The agreement of purchase and sale is a legal document that outlines the terms the buyer and seller agree on to buy/sell the property.
What Does an Agreement of Purchase and Sale Cover
The purchase and sale agreement will include the home’s sale price and information about the buyer, seller, and property being purchased.
The agreement will also cover the deposit being made which is commonly held by the seller’s real estate brokerage. If the offer is conditional on satisfying certain terms, there will also be an exact date and time the offer is open for acceptance. If the conditions are not met and the offer to purchase is not accepted by that time, the offer will become void.
Who Prepares an Agreement of Purchase and Sale in Ontario?
Commonly your realtor will provide a standard Ontario Real Estate Association (OREA) Form 100 that will be sent to the seller and become the agreement of purchase and sale once signed.
This, however, is not drafted by a lawyer and can leave room for error and legal oversights.
It is best practice to have a lawyer draft the agreement of purchase and sale, or, at the very least, have a lawyer review the agreement prior to firming up the deal. Your home is a large investment. Whether it is your forever home or an investment property, there is potential to leave yourself at risk when your agreement is not drafted properly.
Terms of the Agreement
The terms of your agreement outline the conditions that need to be met for the sale or purchase of your home. The conditions are outlined during the offer phase. They can be negotiated by the buyer or the seller, or by their respective real estate agents. Once agreed upon they become part of the contractual obligation to buy or sell the home. If a party to the agreement does not meet a condition, the other party can release themselves from the contract.
Fixtures and Chattels
Fixtures are considered improvements or items in the home that cannot be easily removed or will cause damage if removed. This can include anything from shelving units, hot water heaters, built-in cabinets, or lights. Fixtures are considered part of the sale unless they are stated specifically not to be included in the sale.
Chattels are movable items like a refrigerator, stoves, or gardening equipment. These are generally considered excluded from the purchase price unless stated otherwise in the agreement.
Best practice suggests very clearly outlining the inclusions and exclusions of chattels and fixtures directly within the agreement so there are no misunderstandings or issues on closings.
Conditions
The agreement will cover any purchase conditions that need to be met for the sale to take place. This can include the sale or purchase of another home by the buyer or seller.
Other conditions may include:
- The buyer has a certain amount of days to have a home inspector come assess the property
- Any title issues that are found during the title search that the seller must remedy and fails to do so, then the buyer has the option to release themselves from the agreement.
- The seller may have to complete certain renovations or maintenance on the home prior to closing.
The Difference Between a Firm and Conditional Agreement
There are two different ways to handle an agreement with or without conditions. There is a strategy in the use of a no-condition, firm offer. It is sometimes used in a competitive market. It leaves the buyer open to assuming potential issues with the property on closing but of course, it is enticing for a seller to receive a firm offer.
A conditional agreement includes conditions and a time frame to satisfy those conditions. If the conditions are not met by the seller and/or the buyer, parties have the option to walk away from the agreement.
Title, Closing Arrangements, and Completion Date
There are two important dates that will be included in an agreement.
- The requisition date
- The closing arrangements and completion date
The requisition date is the date the buyer has to examine the title and complete all searches on the property and against the seller(s). The importance of these searches allows for ample time in addressing and obtaining the necessary assurances that any encumbrance, lien or other title issue is rectified before the deal closes. A contract will commonly give the buyer between 15 to 30 days to complete this step.
A lawyer will handle the search and title examination to ensure any red flags are addressed prior to closing.
The closing arrangements and completion date cover the date that the buyer and seller’s lawyers exchange all the completed documents and the necessary registrations are completed. This is when the sale becomes final, i.e. the buyer obtains the keys and legal title to the home, and sale proceeds are released to the seller.
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