Congratulations! You've taken the next step to homeownership, you've searched and viewed many homes and finally found the right property for you and you're ready to submit an offer to the seller, so what happens now?
This is where your REALTOR® will be your biggest asset. Your agent should investigate the selling history of the property, pull the property title and review it with you, as well as research and complete an assessment of the current homes on the market as well as recently sold properties in the area. This is where you will get most of your firepower for determining the price you want to offer. Your Realtor should also call the listing agent to discuss any red flags or questions you may have about the property. Ensure you share any concerns or items that may be of importance to you with your Realtor to avoid issues during the negotiation process.
Writing The Offer
In Alberta, there is a standard purchase contract that is used by each REALTOR® for the purchase of a home. Within this contract are clauses or terms that make up the contract. These are the items that will be agreed to and upheld; otherwise, there is a breach of contract. In addition to the standard terms of the agreement that your REALTOR® will review with you when preparing the offer, you can also add in additional terms if needed; however, any other terms added to the contract are open to negotiation.
Conditions are clauses in the contract that must be fulfilled for a sale to proceed forward. The buyer or the seller can set conditions. Common conditions seen in most purchase contracts include financing approval, home inspection, sale of buyers home, and if purchasing a condo; a condo document review condition. The buyer or seller is then given a set amount of time to fulfill the terms of the contract (Usually 7-10 days). Both the buyer and seller need to agree on the conditions of the agreement for it to move forward. Your REALTOR® will help guide you in regards to what conditions you should have written into your purchase contract and what you will need to do to fulfill them.
To write an offer on a home, you will need to ensure you have the funds available for a deposit. This is initially a show of good faith in a transaction and is fully refundable if the conditions on the purchase contract are not removed. You can decide to offer a single initial deposit, or split your deposit into two payments, an initial deposit which is paid at the time the offer is written and an additional deposit which is then paid once all conditions to the contract are removed. Once the conditions are removed and satisfied in writing, and the seller receives the condition waiver, the deposit becomes the seller's security that you will complete the purchase. (Non-Refundable). The amount of your deposit can be discussed with your Realtor. Generally, deposits are $5000 - $10,000 for an average priced home and the amount is negotiated between the buyer and seller.
Once you know what terms and conditions you want as part of the purchase contract, and have completed your property research, you can now effectively determine your offer price. The offer price should be determined and based on all the variables affecting this specific property. What terms do you need? How many offers are there? How long has the property been on the market? And many, many more variables. Ultimately your goal is to meet the seller's needs and still obtain the property for a reasonable price.
Possession (Closing Date)
When do you want to take possession of the property, this is also the day that your mortgage is funded and the funds along with your down payment are paid to the sellers' lawyer, and the deal closes. This part of the contract can also be negotiated between the buyers and sellers to ensure both parties are satisfied with the possession date.
Once the offer is written with all terms and conditions and you have decided on the offer price for the property it is up to your agent to present your offer to the listing agent; (who will then present to the sellers); or in some cases your agent will submit your offer directly to the seller (more often in a For Sale By Owner Sale etc.) In some cases, it is a good idea to include some personal information about yourselves and why you want to purchase the home. Some buyers will include a family photo, or a letter to the sellers, especially in a multiple offer situation where your offer is competing against offers from other buyers.
In most cases, there is some negotiation involved in an offer to purchase. Negotiations can be based on price, conditions and dates, deposit amounts, or additional terms. Your REALTOR® will guide you through any negotiations as we must negotiate favourable terms for our clients. Your REALTOR® has your best interests in mind and will help you through this process giving you facts, disclosing information provided to you from the listing agent and ensuring you have all of the information you need to make educated decisions regarding the purchase.
When an offer is considered "accepted" both parties have agreed to all contract terms, clauses, conditions, and price. Once accepted, the sellers and buyers will both sign the contract and initial any changes made to the contract. The contract is then delivered to the other party, and the sale is officially in "pending or conditional sale" status. This means that the property is conditionally sold. The conditions that were written into the contract still need to be met by each party but the contract has been agreed upon, and each party can now move forward to satisfy their conditions.
Financing: Getting final approval from your mortgage broker or bank for you to purchase the property. This may include getting an appraisal on the property, providing financial information to your bank, and providing property information to your bank or mortgage broker. Your Realtor plays a massive part in gathering this information and making the necessary arrangements to ensure the process continues to run smoothly. Once you have the final approval in writing from your lender, you can go ahead an remove your financing condition. Your Realtor will complete the condition waiver form, and you will need to sign it. It is then sent to the seller/seller's agent to complete satisfying this condition.
Home Inspection: Arranging a home inspector to visit the property and complete an inspection to give you a better idea of the condition of the property. Your Realtor should have a list of home inspectors in the area they can provide you, and should be in attendance at the home inspection. This is an additional cost to you as the buyer but is cheaper than finding an issue after you've already moved in. The sooner you do the home inspection, the better, this gives you time to review the inspection report to ensure that you are satisfied with the condition of the property. Once you have had the opportunity to view the inspection report and are happy with the state of the home based on the inspection, you can go ahead and remove your home inspection condition. Your Realtor will complete the condition waiver form, and you will need to sign it. It is then sent to the seller/seller's agent to complete satisfying this condition.
Condo Document Review: When purchasing a condo it is almost as though you are buying into a business or corporation. If you were buying a business, you would do your due diligence and find out everything you could about the company before purchasing. What is income? How much are the operating expenses? Any pending lawsuits? When buying a condo, it is highly recommended that you have your condo documents professionally reviewed.
Once all conditions have been satisfied by the buyer and seller, the sale is considered to be a "firm" sale, and the property will be marked as Sold for advertising purposes. You want to make sure you are fully informed before removing this condition. The best course of action is to have a professional review condo documents to bring to light any red flags that you may need to be informed about. Once you are satisfied with the outcome of the review of your condo documents you can then move forward and remove your condo documents condition.
You have now completed the first steps in completing your first home purchase. Congratulations!