Frequently Asked Questions
- What happens after I submit an offer on a house?
- What is the rule around competing offers, or a Multiple offer situation?
- What is a back up offer?
- How does a Real Estate Agent get paid?
- Can I walk away from an accepted submitted offer?
- What does the term irrevocable me?
- What is an escape Clause?
- What is Mortgage default insurance?
- What is title insurance?
- Do I have to have a home inspection?
- The seller will either accept your offer.
- Make a counteroffer with one or more changes or
- Reject the offer outright.
It is important to realize that the seller does not have an obligation to accept it.
A. If the Seller Accepts Your House Purchase Offer
The offer as written is accepted. However, it is rare that a seller would accept a buyer's offer as written.
B. If the Seller provides a counteroffer to your House Purchase Offer
If a home seller responds to an offer with a written counteroffer, usually some or most of the terms will be accepted and some proposed changes to the offer will be made.
Common proposed changes
- The Price
- When they would like to be out of the home - Closing Date
- Terms of the contract ( if the seller doesn't want to wait for you to sell your current house or wants you to schedule inspections more quickly.)
The most important thing to remember with a counteroffer is You can
A. Accept the seller's counteroffer,
B. Reject it, or
C. Present a counter counteroffer.
The negotiations will continue until either a deal or an impasse is reached.
C. If the Seller Rejects Your House Purchase Offer
If you do get an outright rejection, your agent might be able to find out why. This will help you craft a stronger, more appealing offer next time you find a house you are interested in. You may still re-submit a new offer to the seller if you so choose.
Ontario law requires that the seller’s brokerage disclose to potential buyers’ certain information in a competing offer or a closed bidding process.
- The number of offers submitted
- Whether any of the buyers are represented by the selling brokerage
- Whether the seller’s brokerage has an agreement to reduce their commission if their buyer is successful, among other things.
Having a preliminary discussion with your Salesperson, Lawyer, and or a financial advisor is highly recommended before participating in a competing offer situation.
You need to be prepared for how the competing offers may affect your offer. A negotiation strategy must be prepared. This means knowing what you are willing to offer for the property, what conditions to be put in the offer and what terms are a must for you.
Once you submit your offer one of three things is likely to happen. The seller might:
- accept your offer,
- reject it, or
- counteroffer (make you an offer based on their terms).
Counteroffers are not a given. On occasion a seller will give you or other buyers a chance to improve your offer, but this is never a guarantee. In my experience you have one chance in a multiple offer situation so put your best foot forward.
Multiple offers or “bidding war” situations are quite emotional and can cause a competitive streak. This irrational behavior can result in buyer’s remorse. Do not let your emotions get the better of you, no matter how much you want the property or want to “win”.
The great thing about Ontario is that it is filled with beautiful neighbourhoods and many spectacular homes, and if you are patient, you will find the one that is right for you.
An offer that is submitted to a seller after the seller has already accepted an offer.
A back up offer comes into play after a client may have lost in a multiple offer situation, or someone just submitted an offer ahead of you and it has been accepted.
If the property of interest were something to be desired, a savvy salesperson like myself will recommend a back up offer. We can discuss the implications of a back up offer. You may also consult your Lawyer. One would submit a back up offer to ensure you are next in line if for any reason the first contract is terminated or cancelled.
There can be more than one backup offer in place for a home and therefore the language used in submitting a backup offer should be carefully considered. The backup offer should contain a clause outlining that it is contingent upon the cancellation of the original contract, and that it automatically becomes a contract if the first buyer does not satisfy their conditions as stated in the original offer.
Always remember, you should not be writing offers on other properties during the waiting period.
Unlike other professionals who bill their clients at hourly rates, Real Estate professionals are paid at the end of a sales transaction.
If I work with a buyer or a seller for weeks or months without resulting in a transaction, then I am not paid.
Our commission earned is based on the selling price of the home. It is not paid until the transaction is complete.
Commissions are negotiable between listing agents and their clients.
The exact percentage of the Real Estate agent's payment (or commission) should be spelled out in the listing agent's contract with the seller.
This ensures that the listing agent gets paid if the property sells, regardless of who buys it.
Technically, the Real Estate agent is paid by the seller at the settlement table, where the fee is subtracted from the proceeds of the home sale.
However, the sellers will take the agent's commission into account when determining a listing price. So, in a sense, the buyers are paying the commission because they are paying to buy the house.
Listing agents and their brokers spend time and money marketing a home, advertising, and preparing the home for sale, so what a Real Estate agent gets paid is to cover those services.
Buyer's agents typically have a contract with their clients, so they are paid when the buyer completes a purchase, even if the buyers found that particular property on their own.
Whether you are a buyer or a seller, the professional support of your REALTOR® who represents your interests should be worth every dollar of the commission.
A buyer can walk away at any time from the contract up until the actual signing of all documents at closing. Walking away from a purchase contract though could result in the buyers losing any deposits and/or being sued if there were no contract contingency clauses upon which you based your decision to cancel the contract.
A few Common reasons to walk away from a submitted accepted offer are due to an appraisal contingency, or a financial contingency.
Buyers have several different times when they can walk away from purchasing a house after entering into an Agreement of Purchase and Sale, as long as it is written into the contract.
The irrevocable clause states a date and time up to which time the offer is irrevocable. Before the time on the specified date, the party offering cannot revoke their offer. The irrevocable clause usually states that when the imposed time and date pass the offer becomes null and void.
The word irrevocable is important to understand. It means that the Agreement cannot be revoked. This seems obvious, but not everyone realizes the implications. Consider this scenario from the buyer side perspective:
- The Buyer submits an offer to the Seller through their agent ,an agreement to purchase the property with an irrevocable of 5 days to review the offer.
- The next day, the Buyer finds an even better house that is less expensive.
- The buyer calls their agent and explains that they want to put in an offer to purchase that property.
- The Buyer agent then calls the Sellers agent and leaves a voicemail saying that the offer is revoked, Buyer does not want the house anymore.
- Buyer agent prepares a new offer for the new property and submits it with a 5 day irrevocable.
The Buyer now has two irrevocable offers to purchase two separate properties. It is entirely possible that both offers can be accepted and the Buyer will be responsible for purchasing both houses.
To avoid this problem, the buyer would have to wait for the irrevocable to lapse or receive a counteroffer. Once a counteroffer is received, The Buyer offer has in effect been rejected by the seller and the buyer can accept or reject the counteroffer.
Problems can also arise if the seller does not pay careful attention to irrevocable dates. Consider this scenario from the seller side perspective:
- Party A receives an offer from Party B on February 8 that is irrevocable until 11:59 pm on February 10.
- Party A counter offers back to Party B on February 8 but does not change the irrevocable date or time (only changes “buyer” to “seller”) in the Irrevocable clause. This has the effect of making Feb 10 at 11:59 pm the irrevocable date and time for the seller’s counteroffer to be reviewed.
- Party C makes an offer to Party A, that Party A wishes to accept.
- Party A informs Party B that they have received another offer they would like to take and that the counteroffer is revoked.
- Party A accepts Party C’s offer.
- Party B now accepts the Party A’s counteroffer before 11:59 pm on February 10.
Party A has now sold the property under two separate agreements. It will almost certainly end in a lawsuit or if Party A is lucky, they may be able to negotiate with one of the parties for a mutual release.
Both scenarios reveal Agents who do not understand what an irrevocable provision means in the agreement and they may have caused their clients to be exposed to liability. Although Party A is at fault for entering into multiple agreements, it is the agent who is responsible to advise Party A. Party A should have been advised about the effect of the irrevocable offer by the agent.
An escape clause is usually used by the seller to get out of an accepted Agreement of Purchase & Sale.
This clause allows the Seller's home to remain on the market while the conditions of the Buyer are being satisfied.
The 48-hr escape clause is usually triggered when another acceptable offer has been presented to the Seller. The seller now advises the original Buyer that they have another offer and invokes(triggers) the Buyer to firm up the deal.
This trigger can come with its own set of allowable circumstances that must be completed within a certain time period, and/or allow a certain time period for the other party to make amendments to the agreement. Essentially the Buyer must firm up! Satisfy any conditions and provide a waiver to remove all conditions or provide a mutual release, which would terminate their contract.
(Note: When the above 48-hour clause is used, Sundays and statutory holidays, including Remembrance Day, are not included when determining the 48-hour period.)
Here is a typical Escape Clause:
The attached offer to purchase is accepted by the Seller, subject to a condition that the Seller may continue to offer the property for sale and if the Seller receives any other acceptable offer to purchase during the period in which the attached offer remains conditional (i.e. upon the arranging of financing, or the sale of the Buyer's own residence, or upon any other condition) The satisfaction or the waiver of which is necessary before this offer and its acceptance shall be binding upon the Seller and Buyer.
The Seller may give 48 hours written notice (exclusive of Sundays and statutory holidays) to the Buyer that the Seller wishes to terminate this agreement. This notice shall commence from the delivery of such written notice to the Buyer, and during which 48-hour period the Buyer shall waive or satisfy all the conditions to which the Offer is subject to, by delivery of such written notice of waiver or satisfaction to the Seller.
Failing such delivery of a written waiver or satisfaction of the conditions to the Seller, the attached agreement of purchase and sale shall be deemed to be cancelled by mutual agreement of both Seller and Buyer. Delivery of notice is deemed to have occurred when the party to whom notice is to be given, or his/her agent, has received written notice by personal delivery or by facsimile transaction of the notice to be given.
Note to Buyers:
Keep in mind the seller can only accept this second offer conditional upon your offer (the first offer) becoming null and void.
If you the first buyer do not meet the deadline of the escape clause, you can then cancel the offer by way of mutual agreement and have your deposit returned. The Notice form, signed by the buyer, must be returned to the seller within the 48-hour period stated in the 48-hour clause.
Note to Sellers:
It is very important that the 48 hours notice not be invoked until the offer from the second buyer is unconditional i.e., all conditions have been satisfied.
Mortgage default insurance is mandatory if you are buying a home in Canada with a down payment of less than 20% from a federally regulated lender. And the sticker shock can be huge.
So, let us dig in for some fast facts about what that means.
Mortgage default insurance protects your lender in case you ever default on your mortgage. “Default" means you have not lived up to your end of the deal you made when you signed on the dotted line for a mortgage.
If you were late with a payment, or you did not pay the full amount required by the payment due date, you would be in default. That is the most common type of default, but you can also default if you do not comply with your other obligations under your mortgage contract.
Let us say you continue to miss making payments. Your lender may take action to ensure they get back the money you borrowed from them. That could include forcing the sale of your home and the lender would use the sale proceeds to pay down your mortgage debt to them.
If your mortgage loan has mortgage default insurance and the sale yields less money than what you owe the lender, the difference would be covered by the mortgage default insurance benefit.
When a property is financed, bought or sold, a record of that transaction is generally filed in public archives. Likewise, records of other events that may affect the ownership of a property, like liens or levies, are also archived.
When you buy title insurance for your property, a title company searches these records to find and remedy, if possible, several types of ownership issues.
First, the title company searches public records to determine the property's ownership status. After this search, the underwriter will determine the insurability of the title.
Even the most skilled title professionals may not find all problems associated with a property. Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify. So, after the title company finishes its searching, it also provides a title insurance policy that will help protect you from a variety of issues that might be uncovered later.
If you take out a mortgage loan when you buy your property, your lender will require a loan policy of title insurance. This protects the lender's interest in your property until your loan is paid off or refinanced.
On the other hand, an owner's policy of title insurance insures your ownership rights to the property. Even though you will pay for this policy only once, your coverage will continue if you own your home.
A Real Estate purchase may be the largest financial investment you ever make. So, when you buy an owner's policy of title insurance, just think of it as buying some peace of mind!
Here is some example of what is covered by title insurance
- Someone else claiming an interest in the property
- Forgery and fraud
- Typos and minor errors in the legal description of the property
- Liens on the property (a legal claim by someone else on the property)
- Construction liens (a lien placed on a property because of unpaid contractor bills)
- Easements (the right for someone else to use part of your property without owning it – for example, a shared driveway)
- Work orders
- Being forced to remove structures because they violate zoning
National Association of Realtors found that 14% of sales are never finalized due to the home inspection, the third largest reason.
Having a home inspection will help educate you about one of your greatest purchases.
It can help detect unseen and unpredicted problems. You need an inspector to climb into the attic and inch around in the crawl space. The inspector can discover real and expensive problems that are not always apparent when you view the home with a real estate agent. The inspector may also be able to give you a rough timeframe for potential repairs down the road based on the age of the home like having your roof re-shingled.
You are also learning very practical information about the home. You should make a home inspection a mandatory part of the home-buying process. Having unbiased documentation of the home’s condition is invaluable and can also help keep track of any repairs that may be needed in the future.
This goes for both the purchase of a pre-owned home as well as new construction.
Remember, It’s about what’s in your walls and not what’s on them.