What to Expect When Buying
1. Obtain a Mortgage Pre-Approval Letter from a Mortgage Broker/Lender
If the buyer is planning to obtain a mortgage to finance their purchase, they need to consult with a reputable lender before even looking at properties. It is important for the buyer to know how much they can afford to help narrow their focus and save them time in the long run. A pre-approval is a “preliminary” approval letter provided from a lender once a thorough analysis of their income and expenses is conducted and the buyer submits all required documentation. This letter can be quite helpful at the time of offer to provide assurance to the seller that they are financially qualified to purchase the home.
2. Submit an Offer to Purchase
The buyer’s agent prepares the Agreement of Purchase and Sale, which outlines the main terms the buyer is offering to the seller to purchase their property. This includes price, deposit amount, closing date and conditions with due dates. The offer is submitted electronically from the buyer’s agent to the seller’s agent. The seller will either accept, reject, or counter offer. Once both parties come to an agreement, the offer is fully signed and executed. Acceptance must be communicated to make it a legally binding and enforceable agreement. Delivery of the deposit occurs at this time, or as specified in the Agreement.
Possible scenario: Multiple Offers
A multiple offer situation occurs when a seller receives two or more simultaneous written Offers to Purchase on their property. If the seller’s agent knows that several offers are forthcoming, an “offer deadline” is typically set- meaning all offers must be submitted by a particular date and time. Once the seller has reviewed all offers typically they will: accept the offer with the best price and terms, select one of the offers and negotiate in order to come to an agreement, or ask for a “highest and best” from all the bidders to see if any buyer will “sweeten” their offer. In most cases the seller accepts one of the offers without negotiation so it is important for a buyer to make their best offer at the time of the offer deadline.
3. Amounts & Dates of the Deposit
The deposit is due at the time the Agreement of Purchase and Sale is fully signed and accepted and is typically 1-2% of purchase price or more. The buyer’s agent may include a copy of the cheque when the offer is submitted electronically. The deposit will need to be delivered to the listing brokerage, in the agreed upon manner, once the offer is executed by both parties. The deposit is typically held in the Listing Brokerage’s trust account, so the cheque should be made payable to the Listing Brokerage, unless otherwise specified. If a buyer is unable to meet or fulfill a condition as outlined in the offers a mutually agreeable release must be executed by all parties before any funds can be released.
4. Offer to Purchase Accepted
An offer is considered ‘accepted’ once the buyer and seller come to an agreement, both parties sign the offer, and acceptance is conveyed. This creates binding and enforceable obligations of the buyer and seller.
5. Schedule Your Home Inspection(s)
The deadline for inspection(s) and type(s) of inspection(s) is/are outlined in the Agreement of Purchase and Sale and is typically within 7-10 days of offer acceptance. The inspection(s) should be scheduled immediately to have enough time to conduct and review the inspection(s) results.
6. Hire a REAL ESTATE Attorney
It is critical for the buyer to hire a real estate attorney when purchasing a property, one whose primary focus is on real estate conveyance and will protect the buyer’s best interest every step of the way. A real estate attorney will prepare all legal documents for closing, ensure there aren’t any liens, easements or covenants on the property, and make sure the property has clear title. They are well versed in current real estate contract language.
7. Conduct the Home Inspection(s)
If the home inspection reveals any unknown or undisclosed material problems, the buyer may attempt to renegotiate their offer terms or back out of the sale based on the results of the inspection. Typically negotiation only occurs on major defects. If parties are unable to come to an agreement, buyers are entitled to the return of their deposit once a mutual release and termination of agreement have been signed by both parties.
8. Continue Mortgage Application Process
The mortgage application process starts when the buyer applies for pre-approval and the lender does an initial evaluation of the borrower’s buying power. Now that an offer has been accepted and all conditions and terms are fulfilled and/or agreed upon all of the appropriate documents will be conveyed to the lender for final mortgage commitment. At this point in time the lender may request further financial documents and information for a clear and accurate analysis of the buyer’s commitment and approval. It is without question in the buyer’s best interest to provide timely and accurate information to the lender.
9. Lender Orders Appraisal
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 appraiser is an unbiased 3rd party and 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. Buyers/sellers/agents/lenders have no control over the amount of the appraisal outcome. The appraiser has specific guidelines to adhere to in order to determine the appraised value. If the appraisal were to come in low, there are options that depend on the circumstances and the mortgage agent will explain them.
10. Schedule & Conduct Final-Walk-Through of Property
Before the buyer closes on a property, a final walk-through term is often included in the APS, this is often scheduled in the week before the closing date. The goal is to ensure that the property’s condition hasn’t changed since the buyer’s last visit, any agreed upon repairs have been made and the agreed upon terms of the contract have been met.
11. Time To Close
The closing date is the date on which the deed is executed and transferred to the buyers, and buyers officially take ownership. The specific time of the closing is usually scheduled between the buyer’s attorney and the buyer. The date itself is usually a firm date that is not easily changed. Sometimes mortgage delays from the buyer or title delays from the seller can cause a closing to be delayed. If a delay does occur, an extension may be granted and both parties would have to agree to a new date. The property does not officially transfer to the buyer until funds have been dispersed and the property goes on record at the Registry of Deeds.