In a real estate transaction, the offer to purchase is an important step for both the seller and the buyer. But did you know that even after the offer has been accepted, there are several reasons why the buyer may cancel the offer and walk away from the transaction? A pre-purchase inspection could be one of them.
Under what circumstances can the inspection allow the buyer to withdraw from the transaction? We will tell you all about it.
The offer to purchase: a legal contract
The offer to purchase is a legal document that expresses a prospective buyer's intention to purchase a property and the terms on which he or she is prepared to do so. It includes the price, payment terms, purchase conditions and deadlines.
This is a crucial stage in any real estate transaction, as it consists of a firm promise to purchase by which the buyer commits to purchasing the property. Once accepted by the seller, both parties are bound by the contract. They must then proceed with the transaction according to the terms set forth, which is why it's so important to think through all the details before submitting the offer to purchase.
Because it is legally binding on both parties, it is difficult to get out of it. However, there are certain circumstances in which it is possible to renegotiate the offer made and, in some cases, to withdraw from it altogether. This could be the case after receiving an alarming inspection report.
How do I negotiate after an inspection report?
The offer to purchase may include a home inspection clause. If so, it means that the buyer's offer is contingent on the pre-purchase inspection and its conclusions.
If the inspection reveals no major problems, the transaction can officially proceed. If, however, the inspector finds potentially serious defects, the buyer can modify his offer. He can present the inspection report to the seller in an attempt to:
- Negotiate the price down;
- Demand a more thorough inspection;
- Demand that certain repairs be made before the sale.
In the most serious cases, the buyer can also withdraw from the transaction and cancel his offer.
In any case, it's important to know that an inspection report will inevitably reveal some minor defects and imperfections. No property is perfect. However, these minor details should not be used to renegotiate the purchase offer and under no circumstances should they allow the buyer to withdraw. Only major issues should be considered.
Photo: Freepik.com (KamranAydinov)
Is it possible to cancel an offer to purchase after an inspection?
It is possible to rescind an offer to purchase after a damning inspection report if the offer to purchase includes an inspection condition. But not every problem discovered automatically entitles the buyer to withdraw! The reasons must be serious.
To determine whether an identified defect is serious enough to entitle the buyer to rescind his offer to purchase, several factors must be taken into consideration, including:
- The age of the property;
- Its condition;
- The purchase price.
In addition, the defect must not be the result of normal wear and tear, such as a roof that has simply reached the end of its useful life and needs to be replaced. This type of defect may justify a negotiation of the purchase price, but not a complete cancellation of the purchase offer.
If the inspector finds major problems that have a significant financial impact, i.e., reduce value or increase expenses, the buyer may decide not to purchase the property in question. For example, a problem with the foundation or the presence of a large number of contaminants.
In this case, the buyer must notify the seller in writing and provide a copy of the inspection report to support the buyer's decision. It is strongly recommended that you keep proof of receipt of the documents by the seller to avoid any possible misunderstandings.
However, as mentioned in the previous point, it is not possible to cancel a purchase offer after inspection if no problematic situations were observed during the visit, or if there are only minor defects.
What is the cancellation period after the home inspection?
An offer to purchase generally specifies the time limits for acceptance of the offer and, if applicable, the fulfillment of all conditions.
Specifically, about the inspection clause and the buyer's right to cancel, 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 not sure, talk to your real estate agent about the deadlines that apply to your situation.
How can I withdraw an accepted purchase offer?
In addition to the inspection clause, other circumstances may allow the buyer to withdraw his or her offer. This could be the case if:
- A condition of purchase other than the inspection clause has not been met (e.g., a clause relating to obtaining financing);
- A withdrawal or cancellation clause has been added to the purchase commitment;
- A decision to this effect has been made by mutual agreement between the buyer and the seller;
- The buyer uses his 10-day right of withdrawal to change his mind, in the case of a preliminary contract for the purchase of a new property.
Finally, remember that an accepted offer to purchase legally binds you to buy the property from the seller. Although certain circumstances may allow you to break this contract, they remain exceptions. So, never promise to buy lightly!
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