Offers to Sellers

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Drafting of Offers

Once you have found the property you are interested in, a written offer to purchase must be prepared. An offer is usually recorded on a standard form entitled Contract of Purchase and Sale. You and your real estate licensee will go through the contract line by line and ensure that all the terms added to contract reflect your intentions. They will also ensure that you understand the contract before you sign it.

When your real estate licensee prepares an offer, it will contain some standard information like your name and address, and will also include any terms and conditions which are important to you such as the requirement that you get financing approval. Be fully aware that once you sign this document and the seller also signs it, a legally binding contract has been formed. Legally binding means both you and the seller will be bound by the terms of the contract and must each perform your respective obligations as stated within that contract. Either of you can go to court to compel the other to perform their part of the contract. Even if a contract contains subject clauses, it is legally binding as soon as both the buyer and the seller have signed the contract.

Home Buyer Rescission Period

The specifics of the Home Buyer Rescission Period are set out in the Property Law Act (“PLA”) and the Home Buyer Rescission Period (“HBRP”) Regulation.

The legislation comes into effect on January 3, 2023, and provides buyers with an opportunity to rescind their offer to purchase residential properties up to three days after an offer is accepted. If a buyer chooses to rescind their offer in the time period provided, they must pay the seller 0.25% of the offer price. This rescission period applies to residential transactions of residential real property regardless of whether a real estate licensee is involved in the transaction and cannot be waived by the buyer or seller.

The types of residential real property that are subject to the legislative are as follows:

  1. A detached house;
  2. a semi-detached house;
  3. a townhouse;
  4. an apartment in a duplex or other multi-unit dwelling;
  5. a residential strata lot, as defined in section 1(1) of the Strata Property Act;
  6. a manufactured home that is affixed to land; and
  7. a cooperative interest, as defined in section 1 of the Real Estate Development Marketing Act, that includes a right of use or occupation of a dwelling.

The following types of properties are excluded from the legislation and the rescission period does not apply:

  1. residential real property that is located on leased land;
  2. a leasehold interest in residential real property;
  3. residential real property that is sold at auction; and
  4. residential real property that is sold under a court order or the supervision of a court.

An exemption also exists for any purchase and sale of property under the Real Estate Development and Marketing Act where section 21 applies.

Learn More about the Home Buyer Rescission Period

Subject Clauses

The purpose of a subject clause (also known as a condition precedent) contained in an offer to purchase is to set out a specific condition which must be fulfilled before the sale can go through, although the contract is legally binding once it is signed by both parties. Subject clauses must be carefully and precisely worded. You would be wise to get professional help in composing them, however, it is ultimately your responsibility to be sure the clauses mean what you want them to mean.

There can be as many subject clauses as you are able to negotiate with the seller; however, the fewer you put into an offer, the more serious you seem as a buyer and the better the chance is that your offer will be accepted. Remember that you are, in effect, asking the seller to take the home off the market during the period while you are attempting to fulfill the conditions you have set.

Some possible items you might wish your purchase to be “subject” to include:

  • a satisfactory professional building inspection;
  • the arrangement of the financing you require;
  • the lender’s approval of your application to assume the seller’s existing mortgage;
  • the sale of your present home; or
  • if the home is a strata lot, a satisfactory review of all relevant strata documentation, including engineer’s reports and/or building inspection reports, if any.

When you place “subject” clauses on your offer to purchase, you are required to use every reasonable effort to see that the conditions are satisfied. It is important to know that subject clauses are not “escape” clauses that allow you to avoid your legal responsibilities in the contract. Once you have fulfilled the conditions, written notification should be given to the seller that you are removing the subject clauses.

If you are unable to meet the conditions after making every reasonable effort to do so, the contract ends and there is no legal obligation to complete the purchase. It is important to remember that if the brokerage is holding your deposit, both you and the seller must sign a deposit release form prior to the deposit being released to you.

If you exercise your right to rescission, and the brokerage is holding a deposit, the rescission fee will be paid directly to the seller with the remainder of the deposit going back to you. No deposit release is required in that situation.

A seller may wish to accept your offer containing subject clauses, yet still be free to consider other offers until you have removed the conditions. The seller may ask for a clause in the agreement which requires you to remove all subject conditions within a specified time period if the seller receives another attractive offer. If you cannot do so, your conditional contract comes to an end.

Sellers’ Options in Dealing with Offers

When the seller receives your “offer to purchase,” they have four options.

  • Accept your Offer

    If the seller signs your offer without making any changes, a legally binding contract has been formed. Again, legally binding means both you and the seller will be bound by the terms of the contract (subject to the rescission period) and must each perform your respective obligations as stated. Your performance can be enforced in a court of law.

  • Reject the Offer

    The seller is under no obligation to accept your offer or to make a counter-offer. If they do not have a reasonable expectation that you can come to an agreement on the terms of your offer, they may just advise you that they will not be responding to you offer.

  • Ignore your Offer

    Should the seller feel that there is no reasonable way they will be able to come to an agreement with you, they may choose to just ignore your offer instead of advising you that they have rejected it. Your offer will have a deadline for the sellers to respond by. If the deadline passes, it is as if they have rejected your offer. Should you or the seller wish to revive the negotiations after that time has passed, a new offer must be drafted.

  • Make a Counter-Offer

    If the seller changes anything at all on your original offer, the seller is considered to have rejected your offer and to be making a new offer back to you. This new offer is usually referred to as a “counter-offer.” When you receive a counter-offer, you then have the same three options as the seller had: accept, reject, or make a further counter-offer. The process of counter-offers may continue until an agreement is reached. If the counter-offer is unacceptable to you or if you have changed your mind about the purchase, the seller does not have the option of returning to your original offer and accepting it.

Multiple Offers

Multiple offers can occur when there are several buyers interested in purchasing the same property. In essence, multiple offers are a competition between those buyers to have the home’s seller accept their offer over other buyers. Multiple offer situations typically occur in very active real estate markets (where there are more buyers than properties), or when a highly desirable property is listed for sale.

Buyers competing in multiple-offer situations often look for ways to make their offer more appealing to the seller. Some buyers may choose to put in a subject-free offer to make it more appealing, but that comes with several risks. Before you make an offer, carefully consider the risks you can encounter in a multiple-offer situation and discuss them with your real estate licensee.

When a seller receives multiple offers, they do not need to go back to each potential buyer and let them know what the other offers are for. They may just choose the offer they consider to be the best offer and reject your offer with no chance for you to improve it.

Sellers also do not have to disclose the fact that there are other offers competing against yours. It is always a good idea to have your real estate licensee ask the seller, or the seller’s agent, whether or not an offer you want to submit will be in competition with offers from other buyers. A seller is not permitted to lie. They can only answer truthfully, or advise you that they do not want to share that information with you. You can then use that information to determine how you may want to proceed.

Disclosure to Certain Clients of Right of Rescission

At the time you write an offer, you will also be receiving a disclosure of your right of rescission. The disclosure can be made in the contract of purchase and sale or on a separate form. This disclosure will include the following information:

  • the fact that the right cannot be waived by either party;
  • the period during which the right of rescission can be exercised;
  • the calculation of the dollar amount that you must pay the seller and how the amount will be paid;
  • the requirement to return any remaining deposit funds to you; and
  • the exemptions to your right of rescission.