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Offer to Purchase Highlights.
The offer to purchase contract used in Alberta is a document with protection for both the buyers and sellers.
The form was developed by the Alberta Real Estate Association for the use of its members. The following is a breakdown of each section and what it means to buyers and sellers.
- Parties to the Contract
The top of the first page is for designating the parties to the contract, the buyer and the seller. - Section 1. The Property. This section spells out where the property is located by its street address and legal description. It also spells out what unattached goods, ie: refrigerators, stoves, window coverings are included or excluded. The inclusions and exclusions are a negotiable part of the contract and offers to purchase can fall apart at this point. This section also provides that the title on the property "will be free and clear of all encumberances, registrations and obligations", such as mortgages and liens.
- Section 2. The Transaction. This section calls on the parties to act fairly and in good faith and spells out the monetary aspects of the deal including:
Initial deposit, the cheque that needs to accompany the offer, which is deposited to the listing real estate offices trust fund and is included in the total purchase price.
Additional Deposits. Further deposit money may be requested upon the removal of conditions. The initial and additional deposits are sometimes interpreted as being indicative of how serious a purchaser is about the property. Later sections of the contract spell out that the deposit is forfeit should a buyer back out after the conditions are firmed up and a larger deposit is thought to be a deterent to such a move.
Assumption of Mortgage. In Alberta the mortgage amount on a property can be assumed by anyone with the funds to do so. This spells out what the approximate principal balance is and how much money will be required to take it over. Eg. A house with a purchase price of $200,000. and a mortgage amount of $180,000. would require the buyer provide $20,000. cash to take over the mortgage.
New Financing. This is the mortgage amount that will be provided by a lender to the purchaser and is this amount is also used as a condition later in the contract.
Seller Financing. Sometimes the seller may act as a private lender in order to get the home sold. This is most often used to reduce the amount of money necessary to assume an existing mortgage.
Other Value. This is for anything else that might be used as a monetary tool to reduce the money someone has to put into buying a home. An example would be a speed boat worth $40,000..
Balance Owing. When all is said and done, this is the amount of cash being brought into the deal. If you are buying a $200,000. home for 5% down and had an initial deposit of $5,000. this amount would be $5,000..
Purchase Price. This is the amount you will be paying for this home, arrived at after negotiation with the seller.
- Section 3. Deposits. This section indicates what is to be done with the deposit amounts. All deposits are held in trust by the listing real estate company until possession and then are used to pay out commissions and any excess amounts are sent to the sellers lawyer. Real estate companies must deposit this amount to their trust funds within two business days following acceptance of the offer. Unless otherwise agreed to in writing no interest is paid out to either buyer or seller
The deposits are returned to the buyer if conditions are not waived, but once the conditions are waived and the sale is firm the deposit amounts are assigned to the seller as compensation should the buyer not proceed with the purchase.
This section also spells out what actions should be taken if the deposits fall into dispute.
- Section 4. Closing. This section could also be known as possession details. First up is the actual day that the buyer will take over ownership of the property. This is also one of the common negotiation points beyond the obvious of price. Considerations for a possession date include whether you are renting or selling your current home, whether the home is owner or tenant occupied and matching move in dates with particular days of the week. Section 4 also clearly spells out details of possession including the provision of clear title by the seller, duties for lawyers and the timing and necessity for the seller to provide a real property report for the property (see Section 6)
- Section 5. Insurance. This single paragraph section dictates that the seller is responsible for the risk of loss or any damages to the property up until the purchase price for the home has been paid out.
- Section 6. Warranties and Representations. This section basically requires the seller to ensure that the property and all items included with the purchase are theirs to sell and that the home and all out buildings conform to existing city requirements. The seller is to provide a real property report, as detailed in section 4, indicating the location of the home and outbuildings on the property and that all locations conform to applicable city bylaws. If there are any problems, ie. a retaining wall or fence on city property the seller would be responsible for getting a relaxation from the city to cover these matters. This section provides that any action related to any warranty or representation in this contract must be started within the period of time as dictated by the Alberta Limitations Act.
- Section 7. Additional terms. The additional terms of the contract set out further guidelines for the contract. Included are time definitions, binding parties, changes to the parties in the contract, and enforcement of portions of the contract that may survive beyond the completion date. If a financing schedule for a mortgage assumption or a property schedule for a condominium are required for the contract this is indicated here as well. There is also a provision for additional terms such as a seller replacing a fence or painting the property prior to possession.
- Section 8. Conditions. The conditions are requirements that must be met successfully for the sale to firm up. When a condition is successfully completed, it must be waived by providing notice to the other party. Conditions formally spelled out here include the buyer applying for and being approved for new financing and the details of the financing, the buyers approval of a property inspection, the buyers approval of all condominium documents as per the property schedule, and if the buyer needs to sell their current property to purchase the new one. The buyer and seller can right in additional conditions as well. Here the buyer would want to include approval of an property disclosure statement or examination of title and the seller could put in a condition of qualifying a potential purchaser if a mortgage was being assumed. Each condition spells out a date and time at which they must be waived and if they are not waived then the contract will be ended, preferably using a release form.
- Section 9. Remedies and disputes. This section spells out what the seller or buyer may do if either party does not live up to the terms of the contract, including legal action and costs.
- Section 10. Advise/Disclosure. This Section is so important all parts of it are in a bold font. It reads:
10.1 This Contract is intended to create binding legal obligations. The Seller and the Buyer should read this Contract carefully and are encouraged to obtain legal advice before signing.
10.2 The Buyer may wish to obtain an independent property inspection and verify the measurements of the Property.
10.3 Unless there is a dual agency or another written agreement, the Seller's brokerage represents the Seller as Seller's Agent and does not have a fiduciary relationship with the Buyer, and the Buyer's brokerage represents the Buyer as the Buyer's Agent and does not have a fiduciary relationship with the Seller.
10.4 The Seller and the Seller's brokerage have signed a Listing Contract. The Seller directs the Seller's lawyer to honour the terms of the Listing Contract and in particular to close the transaction according to the irrevocable assignment of the Purchase Price contained in the Listing Contract.
10.5 The Buyer and Seller agree that the sale and other related information regarding this transaction may be retained and disclosed by the brokerage and/or the real estate board(s) as required for closing and for reporting, appraisal and statistical purposes.
10.6 This Contract may be signed and sent by fax and this procedure will be as effective as signing and delivering an original copy. - Section 11. Definitions. Provides clear definitions of words and phrases used in the contract.
- Section 12. Representatives/Notice. All contact information for both parties and their real estate representatives are placed here. This section also provides authority for the Representatives to send and receive notices(waivers).
- Section 13. Offer. This section states that an offer is being made on the subject Property and provides a timeline for response. This is also where the Buyer signs the offer.
- Section 14. Acceptance. This is where the Seller signs the contract. The seller may make changes to the contract, sign it and send it back to the buyer as a counter offer or accept the original offer as presented.
- Section 15. Final Acceptance. If the seller accepts the original offer to purchase they sign here, bringing the Contract into force. If there is any negotiating of the contract, the party that agrees to the final changes would initial their acceptance here.
- Conveyancing. The names and contact information for the lawyers for each party are placed here.
The offer to purchase is a detailed document developed over time and revised periodically to make sure all parties to a real estate transaction are protected. After the Contract has been finalized, the seller and the buyer need to get busy on any conditions they may have included to ensure the Contract is firmed up in the stipulated time periods.
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This page last updated January 11, 2007 |
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