Making an Offer - What elements to consider?
Thursday Aug 26th, 2021
An offer is a written agreement of purchase and sale with the specifics of what you are offering the seller to purchase their home. Your sales representative will explain the finer details of the offer but the most important elements are:
The Purchase Price is the amount you are offering to pay for the home. Your sales representative should provide you with historical data and comparable properties in the neighborhood to help you decide on an offer price. When competing in this crazy market, typically the offer price is going to be more than the asking price. You want to review comparable home sales (aka comparables in REALTOR®-land) in the area carefully with your sales representative to make sure that the purchase price you are offering is not way below or much higher than the comparables. If it is too low, you will not stand a chance of competing. If it is too high, the home may not appraise for that price, and should the sellers accept your offer, you will be liable for the difference.
When making an offer, especially when competing against other offers, put yourself in the seller's shoes. If you were to receive multiple offers on your home, what would be important to you? The highest price? Probably.
A Deposit is the amount of earnest money you will be putting on the property. Should you end up purchasing the home, the deposit will typically be held in trust with the brokerage selling the home. The deposit goes towards your purchase price and is typically part of the down payment towards your mortgage and home. The deposit can show how serious you are to a seller and also demonstrate your ability to get financing and complete the sale of the home. For example, in multiple offers, if you put down a substantial deposit, it can show the sellers that you mean business and have the finances to close (complete the sale) on the home.
Your deposit should be submitted within 24 hours of acceptance of your offer. In this competitive market, however, when you make an offer, it may be prudent to include a deposit with your offer in the form of a bank draft or money order to strengthen the offer. If accepted, the seller’s sales representative will keep the cheque and deposit it in their brokerage’s trust account. If your offer is not accepted, you will get your deposit back.
The closing date or completion date as shown on the offer is the day that you pay for the house and you get the keys. It is usually the possession date as well. I usually recommend to my clients to never close on a Friday. In case anything goes wrong you won’t have to wait over the weekend when banks and lawyers’ offices are closed, for any problems to get resolved.
If you are selling a home or are leaving a rented home, your sales representative and mortgage agent will help you coordinate the closing dates so you are not homeless during the transition.
Irrevocable Time is the time you are giving the seller to respond to the offer. A seller can either accept the offer, make a counter offer or not respond and therefore voiding your offer after the expiration date. Typically, if you are competing in multiple offers, your irrevocable time will be a few hours after the time the offer is presented to the seller. If the sellers have requested 24 hours or 48 hours to review an offer, the irrevocable time will reflect this. There are different strategies for the irrevocable time depending on the situation.
Chattels are all the goodies being included with the purchase of the home. Sometimes these are listed on the MLS® listing information and may include electrical light fixtures, the heating system, the air conditioning system, any appliances, may include window coverings and anything else the seller would like to include or you would like to include with the home. If it isn’t listed in the INCLUDED section of your offer, do not assume it is included. Review this section carefully after your sales representative has prepared an offer.
Conditions may be included with your offer. The two most common conditions in today’s market are financing and home inspection conditions. If you are buying a condominium, there may be a condition for your lawyer to review the status certificate. These conditions are included for your benefit as a buyer. It means that you have the right to make sure that you can obtain financing (a mortgage) for the home and will get a home inspection by a qualified home inspector. There is always a time period associated with these conditions. Typically, between 1 to 5 days but maybe longer depending on the circumstances. During the time frame specified in your offer, you will have to make sure you can satisfy these conditions. For example, if you cannot get a mortgage, you can get out of the home purchase as long as your sales representative notifies the seller’s sales representative in writing (a document signed by you the buyer as well) within the timeframe specified.
- If there are multiple offers, is it an advantage if you place a bigger earnest deposit?
- How much should I pay to the real estate representative who drafts the offer?
So that’s it guys, I hope that you learn something today about MAKING an Offer, if you do have questions or clarifications please comment down below. If you have something in mind about Real Estate that you want me to discuss do not hesitate to write that down. Surely, I love to discuss that to my next episode. So once again, thank you very much and make that offer now for you to own a house!