The keys to understanding a promise to purchase a property (as a buyer)
Last modified: 2021/06/18 | Approximate reading time 5 mins
The buying process is divided into several stages, all more important than the others. If you are in the middle of the visiting period, it would be appropriate to discuss the " promise to purchase " topic. Making a promise to purchase commits you to buying the house in question, if all the conditions are met. This document encourages caution and reflection.
To avoid making a costly mistake, it is strongly recommended that you fill out the promise to purchase with a real estate broker or a notary. If you don't, the consequences can be pretty serious and potentially damaging to you. The following article will help you integrate all the important notions in order to understand the promise to purchase that you are about to submit.
What is a promise to purchase?
After several visits and once you have identified the property you are most interested in, you can finally write a promise to purchase. This is a document in which you make a proposal to the seller.
This document usually contains the price you are proposing for the purchase of the house as well as several conditions related to your proposal. The seller will then either accept your promise to purchase, refuse it, or make a counter-proposal to a promise to purchase.
Once accepted and signed, an offer to purchase becomes the "promise to purchase" by which the buyer agrees to purchase the property, according to the conditions mentioned. The seller also agrees to sell the property to the buyer under the same conditions. Neither the buyer nor the seller can withdraw from the sale, unless they agree otherwise.
After signing the promise to purchase, the seller will not accept any further negotiations on your part. The price of the house and all the terms of the offer remain unchanged. If, however, either party wishes to delete, modify, or add certain terms to the Promise to Purchase after it has been signed, it will be possible to do so provided both parties agree. Otherwise, the terms of the contract remain final.
How to prepare a well-written promise to purchase
Your promise to purchase must contain all the information relevant to the real estate transaction. If you use the services of a real estate broker, he or she will prepare the offer to purchase.
If you are looking for a house on your own, it is crucial that you work with a notary to prepare this document in order to avoid certain pitfalls. The promise to purchase is not strictly speaking a sale, but it has very important legal effects. The elements it contains are the following:
- Buyer's and seller's identification ;
- Property description (address, number of rooms, area) ;
- Proposed price for the purchase of the property ;
- Down payment amount (if any) ;
- Sale conditions (you can require that the purchase be conditional on obtaining a mortgage loan, a positive pre-purchase inspection and that the deed of sale be signed before a notary) ;
- Seller's obligations (sell the house in its condition, with or without furnishings) ;
- Buyer's obligation (to apply for a mortgage loan) ;
- Obtaining a recent certificate of location from the seller ;
- A seller's declaration as to the condition of the property and its compliance with municipal by-laws ;
- The name of the notary who will complete the real estate transaction ;
- Possession date (usually 30 to 60 days after the promise to purchase) ;
- Acceptance delay (it is recommended to indicate a date for the acceptance or refusal of the offer by the seller. The usual time frame is between 24 and 72 hours);
- Any other relevant clauses based on your situation ;
- Buyer's signature.
Declined promise to purchase: what happens next?
The seller does not have to accept your promise to purchase. He can refuse it if the price or the relative conditions do not suit him. It is also possible for him to refuse an offer because he no longer wishes to sell, or for other reasons of his own. However, the price is admittedly a large part of the reason for refusing a promise to purchase.
From the seller's point of view, in order to optimize his chances of selling his property quickly and at the best price, it is recommended that he always respond to a promise to purchase, even if he refuses. The seller should clearly explain to the buyer the reason for the refusal. If the reason is the price, the seller can explain that he will not sell the house below a certain amount. If the buyer finds this price reasonable, he will certainly come back to the seller.
As a buyer, you will always try to negotiate the promise to purchase price, which is why it is a good idea for the seller to make a counter-offer to raise the price offered a little more. Even if the seller does not accept the promise to purchase from the outset, these two methods can help you reach an agreement so that everyone wins. This will reduce the seller's chances of losing potential buyers.
What happens when an accepted promise to purchase is not honored?
It is especially important for the buyer to be sure of his choice before making a promise to purchase. Make sure you have done enough visits to establish your choice, because once the promise to purchase is accepted, it will be very difficult to back out.
Of course, the validity of an offer to purchase depends on the conditions attached to it (inspection of the building, obtaining a mortgage, etc). Consequently, the buyer can withdraw from the sale only if one of the conditions is not respected.
Thus, finding another more interesting property, or finally realizing that the price of the property is too high, or even discovering minor defects that can easily be corrected, does not constitute sufficient grounds to cancel the sale.
According to Girard Avocats, "In the case of Lecours v. Rivière Rodriguez, the buyer was ordered to pay damages of more than $200,000 to the seller because he had refused to follow through on a promise to purchase, claiming that he had decided to go back to school and could no longer afford to buy, even though he had obtained the financing required to proceed with the purchase. "
From the seller's point of view, if he finds himself in a similar situation, he must quickly send a formal notice to the buyer, explaining that he does not accept his decision to withdraw from the accepted offer and that he intends to take recourse against him.
Photos: Deposit Photo
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