Making A Conditional Offer
When buyers and sellers negotiate an offer, there are usually conditions that need to be met before the offer can become "firm and binding".
Typical conditions include: buyer financing, home inspection, conditions on the sale of the buyer's home. If the buyer is able to satisfy these conditions within a specific time period, the conditions are "waived" or removed from the offer and the deal becomes firm.
If, for some reason, the conditions are not satisfied within their time frame, both the buyer and seller are released from their obligations and the deposit is returned to the buyer.
As the seller, if you face a lengthy period of waiting out a condition, you should include an "escape clause" in your agreement, which will allow you to keep your house on the market. If another acceptable offer comes along, the first buyers must either firm up, removing all their conditions, or allow the second buyers to proceed with the purchase.
Buyers, remember, conditional offers give you flexibility, but unconditional offers always give you more leverage and a better reception with sellers.
Deposits serve two purposes, part payment of the purchase price, and part assurance that the buyer will close the deal.
Usually, a cheque accompanies the offer. Once the offer is accepted by both parties the cheque will be cashed and deposited into the listing broker's trust account.
Buyers like to pay the smallest amount possible, while sellers like to see the largest amount possible to give them the feeling of added security and good faith.
A good compromise is to get the listing agent to hold the buyer's deposit in an interest bearing trust account or term deposit. Have your real estate agent put this in writing, as part of your Agreement of Purchase and Sale.
There are three criteria that must be met in order for the buyer to get interest on the deposit.
- The deposit amount must be at least $5,000,
- Closing at least 30 days away and
- The buyer must provide his or her Social Insurance Number since the interest earned is taxable.
What are the Usual Adjustments?
In every resale offer, the purchase price is payable "subject to the usual adjustments".
Adjustments fine-tune the income and expenses of a real estate transaction as of the day of closing so that each party is responsible for the time that they actually own the house.
Municipal property and school taxes are always adjusted, so if a seller paid too much, the buyer pays the excess back to the seller and vice-versa.
The principal amount of the mortgage is adjusted to the day, together with any interest adjustments and any money held by the lender in a tax account for the property.
Condominium fees, utilities, fire insurance and first and last month's rental deposits on a rental property are also adjusted.
These are the extra closing costs you need to budget for so be sure you have your lawyer give you an estimate prior to closing.
Besides the basic legal fees when buying a home, lawyers will charge for disbursements (out of pocket expenses like couriers, travel time, postage), plus GST.
The adjustments include things like property and school taxes, condominium fees, utilities and rental income. You may also have charges for arranging a new mortgage and appraisal fees.
Land transfer tax will also be charged and is based on the sale price of your home. For example, the land transfer tax for a $200,000 home would be an extra $1,725.
For a resale home, set aside an extra 1 ˝ % to 2% of the purchase price to cover these additional costs. For a new home, the costs will be slightly more, closer to 2 ˝ % to 3 % of the purchase price.