An agreement of purchase and sale acts as a legally binding written agreement that is used between both the buyer and seller in a real estate transaction. In simplified terms, it is the offer document that the buyer submits to the seller when purchasing a home. The process starts when a buyer writes out an original offer of purchase, then submits the offer to the seller. If the seller accepts, the agreement can only be canceled through a mutual decision from both parties to cancel it, or if the terms and conditions of the agreement allow it.
In Ontario, the most common version of an agreement of purchase and sale is the OREA Agreement of Purchase and Sale document. OREA is short for Ontario Real Estate Association, which acts as a professional organization to represent real estate agents and brokers within Ontario. OREA’s agreement of purchase and sale is even used in markets that have their own real estate boards, such as Toronto’s housing market. The Toronto Real Estate Board (TREB) doesn’t have its own TREB agreement of purchase and sale document, rather it uses the OREA document.
For those who are planning on pursuing a private sale, you will still need to submit some form of an agreement of purchase and sale document. Considering it likely won't be a real estate agent filling out the form, if you are selling privately the process can be done yourself or through your real estate lawyer. The major issue of filling out the form yourself is that it can be confusing and tough to follow for someone who hasn't done the proper background research.
Considering an agreement of purchase & sale is a binding contract to purchase a home, there is plenty of information to fill out. The most important sections include:
The offer is valid from when the agreement is dated, until the irrevocable date. In terms of the closing date, it usually occurs 60 to 90 days after the offer is accepted, however this can be negotiated.
The offer price is the amount the buyer is offering to the seller for the property. Prices can vary depending on the property, location and how competitive the market is. The deposit amount usually is between 2% and 5% of the purchase price, and is kept in trust by the listing real estate agent.
This part outlines how long the offer will be valid until. Usually the irrevocable date is set for the offer to expire 1 or 2 days after its submitted, however this choice is up to the person submitting the offer. By having too close of an irrevocable date in your offer, it may lead to the offer expiring before it can be accepted. On the contrary, if you have an irrevocable date too far in the future, it can make you potentially miss out on another property, with this legally binding offer still outstanding.
Making sure to include items that are meant to come with the property in your agreement of purchase and sale is important. Without specifying these items, you risk not getting them considering that your agreement is legally binding. You will want to include a detailed description of items, such as the brand and colour, as well as serial numbers if possible. Fixtures that are excluded will also need to be specified. The property listing usually includes items that come with the house upon close, however this is not always the case. If you are unable to find this information at the time of drafting up the agreement, getting in touch with the seller or their agent is important before submitting this section blank. Items commonly included in a purchase are:
This may include commonly rented equipment in the home, such as a hot water heater, a furnace or solar panels. For those submitting offers, this information is usually outlined in the listing, and is useful for the buyer to understand the additional costs that come with the home, as the rental contracts will be signed over to the buyer.
In the event of the purchase of a new home, you will be required to pay the HST. This section of the agreement is to either indicate the taxes are included in the purchase price, or that they are owed in-addition to the purchase price. The listing and the seller will be able to clarify this if you are unsure. In Ontario, the HST rate is 13%. For those buying a resale home, HST will not apply. Also for those buying a new home under $450,000, they may be eligible for an HST rebate on the federal government portion of the HST, for up to $6300.
This is the last date that the buyer's lawyer is able to get the seller to clear up any issues that may have arisen with the property’s title document. Considering that mortgage lenders will require there being no issues with the title before lending any funds, this is an important date.
Under this section, buyers are able to put in conditions regarding what needs to happen before the sale can go through. The most common conditions are:
Depending on how competitive the market you are looking in is, you may need to drop some or all conditions. If your offer is accepted conditionally and the seller has something called an escape clause, the seller is able to look at other offers for the property. This means that if the seller finds another offer, the buyer will need to either waive their conditions to make their offer firm, or risk losing the house to another buyer. Read about more such real estate terms that you may come across when buying or selling a property.