Know the “REAL DEAL” before you sign
We intend to provide our clients with more knowledge and a clearer understanding of how things work in a Real Estate transaction these days. What follows is a breakdown of the most important steps in a sale, including definitions, Common Misconceptions, and what we call The Real Deal.
The Real Deal explains how these concepts work in actual practice so that sellers have realistic expectations and a good understanding of the sales process before they accept an offer. It is important to keep in mind that The Real Deal reflects how most sales go, but of course, each sale can vary depending on the circumstances.
The Agreement of Purchase & Sale (APS):
Definition – Typically a 7-page document that outlines all the terms of the offer (price, dates/deadlines, deposit amount, conditions, etc.) for the purchase between a buyer and seller. It is considered to be a “legally binding” agreement once executed by both parties. The day the APS is executed by the Seller is known as the “Date of Acceptance”.
Common Misconception – The APS is hand-delivered to the listing agent by the buyer’s agent with a deposit cheque.
The Real Deal – APS are usually submitted via email directly to the listing agent by the buyer’s agent. Sellers can accept, reject or make a counter offer.
When both parties reach an agreement on the terms and the offer is executed by the seller, it is emailed directly to the buyer’s agent by the listing agent. Once it is executed by the buyer and seller it becomes a legally binding agreement.
The Deposit:
Definition – The deposit is commonly held in the trust account of the listing brokerage (RE/MAX Hallmark Polsinello Group Realty in this case) when received. In some cases, there are two deposits provided by the buyer and the amount of these deposits varies, the APS indicates when the buyer will submit their deposit cheque.
The first deposit is typically received within 24 hours from the date of acceptance. The second deposit, if applicable, will be submitted usually after any conditions are fulfilled and the terms of the agreement are finalized.
Common Misconception – Cheques are hand-delivered from the buyer’s agent to the listing agent along with the Purchase and Sale agreement.
The Real Deal – It is customary for the buyer to send the deposit electronically or for the buyer to provide a bank draft to the listing brokerage as per the terms of the APS and once executed by both parties. As explained in Schedule "B" of our APS, if a buyer fails to deliver the deposit as per our agreement you have the right to sell your property to another buyer.
Mortgage Pre-Approval:
Definition – Pre-Approval is a preliminary approval to obtain a mortgage.
Common Misconception – Buyers are completely approved for their mortgage once they have a pre-approval and nothing can go wrong.
Real Deal – PRE is the key part of pre-approval to pay attention to. A buyer cannot apply for full approval until they find a home. If buyers have pre-approval from a reputable mortgage broker or bank, chances are they will be able to obtain the mortgage, as long as they don’t have a life change such as job loss, credit change, etc.
Inspection Condition:
Definition – This is the period that buyers have to inspect the home and conduct their due diligence. The deadlines for inspections and type(s) of inspections to be conducted are set out within the APS and commonly written as “within 5 Banking Days” of the date of acceptance.
Common Misconception – Buyers can attempt to renegotiate or back out of the purchase following or as a result of an inspection.
Real Deal – Home inspections are a routine part of the buyer’s “due diligence” period, they are meant to identify and/or address major safety and/or structural issues with a home.
After their inspection(s), buyers, depending on the results, will have the option to present questions and/or requests to the Seller and/or attempt to renegotiate terms; withdraw their offer, or proceed with no requests or changes to the current agreement.
If issues arise during the inspection and both parties are unable to agree, buyers do have the right to withdraw their offer and they are entitled to the return of their deposit. If this occurs, we will advise you accordingly depending on the circumstances.
Once the inspection stage is completed and there are no major issues found in the home, the buyers will issue a "Notice of Fulfillment" indicating they have fulfilled the inspection condition and are happy with the results.
If the inspection has uncovered issues in the home that you agree to remedy (especially health or safety related issues) an amendment detailing the agreed-upon repairs and the date those repairs will be completed.
Appraisal:
Definition – An appraisal is an evaluation of a home’s value conducted by a licensed appraiser that is hired by the buyer’s mortgage company. The purpose of an appraisal is to allow the lender to ensure that the home’s value is enough to warrant a mortgage in the amount that the buyer is seeking.
Common Misconceptions – Buyers use this to get a lower price or it is another inspection.
Real Deal – Buyers have no control over the amount of the appraisal and it is not another inspection. Most of the time appraised values reflect the amount the buyer is willing to pay for the home.
Appraisals sometimes come in too low; this is more likely to happen when there is a lack of comparable sales in the area or when the market changes very quickly. If the appraisal does happen to come in too low we will advise accordingly depending on the circumstances.
Financing Condition:
Definition – A provision in the Agreement of Purchase and Sale that specifies the date and time by which the buyers must have their mortgage commitment. Condition dates typically run 5 banking days from the date of acceptance.
Common Misconception – If the buyers do not get their mortgage by this date the seller can keep the buyers’ deposit.
Real Deal – If buyers notify the seller before the conditional date that they need additional time to obtain their mortgage or that they were unable to obtain a mortgage, they can terminate the sale and get their deposit back.
However, if the buyers are denied a mortgage after the date of acceptance or the buyers fail to close, the seller may not automatically be entitled to keep the buyer’s deposit. See our Blog here for more details.
Closing Date:
Definition – The closing date, also called the completion date, refers to the day when the final payments on the home are made, and the home's ownership is transferred to the new buyer. The process is conducted by the buyer's and seller's notary or lawyer.
Common Misconceptions – The seller can remain in the home after this date or schedule movers for the day of closing. This closing date can be easily changed after signing a contract.
Real Deal – The closing date is a firm date that cannot be altered unless there are unforeseen circumstances or it is agreed to both by the buyer and the seller.
Unforeseen circumstances could be classified as delays with the buyer’s financing or title issues that may prevent a seller from conveying a “clear title” to the property.
This page is for informational/educational purposes for Ontario transactions only.