About to make your first offer on a house or condo? No idea what the heck that means? Here’s what to expect (unless in you’re in a bidding war, where all the rules are different):
- Decisions, Decisions Once you’ve found the house or condo you want to buy, you need to decide the terms and conditions of what you want to offer the Seller (price, closing date, conditions, etc.) There’s more than just a number to think of! Your real estate agent will help in determining a fair price, and will give you guidance on what other terms and conditions you should include.
- Agreement of Purchase and Sale There’s a ton of paperwork to sign, most importantly, the Agreement of Purchase and Sale – it’s your official offer to the Seller.
- Irrevocable Period Your offer is only valid for a certain amount of time – we call this the irrevocable period – this is the time period that the Seller has to consider your offer. After the irrevocable period has expired, if the Seller hasn’t accepted your offer (or made a counter-offer), your offer bursts into flames and you aren’t committed to it any more. Irrevocable periods vary, but we’ve seen everything from one hour to 72 hours. Typically in a hot real estate market (like Toronto’s), offers are valid for only a few hours, so the whole process could happen very quickly once the offer is signed.
- Offer Registration Once signed, your Realtor will ‘register’ the offer with the Selling agent’s office (the Listing Brokerage) – essentially telling the office that they have a signed offer from a Buyer. None of the terms, conditions or price are revealed to anyone at this point. Realtors register offers so that there is an easy and fair way to track offers–especially important if there are multiple offers on one house or condo.
- Offer Presentation The real estate agents for both the Buyer and the Seller generally make plans for a formal offer presentation – either in person (at the subject house or condo or at the Listing Broker’s office) or by fax or e-mail. We prefer to present our offers in person. The Buyer’s real estate agent presents the offer to the Seller and his/her real estate agent together. The Buyers are not generally present for this part (though it’s a good idea to be nearby in a cafe or pub in case of any negotiations). In most cases, the formal presentation takes less than 10 minutes – every Realtor presents offers differently, but the presentation is the opportunity for a Realtor to sell and justify their Buyer’s offer.
- Negotiations The Seller can now do one of 3 things with the offer:
- Accept the offer as is They agree to the terms and conditions you’ve offered and sign it. Congrats!
- Sign back the offer with different proposed terms (for example, at a higher asking price, with different closing date, etc.). This now becomes a counter-offer from the Seller back to the Buyer. This is the most common scenario–usually a number of back-and forth negotiations take place with each side making concessions until hopefully a mutually agreeable contract is reached.
- Decline the offer If your offer is totally unacceptable to the Seller, they have the option of simply declining it–no negotiation, no anything. We’ve seen Sellers decline low-ball first offers, and we’ve seen offers declined mid-negotiation.
If an accepted Agreement of Purchase and Sale is reached, the Buyer will need to provide a deposit (in trust) to the Listing Broker (usually around 5% of the purchase price and usually paid within 24 hours of the agreement being reached). Any conditions (for example, a financing condition or home inspection condition) then need to be met before the agreement is considered “Firm.” If there aren’t any conditions, the agreement is firm as soon as the agreement is signed and deposit paid. Yay! You now own a new home.
Making an offer on a house or condo is an exciting but crucial (and often stressful) part of the process; a good realtor can help reduce the stress by preparing you for potential scenarios ahead of time, helping choose a strategy, guiding you through the process and advising you of your options (and possible outcomes) at each step. It may be the biggest financial step of your life, but remember, we do this every day!