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Preparing the Offer to Purchase

For most people, buying a house is the largest purchase of their lifetime. Yet people buy or sell their homes without considering all of the questions they should be asking before they enter into an Agreement of Purchase and Sale.

This pamphlet is the second in a series of pamphlets on Buying and Selling a House. Other pamphlets in the series are entitled Planning for Buying a Home, Mortgages and Selling your House.

The purpose of this pamphlet is to give some general information to people who are thinking about entering into a legally binding agreement to buy a home. It will focus on one important aspect – preparing the Offer to Purchase. It does not contain a complete statement of the law in the area and changes in the law may occur from time to time. Anyone needing specific advice on his/her own legal position should contact a lawyer.

What is an Offer to Purchase?

It is a formal, legal document which offers a certain price for a specific piece of property. The offer may be firm or conditional.

A firm offer means that you will buy the property and there are no conditions attached. Once accepted by the seller, you are bound by the Agreement.

A conditional offer means that you will buy the property if certain conditions are met. You must list these conditions on the Offer to Purchase. For example, your offer may be conditional on your arranging satisfactory financing. If you can’t arrange for a mortgage loan within a certain period, your offer will cease to be valid. In short, no deal will take place.

How do I make an Offer to Purchase?

You will need to make a written offer to purchase. Sellers often do not accept offers the first time around. Most are changed by the seller (counter-offer).

Who Prepares the Offer?

The real estate agent prepares the offer for you. Most real estate boards have their own standard form offers, which agents use. There is no change to the purchaser for this service because the agent is paid by the seller. Once you and the agent fill in the basic details of the offer, take it to your lawyer before you sign it. Have your lawyer review the offer to make sure it protects your interests.

If you are making an offer on a house that is not listed with a real estate agent, you can engage the services of a lawyer or a real estate agent to assist you to prepare the offer.

What are some of the basic details of an Offer to be filled in?

• who the purchaser (buyer) is
• who the vendor (seller) is
• a description of the property

The municipal address of the property, if any, as well as its dimensions, should be inserted in the offer.

• the purchase price
• the amount of deposit

The deposit is the money paid by the buyer at the time the offer is submitted. The cheque should be made payable to the real estate agency. If the offer is accepted, the agency will hold the deposit in trust until completion of the transaction.

Closing Date

This is the date the seller is paid and you become the owner of the property.

The Title Search Period

This is the time your lawyer is given to search the seller’s title. The search of title is an historical investigation of previous ownership and prior dealings with the property. In New Brunswick, this involves examining the legally binding documents affecting title to the property. Make sure that the offer gives you at least 30 days to have the title searched.

Chattels and Fixtures

You should decide which chattels and fixtures in the home you want to include in the purchase price.

Chattels are items of personal property such as washer, dryer, fridge, stove, rugs, dishwasher, fireplace accessories, and drapes.

Fixtures are items of personal property that are part of the house itself, such as doors, windows, electric light fixtures, and wall-to-wall carpeting.

You must list in your offer the chattels you want to be included when purchasing the home. Otherwise, you won’t get them!

Fixtures, on the other hand, automatically go with the house. The seller may, however, set out in the counter-offer a fixture which he intends to remove, such as the chandelier in the dining room.

Building Location Survey

A seller who does not have a building location survey is not obligated to obtain one. Since most mortgage lenders won’t approve a loan without one, a purchaser will probably need a survey.

Ask the real estate agent if a building location survey exists and if it is up to date. Otherwise, it may not be acceptable to your lender. Who will pay for the new survey? You! – unless, before signing the offer, you have a clause inserted requiring the seller to split the cost or adjust the purchase price downward.

Utility charges

Unpaid bills for utility charges can be a problem. Some public utilities have the legal right to place a lien against a property for unpaid bills. It doesn’t matter who now owns the property.

Your offer to purchase should state that all utility bills issued before the closing date are to be paid by the seller by closing. Request a final meter reading on the date of the closing. Have a clause inserted into your offer requiring the seller or seller’s lawyer to pay that final account, when it is issued. You are personally responsible to set up new accounts for utilities in your own name on the day of closing.

UFFI

Urea-formaldehyde foam insulation (UFFI) used to be an approved form of insulation. In 1980, however, the federal government banned it.

Selling a home with UFFI is not against the law. However, UFFI may reduce the market value and the marketability of the home. You want to be assured that UFFI has been removed or never has been used to insulate the property, make it a condition of your offer.

Water

In some areas, the marketability of the property and the ability of a buyer to get a mortgage are affected by the drinking quality of the water. If you require a water quality certificate for financing, or if you have concerns about the drinkability of the water, make it a condition of your offer that the seller provide one.

Zoning

The use of land is controlled through zoning by-laws and regulations. How you intend to use the property and whether that use is permitted under the zoning control, should be spelled out in the offer to purchase. If you wish to use the property in a way that is not permitted by the zoning control, you should make your offer conditional on having the property re-zoned.

Registered Restrictions

In addition to zoning by-laws, there may be other restrictions on land use, such as restrictive covenants and building schemes. If a proposed use of the property is important to you, ask if that use is in fact permitted.

The time to raise these concerns is before you sign the offer, not afterwards.

Rights of Access and Inspection

Once a seller accepts your offer, you have not further right to inspect or even enter the house. Many purchasers, however, will want to enter the house before the closing date, to measure windows for drapes or to measure room sizes for carpeting, paint or wallpaper.

The offer should contain a clause giving you the right to enter a reasonable number of times in the presence of the seller or the seller’s agent, for specific purposes.

Balance Due on Closing

The balance due on closing is the purchase price less the deposit. You must pay this amount on the closing date. You should note, however, that adjustments to the balance due will have to be made.

What do you mean by “adjustments”?

The seller’s lawyer will prepare a document called a Statement of Adjustments. It will show the final balance owing to the seller on closing, and how it was calculated. Review this document with your lawyer before the closing date.

Adjustable items include:

Real Property Taxes: The purchaser is responsible for the property taxes from the date of closing until the end of the year. A seller who has prepaid those taxes for the year must be credited with that amount. The amount being credited to the seller will be stated on the Statement of Adjustments.

Home fuel: Fuel oil is one of the types of home heating energy that is included on the Statement of Adjustments. Other types are wood, propane and so on. The buyer will usually be required to reimburse the seller for the value of the tank of heating oil.

Others: Metered charges, such as electricity do no require adjustment. However, where a utility such as water is billed on a flat-rate basis, an adjustment is necessary. If the seller has prepaid the full amount, a credit for the balance of the year must be made to the seller and included on the Statement of Adjustments.

What happens once the Offer to Purchase is prepared?

Before signing the offer, be sure you can live up to your obligations! Your lawyer will make sure you know what your obligations are. Take your offer to your lawyer before you sign it. You should also consult your lawyer before agreeing to any counter-offer.

What if there isn’t time – what if my lawyer can’t review the offer right away?

Buyers often want you to act quickly for fear of losing a ‘dream’ house to a competing buyer. However, if you cannot see your lawyer immediately, you can make your offer conditional on your lawyer having a reasonable time to review the offer.

What happens once I sign the Offer to Purchase?

Once you sign the Offer, the agent will present it to the seller. He or she has 3 options: accept it, reject it, or make a counter-offer. A seller who is not completely satisfied with the terms of your offer normally will make a counter-offer. For example, the seller may increase the purchase price by $5,000, and initial the change. If you also initial the change, a binding contract results, subject to any outstanding conditions. However, you may decide to change the $5,000 to $3,000, initial it and re-submit the offer (a counter-counter-offer). This exchange continues until both sides accept and initial all changes or no agreement can be reached.

How much time does a seller have to make up his mind?

It depends on how much time you give the seller. It could be as short as a few hours. Usually, buyers give no more than a day or two. During this time, you cannot cancel your offer. If the time passes, and you are not told that the offer has been accepted, there is no deal.

The time given by the seller to you on a counter-offer is usually very short – often just a few hours. If that time passes and you do not reach a deal, there is no obligation on either you or the seller to continue negotiations.

What happens if my offer is accepted?

Once the seller accepts your offer it becomes a firm and binding contract. However, if the offer was conditional you will not have to complete the purchase if the conditions cannot be met.

If my offer is accepted, when can I move into the house?

You can get the keys and move in when you become the owner of the property. That happens on the closing date.

Public Legal Education and Information Service of New Brunswick (PLEIS-NB) is a non-profit organization. Its goal is to provide New Brunswickers with information about the law.

PLEIS-NB receives funding and in-kind support from the Department of Justice Canada, the New Brunswick Law Foundation and the New Brunswick Department of Justice.
 

e gratefully acknowledge the cooperation of Consumer Affairs Branch, New Brunswick Department of Justice, New Brunswick Real Estate Council and members of the Law Society of New Brunswick and members of the Law Society of New Brunswick.

Published by:
PLEIS-NB
P.O. Box 6000
Fredericton, N.B.
E3B 5H1
CANADA
Tel: (506) 453-5369
Fax: (506) 462-5193
Email:
pleisnb@web.ca

ISBN: 1-55048-237-8

 

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Disclaimer: Please note that our website contains general information about the law. This is not a complete statement of the law on particular topics. We try to update our publications often, but laws change frequently so it is important for you to check to make sure the information is up to date.  The information in our publications is not a substitute for legal advice. To receive legal advice about your specific situation, you need to speak to a lawyer.