The offer to purchase sure has changed over the years. When I bought my first home I signed a one page document in the space provided for the buyer to sign and when it was accepted the seller signed it in the space provided for the seller. Simple. Easy. While the basic offer price, possession date, conditions, and terms are still the same, the structure of the contract has materially changed.
Today, the offer to purchase a home in Alberta has become far more confusing and includes a much longer (6 page) contract in addition to no less than two other required documents that must accompany the offer when working with a Realtor. All those papers and legal terms can begin to feel overwhelming but there are three key things you should be aware of before you start shopping for a home or make an offer to purchase so you can have the best home buying experience. Here we are going to talk about the deposit, the conditions, and the new Buyer Representation Agreement.
Today’s contract contains three paragraphs dealing with the deposit alone. Three more deal with additional deposit funds and how those funds will be returned to the buyer if/when the deal collapses. Who holds the deposit used to be straight forward but today almost anyone with a trust account can be and are nominated to hold trust funds connected to a purchase. This can become a big concern for you as a buyer if you decide to back out of a deal.
Let's say your trust funds are held by the sellers’ lawyer and you want to back out of a deal because you discovered something during a home inspection that spooked you. The seller thinks you’re backing out because you noticed the neighbor’s house is for sale for less and thinks that you plan to buy that property instead, so he directs his lawyer to hold the deposit. Now you’re stuck arguing about the deposit.
I was personally involved in a deal where the seller refused to close. I’m still not sure why since I gave her the price she wanted but on closing day she refused to transfer the land. My remedy would normally have been ‘specific performance’ but my lawyer says that’s not really awarded any more. So what was I going to do? Compromise my reputation by forcing a seller to sell me her house? What’s worse is she had hoped to consider me to be in default and directed her lawyer (who was holding my deposit) to not return my money. So frustrating! Even though I’m getting my money now, it was a process I’d prefer to have avoided.
Contracts now have four built-in space for buyers conditions. Financing approval, a home inspection, sale of buyers home, and any additional conditions a buyer can dream up can now be written into a deal. Remember that a condition needs to be removed on or before the condition date. If not, the deal is ended and deposits must be returned forthwith.
Often buyers confuse conditions for terms. If you’re asking the seller to show you a tenants lease agreement or fix a fence before closing or perhaps to replace a faulty component of the home those are terms that need to be performed by a specific date (normally before closing). But a condition simply means that a buyer will buy your home if their condition for a satisfactory home inspection or satisfactory financing can be arranged on or before a set date. Generally a buyer will be given a due diligence period to arrange for these items.
Where a seller is being asked to agree to a condition for someone else to approve a purchase (like a parent or partner not currently available) then the seller can be encumbering her property for a buyer who may have their deal clobbered by some third party. This can make sellers reluctant to enter into an agreement.
Today’s contract even includes a space for sellers’ conditions. This one is especially slippery because some sellers will get nervous when they receive an offer. They’ll use a seller's condition to have their lawyer review the deal. The problem is that if you (as a buyer) allow this then the seller may get another offer that looks better than yours. If your deal is subject to the lawyers approval then you’ll likely not get it – and you’ll lose your deal. If you must, try to word these conditions as ‘subject to the sellers’ lawyer disapproving’ on or before a certain date. This way the sellers’ lawyer needs to write a disapproval letter to kill your deal. If not, then the condition comes and goes and your deal sticks!
Buyer Representation Agreement
All Alberta Realtors are now required to use a Buyer Representation agreement which spells out what the agents’ responsibilities are to the buyer during the shopping and buying process. These agreements also spell out the buyers’ commitment to the agent (if any), how the buyers’ agent will get paid and by whom. If not paid by the seller, the agreement may require the buyer to pay for the agent's efforts himself. This four page document is new to most buyers but it’s the new law of the land and will become as common as the six page offer.