second house for an unwanted period of time.

The discussion of the closing date should always be included in the negotiating process of finalizing a transaction. One party may be willing to accept a significantly different purchase price in favour of their desired closing date.

Irrevocable Date

When an offer to purchase is submitted, it is given a length of time in which the offer remains valid. The irrevocable date is the designated time in which an offer to purchase and sale expires. Understanding when to give a short irrevocable period or a longer period is an important skill in the negotiating process.

Strategically choosing an irrevocable date can have a big difference in the strength of an offer. Especially it can have a big impact in counter offer situations or multiple offer situations.

Counter Offers

After a buyer submits an offer to purchase the seller has basically 3 options to choose.

1. Accept the offer as presented;
2. Refuse the offer;
3. Counter the offer;

Sometimes an offer can be countered back and forth between buyer and seller multiple times. Each time buyer and seller can chang terms/conditions and the irrevocable period. Although tempting to conduct these negotiations verbally, it is best to have any changes in the agreement of purchase made in writing.

Multiple Bid Situations

In a situation where two or more buyers are competing for the purchase of a single home, certain negotiating strategies need to be employed. As a general principle, it is best to submit the strongest offer that you feel comfortable with. The idea is to make your offer as attractive as possible to the seller without giving up the protections that you feel you need in the contract.

Where possible it is best to simplify the conditions. It is better to remove any conditions that could be viewed as extraneous to the seller. An example might be to remove a financing clause and leaving only an inspection clause. Always consult your real estate agent for advice.

Price

When the negotiations are centred on the price, there are certain strategies that can help you get the best price possible. Price should never be negotiated in isolation from the other components of an offer to purchase. Negotiating is about give and take. Understanding comparative market prices is also important when presenting your offer price. A little research on what other homes sold for in the neighbourhood . This research can also provide supporting evidence to a requested purchase price.

Deposit

The deposit amount is the amount that the buyer gives to the seller upon acceptance of the offer to purchase and sale. This amount should not be confused with the down payment amount. This is used when calculating the mortgage amount.

Generally, a larger deposit provides a gesture of good will. A deposit demonstrates that you are serious about coming to an acceptable offer to purchase. Should the offer not come together. If the Buyer should choose to walk away during the conditional period, this deposit is fully refundable to the buyer.

For this reason the deposit amount isn’t as important as some might think. Some sellers might be concerned with a small deposit in case a buyer defaults on the agreed contract. In these types of situations, the real security to the seller is the legal recourse available for breach of contract.

Conditional Period

For conditions that must be fulfilled by the buyer, such as obtaining financing or a home inspection. The buyers and sellers must agree on a period of time for these items to be completed. In the mind of the seller, this conditional period represents a stretch of time where their home is still not sold, yet the home is no longer actively marketed for sale.

This could mean lost time or potentially lost alternate buyers. For this reason, the sellers would prefer a short conditional period. Buyers are therefore recommended to keep this period as short as possible. It makes their offer to purchase as attractive as possible.