In a real estate transaction, the offer to purchase is a crucial step for both the seller and the buyer. However, even after the offer is accepted, there are several reasons why the buyer may cancel and withdraw from the transaction. One such reason could be the results of the pre-purchase inspection.
Under what conditions can the inspection give the buyer the right to back out of the deal? Here’s what you need to know.
The offer to purchase: a legal contract
The offer to purchase is a legal document that outlines a prospective buyer's intention to buy a property and the terms under which they are willing to do so. It includes essential details such as the price, payment terms, purchase conditions, and deadlines.
This step is crucial in any real estate transaction, as it represents a firm commitment from the buyer to purchase the property. Once the offer is accepted by the seller, both parties are legally bound by the contract and must proceed with the transaction according to the agreed terms. For this reason, it is vital to carefully consider all details before submitting an offer.
Although the offer to purchase is legally binding, there are specific situations where it may be possible to renegotiate the terms or even withdraw entirely. One such situation is when an inspection report reveals significant issues with the property.
How do I negotiate after an inspection report?
An offer to purchase often includes a home inspection clause, making the transaction contingent on the results of the pre-purchase inspection.
If the inspection reveals no significant defects, the transaction can proceed as planned. However, should the inspection uncover potentially serious defects, the buyer has the option to modify the offer. Using the inspection report, the buyer can negotiate with the seller to:
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Lower the purchase price to account for the necessary repairs.
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Request a more detailed inspection to clarify specific concerns.
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Require the seller to complete certain repairs before finalizing the sale.
In severe cases, the buyer may also choose to withdraw from the transaction and cancel the offer.
In any case, an inspection report will often highlight minor defects or imperfections, as no property is flawless. These minor issues should not be used as grounds for renegotiation or cancellation of the offer. Only major problems with the property should justify such actions.
Is it possible to cancel an offer to purchase after an inspection?
Yes, it is possible to rescind an offer to purchase after a negative inspection report, provided the offer includes an inspection condition. However, not all issues uncovered during an inspection automatically justify cancellation. The defects must be serious to warrant such action.
To determine whether a defect is significant enough to justify rescinding the offer, the following factors should be considered:
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The age of the property
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Its condition
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The purchase price
Normal wear and tear, such as a roof nearing the end of its lifespan, does not typically justify cancelling the offer. Such issues may warrant renegotiating the purchase price but do not constitute valid grounds for withdrawing completely.
If the inspector uncovers major defects with significant financial implications, such as foundation problems or the presence of hazardous contaminants, the buyer may decide not to proceed with the purchase.
In this case, the buyer must:
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Notify the seller in writing of their decision.
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Provide a copy of the inspection report to support their reasoning.
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Retain proof of the seller's receipt of those documents to prevent misunderstandings.
However, cancellation is not permitted if no significant issues are identified during the inspection or if only minor defects or imperfections are funds.
What is the cancellation period after the home inspection?
An offer to purchase typically outlines deadlines for both the acceptance of the offer and the fulfillment of any conditions, including the inspection clause.
The OACIQ's sample offer to purchase form states that
“Should this inspection reveal the existence of a factor relating to the immovable and liable to significantly reduce the value of thereof, reduce the income generated thereby or increase the expense relating thereto, the buyer shall notify the seller, in writing, and shall give him a copy of the inspection report no later than the 4th day following the expiry of [the period agreed for the inspection], before 8:00 pm.”
If you’re uncertain about the specific deadlines in your situation, consult your real estate agent. They can provide clarity and ensure all actions are taken within the required time frame.
Apart from the inspection, how can you withdraw from an accepted offer to purchase?
While an accepted offer to purchase is legally binding, there are specific circumstances under which a buyer can withdraw. These include:
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If a condition of the offer other than the inspection clause is not fulfilled. For instance, if the buyer fails to secure financing as outlined in a financing clause.
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If the offer includes a clause allowing withdrawal or cancellation under specific circumstances.
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If both the buyer and the seller agree to cancel the transaction.
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In the case of a preliminary contract for a new property, the buyer has a 10-day legal right to withdraw without penalty.
An accepted offer to purchase commits you to buying the property. While certain exceptions allow for cancellation, they are limited and should not be relied upon lightly. Always think carefully before making a commitment to buy.
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