An agreement of purchase and sale is an important document used in real estate transactions. It serves as a legally binding agreement between the buyer and seller. In simple terms, it's the offer document the buyer submits when buying a home.
The agreement of purchase and sale outlines the terms and conditions of a real estate transaction. It's the formal offer made by the buyer to the seller. Once the buyer submits the offer, it can only be canceled if both parties mutually agree or if the terms and conditions allow for cancellation.In Ontario, the most common agreement of purchase and sale template used is the OREA Agreement of Purchase and Sale. OREA is the Ontario Real Estate Association, an organization representing real estate agents and brokers in the province and develops the standard Agreement of Purchase and Sale templates that you will find most Real Estate Agents use.
The OREA agreement of purchase and sale forms are licensed by Real Estate agents and boards and are not generally available directly to home buyers and sellers.If you're planning a private sale without a real estate agent, you'll still need an agreement of purchase and sale. In this case, you can seek assistance from a real estate lawyer who can write up the agreement and also offer advice on what needs to be included and addressed. You can also draft your own agreement, but given the complexity and legal consequences associated with purchasing or selling real estate, investing in a real estate lawyer is well worth the money.
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What is included in the Agreement of Purchase and Sale in Ontario
Offer irrevocable date
When making an offer on a property, the agreement specifies the offer's validity period, known as the irrevocable date. The irrevocable date refers to the specific date and time until which an offer made in a real estate transaction remains valid and cannot be withdrawn or revoked by the party who made the offer. In simpler terms, it is the deadline set for the acceptance of the offer. Once the irrevocable date and time pass, the offer becomes null and void unless it has been accepted by the other party before that time. The length of the irrevocable date can vary and is typically determined by the person submitting the offer. It is important to choose an appropriate irrevocable date to allow sufficient time for the other party to consider and respond to the offer, while also considering the urgency of the transaction.
Closing Date
The parties will agree on when they expect the transaction to close. The closing date refers to the date on which the ownership of the property is transferred from the seller to the buyer. It is the day when all the necessary legal and financial processes are completed, and the buyer officially becomes the new owner of the property. The closing date, usually 60 to 90 days after the offer's acceptance, is negotiable between the buyer and seller. While it may be tempting to close on a Friday or the end of the month, we’ve seen many closings get delayed and buyers and sellers get frustrated, so plan accordingly.
Offer Price and Deposit
The offer price represents the amount the buyer is offering to the seller for the property. It can vary based on factors like the property's location and market conditions. The deposit, typically a percentage of the purchase price, is held in trust by the listing real estate agent’s brokerage.
Chattels and Fixtures
Including specific items that are meant to be included with the property in the agreement is crucial. Providing a detailed description of items, such as brand, color, and serial numbers, if possible, ensures clarity. Any excluded fixtures must also be clearly specified.
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Rental Items
If there are commonly rented items in the home, such as a hot water heater or furnace, the agreement should indicate their presence. This information helps buyers understand additional costs and ensures the rental contracts are transferred appropriately. In many cases, a buyer of a property will assume rental contracts unless negotiated with the seller.
HST
For new homes, the agreement clarifies whether the Harmonized Sales Tax (HST) is included in the purchase price or added separately. Buyers should consult the listing or seller to confirm this. HST does not apply to resale homes, and buyers of new homes under $450,000 may be eligible for an HST rebate.
Title Search Date on an agreement of purchase and sale
This date signifies the deadline for the buyer's lawyer to resolve any title-related issues before finalizing the purchase. Your Real Estate Lawyer will perform a title search with the land registry and work with you to ensure that any issues that may come up are addressed. Clearing title issues is crucial for mortgage lenders to release funds.
Offer Conditions on an agreement of purchase and sale
Conditions allow buyers to outline certain requirements before the sale can proceed. Common conditions include financing, home inspections, and the sale of the buyer's current property. Depending on market competitiveness, buyers may need to waive some or all conditions if the seller has an escape clause to consider other offers.
The Bottom Line
Understanding the details of an Agreement of Purchase and Sale is essential for both buyers and sellers in Ontario. By grasping the key components such as offer and closing dates, offer price and deposit, irrevocable date, chattels and fixtures, rental items, HST, title search date, and conditions, individuals can navigate real estate transactions more effectively. Seeking guidance from real estate professionals and legal advisors can provide further clarity and ensure a smooth and successful process.
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