Last Updated June 23, 2023
What is an Offer to Purchase Real Estate?
An Offer to Purchase Real Estate is a legal document that outlines the terms and conditions under which a buyer is willing to purchase a property from a seller. It serves as a formal proposal and initiates the process of a real estate transaction.
An Offer to Purchase Real Estate is also known as a:
- Real estate offer form
- Home purchase offer letter
- Real estate offer letter
- Offer letter to purchase property
Our template is suitable for both private sales, also known as “for sale by owner,” and when a real estate agent is involved. It works for both residential and commercial sales.
How does an Offer to Purchase Real Estate work?
An Offer to Purchase Real Estate works as follows:
1. Preparation and submission
The buyer prepares and signs the Offer to Purchase.
Once the Offer to Purchase is completed, the buyer submits it to the seller or the seller's representative.
2. Review and negotiation
Upon receiving the offer, the seller reviews its terms and conditions. The seller may:
- Accept the offer
- Issue a counteroffer
- Reject the offer
Counteroffers may involve modifications to the purchase price, deposit amount, closing date, or other terms. Negotiating and issuing counteroffers may continue until both parties reach a mutually acceptable agreement.
3. Acceptance
When the seller agrees to the offer terms, they accept it by signing the Offer to Purchase. Their acceptance creates a binding contract between the buyer and the seller.
4. Fulfillment of conditions
If the offer includes conditions, such as a home inspection or appraisal, the responsible party must satisfy these conditions within the specified timeframe.
Failure to satisfy the conditions may allow either party to withdraw from the contract without any penalties.
5. Closing
Once all the conditions are met, the buyer and seller can complete the closing process. During closing, they sign the necessary legal and financial documents, such as a Real Estate Purchase Agreement, and the property ownership officially transfers from the seller to the buyer.
What is a condition in an Offer to Purchase Real Estate?
A condition, or conditional offer, makes a buyer’s offer contingent on the fulfillment or completion of a certain task. The following are some examples of common conditions:
- Satisfactory home inspection: The buyer must obtain a satisfactory survey on the condition of the property, allowing them to renegotiate if a problem comes up.
- Local bylaw documents: The seller must obtain all documents relating to relevant local bylaws (i.e., laws enacted by local government).
- Proof of marketable title: The seller will provide evidence to the buyer that the title to the property is not subject to any encumbrances by other parties.
- Loan approval: The buyer must obtain a loan to cover the non-deposit portion of the purchase price (e.g., a mortgage).
- Market value appraisal: An appraisal of the property ensures that the buyer doesn't pay more for the property than it’s actually worth.
- Disclosure statement: The seller completes a disclosure form, informing the buyer of any property problems of which the seller is aware.
- Buyer selling their property: The purchase of the seller's property is contingent on the buyer being able to sell their property and close the deal.
- Property is properly zoned: The property must be properly zoned for the buyer’s intended purposes (e.g., the seller must obtain proof that the zoning allows business use).
- Specific property repairs: The seller must complete certain repairs to complete the sale.
- Information certificate: Regarding condos or townhouses, the seller must provide the buyer with this certificate.
If a party doesn't meet a contract condition, you can cancel the Offer to Purchase the seller's property.
How to write an Offer to Purchase Real Estate
Use LawDepot’s Offer to Purchase Real Estate template to draft a quick and comprehensive document. With our template, we’ll prompt you to complete the following steps:
1. Specify the property type and location
Indicate the property type, such as a house, apartment, condo, duplex, townhouse, mobile home, or commercial building. Then, specify the province or territory where the property is located as well as the exact address.
2. Provide the legal land description
You can obtain the legal land description from the Land Registry office or Land Titles office. It may also be found on the land title or in tax assessments.
You may provide the legal land description directly in the Offer to Purchase or attach it separately.
3. Describe the included property features
List and describe any chattels (i.e., moveable personal property like furniture), fixtures (e.g., ceiling lights, ceiling fans, window treatments, etc.), or improvements included in the purchase.
You can describe these features directly in the Offer to Purchase or attach a separate document.
Also, if the buyer is taking over any rental contracts from the seller, list the rental items (e.g., air conditioner, alarm system, etc.).
4. Provide buyer and seller details
Include the full names and addresses of both the buyer and the seller.
5. Outline offer details
Specify the purchase price and whether tax is included. If the property is a new home, the buyer may need to pay GST on the purchase price. If the property is resale residential, it’s likely not subject to GST.
Also, state when the offer will be made.
6. Outline deposit details
Provide the following deposit details:
- Amount
- Payment method (i.e., cash, cheque, bank draft, etc.)
- Due date
- Escrow agent
An escrow agent is a neutral third party who holds the deposit until you finalize the transaction.
7. Pick a closing and possession date
In your Offer to Purchase, specify a closing date. Also, state when the buyer gains possession, which is generally upon closing and funding.
Real estate transactions typically allow some time between the offer and closing dates. This gives you and the seller the opportunity to address conditions, such as securing financing or conducting house inspections.
8. Outline conditions
If your offer is subject to any conditions, outline them and the date on which they must be completed. Refer to the above section for examples of conditions.
9. Set an acceptance deadline
Specify the deadline for the seller to accept the offer. The acceptance deadline date must be set prior to the proposed closing date. Between the acceptance and closing dates, there should be enough time for the seller to view the offer, respond to it, and organize the sale logistics.
Do you need a mortgage before making an Offer to Purchase?
No, in most cases, a buyer obtains a mortgage after making an offer on a piece of real estate. For instance, the buyer might want to negotiate the property's sale price or ensure certain repairs are made before they proceed with financing.
The Offer to Purchase provides a timeline for the buyer to obtain a mortgage or otherwise secure financing before the offer is binding and the sale is closed.
However, a buyer may seek pre-approval for a mortgage so that they don’t make an offer that they cannot afford. In this case, mortgage lenders can identify the maximum amount that you qualify for.
Is a signed Offer to Purchase legally binding?
Yes. When the seller agrees to and signs an Offer to Purchase Real Estate, their acceptance creates a binding contract with the buyer. This means that, after accepting, sellers can't back out just because they received a better offer.
However, if the Offer to Purchase includes conditions that aren’t satisfied, then the parties may be able to break the contract without issue. Similarly, the parties may be able to terminate the Offer to Purchase if it includes provisions that allow either party to terminate the sale.
Generally, a Real Estate Purchase Agreement must also be signed between the seller and buyer.
