When buying or selling, you will in most cases sign a conditional offer to purchase real estate form. This Agreement of Purchase and Sale will spell out all terms of the sale. It may contain one or more conditions that must be met before the offer becomes a firm agreement.
A condition can be for the benefit of either the buyer or the seller. Once the condition has been met, a waiver will be signed and copies are delivered to everyone involved in the transaction. This is how they are notified that the sale is going to proceed.
Here are some of the conditions you might see in a real estate offer.
- Financing. This is a standard condition that will be found in most agreements. It will allow the buyer time to take a copy of the offer to their mortgage company to get their stamp of approval. Five banking days should be sufficient to get an answer from the financial institution. Even with a pre-approved mortgage, this condition must be included in the offer. The buyer has been pre-approved. The mortgage company must now approve the purchase.
- Home Inspection. This is also a standard condition that most buyers will insist is included in the agreement. Again, 5 business days should allow enough time to have an inspector submit their report.
- Lawyers approval. Some buyers and sellers want their lawyer to review the agreement. You should allow 2-3 weekdays for your lawyer to do this. With a private sale, you should always get your lawyer involved.
- Water test. When buying a property that is on well water, a condition should be included in the agreement allowing enough time for a sample to be tested. You want assurance that the water is fit for human consumption. Your mortgage company will require a copy of the report. If the water sample comes back with a negative report, they will not finance the property.
- Inspection of the property by another buyer. Sometimes one of the purchasers is not available to view the property prior to an offer being submitted. This could be a case where the husband or wife is out of town. This condition could run for a couple of days and be waived when they return to give their approval for the purchase.
- Sale of another property. Sometimes a buyer of real estate has a property to sell before they can firm up on their purchase. This type of condition could run for a few days or a few months. If it runs for more than a week, the seller might insist that an 'escape clause' is included in the agreement. It will state that the seller can continue to offer the property for sale. If a second buyer submits an offer that the seller decides to accept, the seller must notify the first buyer in writing informing them of their intentions. Buyer #1 will have a specified number of hours to either remove all the conditions in their offer or let the property go. If they choose the later, buyer #2 buys the property. An escape clause can be used with any condition that runs for a longer period of time, but is generally not used with financing or inspection conditions.
- Use of the property. This condition would be used in a case where the buyer wants to use the property for a specific purpose. Say they are going to start selling cars on a vacant lot. They would want time to inquire with the appropriate department at city hall before agreeing to proceed with the purchase.
This is a short list of conditions you might find in an agreement of purchase and sale. There is no limit to what one of the parties might request to be in the offer. Whatever it takes for them to be comfortable to continue with the agreement.
A condition in an offer must contain 5 things.
- Who will the condition benefit, the Buyer or the Seller.
- At who's expense will the condition be completed.
- An expiry date for the condition.
- What must be done by this date.
- What will happen to the deposit paid by the Buyer.
Here is a sample of a condition.
- This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer's own expense and the obtaining of a report satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller not later than 9:00 p.m. on the 12th day of July, 2007, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without interest or deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the sole benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller within the time period stated herein.
As you can see, a condition allows one of the parties to the transaction a specified time period to satisfy themself with respect to some aspect of the purchase. If it happens, they agree to continue with the transaction.
With any legal document, you should ALWAYS CONSULT WITH YOUR LAWYER PRIOR TO SIGNING.
Check out our Real Estate For Sale By Owner In Durham Region Website.
