Seller’s Guide – Step 5

The Selling Process

Once an interested buyer has been found, a written offer to purchase your property will be prepared. This offer is usually recorded on a standard form entitled Contract of Purchase and Sale.

Your licensee will explain to you the process of receiving and reviewing offers. Do not be surprised if you are presented with offers which differ dramatically from your listed asking price; your licensee is under an obligation to bring all written offers to you for your consideration. If several offers are brought to you at once, you are under no obligation to accept any one offer over another.

What should the offer contain?

All offers to purchase your property will contain a number of important details which you must consider.  The offer should include:

  • date of the offer
  • full legal names and addresses of both the buyer and the seller
  • full legal description of the property
  • amount of the deposit
  • sale price
  • amount of the cash down-payment and details as to how the remainder of the purchase price will be financed
  • date for completion of the sale
  • date for possession of the property
  • a list of the conditions which must be fulfilled before the sale can take place (normally called subject clauses or conditions precedent)
  • a list of items which are not attached to the building (normally called chattels) but which are to be included in the sale price; for example, drapes, refrigerator, stove, etc.
  • date and time at which the offer expires
  • the signature of the buyer and his or her occupation.

What are your options?

When you receive one or more offers to purchase your home, it is in your own best interest to give considerable time and attention to reviewing each offer carefully. Your licensee will assist you to understand the terms and conditions contained in the offer, and will provide you with any advice you request, but ultimately the decision is yours.

Before you decide, you may wish to have your licensee prepare a revised estimate of the net cash proceeds you will receive on completion of the sale, based on the sale price and financing arrangements stated in the offer.

You have three options:

1. Accept an offer exactly as it stands: If you decide that you would like to accept an offer, be sure you know the precise meaning of each term in the written offer before you sign the document.

Once you, the seller, sign a Contract of Purchase and Sale agreeing to its terms, and your acceptance has been conveyed to the buyer, it becomes a legally binding contract.

Legally binding means both you and the buyer will be bound by the terms of the contract and must perform your respective obligations as stated. Your performance can be enforced in a court of law.

If you are uncertain about any of the clauses contained in the offer, you may wish to consult a lawyer before signing the contract; however, keep the expiry date of the offer in mind if you decide to postpone acceptance!

2. Make a counter-offer: If you change anything at all in the original offer, you are considered to have rejected that offer and to be making a new offer from you to the buyer. This new offer is usually referred to as a “counter-offer.” The risk in making a counter-offer is that if the buyer has changed his or her mind and rejects the counter-offer, you do not have the option to return to the original offer and accept it.

But, the buyer may decide to make another counter-offer back to you and the process of counter-offers could continue until an agreement is reached.

If, after making a written counter-offer, you decide you don’t want to sell the property, it may be possible to revoke the counter-offer. Many legal problems can result from the revocation of a counter-offer, so you should seek professional advice about the correct procedure to follow.

3. Reject the offer: You are under no obligation to accept any offer or to make a counter-offer. If, however, you reject an offer which exactly meets all the terms you agreed to in the Listing Contract which you signed with your listing brokerage, you could be/are legally obligated to pay the commission.

More about “Subject” Clauses

The purpose of a subject clause contained in an offer to purchase is to set out a specific condition that must be fulfilled before the sale can go through.

One common subject clause you might encounter is one in which the buyers make the sale conditional upon their finding the exact amount and type of financing which will enable them to purchase your home.

Another common clause is one in which the buyers make the purchase conditional upon a satisfactory property inspection.

Remember that, if you accept an offer which contains a subject clause, you are effectively taking your property off the market for the period in which the buyers are attempting to meet the condition they have set. Therefore, you should ensure that an agreed upon time for the condition to be met is specified in the offer to purchase.

If one of the conditions contained in a subject clause cannot be met after every reasonable effort has been made to do so, the contract ends and there is no legal obligation to complete the purchase or sale.

As a seller, you may wish to accept an offer containing a subject clause (e.g. subject to the buyers selling their own house) yet still leaves yourself free to consider other offers, just in case the buyers are unable to remove the condition.

You can do this by having the buyer agree to inserting a time clause in the contract. A time clause will permit you to require the buyer to remove all subject conditions within a short, specified time period if you receive another offer that you would like to accept. If the buyer does not remove the conditions within that time, the conditional contract comes to an end and you are free to accept the second offer.

Financing. . . from the seller’s perspective

An offer to purchase will contain information about how the buyer intends to finance his or her purchase.

Existing Financing

If you currently have a mortgage loan on your home, you may be faced with one of two situations:

1. The buyer wants to pay cash and has no mortgage: This situation will require you to pay out your existing mortgage and there will probably be an interest penalty for doing this. Remember that having to pay an interest penalty effectively reduces the price you will be receiving for your home.

2. The buyer offers to assume, or take over, your remaining mortgage loan: In this situation, before agreeing to allow the buyer to assume your mortgage loan, you should ensure that your mortgage lender will release you from any future obligation to repay the monies owing (if the buyer defaults).

Contact the financial institution which holds your mortgage to obtain information about your position in each of the above situations. It is a good idea to do this well in advance of signing a Listing Agreement so you will be able to give your licensee accurate information.

Financing by the seller

If you have no existing mortgage, an offer to pay all cash is ideal and, of course, would be your preference.

But the buyer’s offer might state that part of the purchase price is to be paid in cash and part is to be paid in payments over a specified period of time at a specified interest rate. In effect, the buyer would be asking you to become the lender.

When you are considering an offer containing a request for “seller financing” (sometimes referred to as a seller take-back mortgage), think about whether or not you want the responsibility of collecting payments over an extended period of time. If you do feel comfortable with such an arrangement, be sure that you verify the buyer’s source of income and credit history before making a decision. Ask your licensee or a financial counsellor to fully explain the financial significance and the possible consequences of the terms offered.

Seller Beware!

If it is possible, as some individuals suggest, for many people to quickly become very wealthy by dealing in real estate, then unfortunately, other people on the opposite side of the same transactions must, just as quickly, lose some of what they have invested. Usually those who stand to lose are sellers who agree to be a party to buyers’ unorthodox financing arrangement in which the sellers assume risks.

Essentially, there is nothing wrong with most innovative or creative financing if all parties are fully aware of the potential risks and fully understand the possible consequences of such risks. However, the fact is that many owners (sellers) are not aware of the potential disasters which may occur.

It is strongly recommended that you secure competent advice from a real estate licensee or legal counsel before finalizing any real estate contract. This recommendation is much more urgent when the offer you are considering includes terms which could jeopardize you financially.

Be wary of offers which require any of the following:

  • no cash paid as a down-payment
  • an amount of cash being returned to the buyer
  • your equity participation
  • a promissory note without a registered mortgage
  • an agreement to withhold registering a mortgage
  • the seller (you) to secure a new loan before closing
  • terms said to be included, but which are not written in the offer
  • concealing information from a lending institution

Completing the Sale

The Contract of Purchase and Sale, which you signed, will state the completion day for the transaction. On that day, legal ownership will transfer from you to the new owner in exchange for the purchase price of the property.

Do you need a lawyer or notary public to complete the sale?

While it is the normal practice for the buyer’s lawyer or notary to prepare the documents necessary to transfer the legal ownership, it is recommended that you, as the seller, engage legal counsel to act solely on your behalf. Among other things, he or she will protect your interests by:

  • checking the documents prepared by the buyer’s lawyer and explaining them to you
  • ensuring that your old mortgage has been properly discharged, if this is required
  • ensuring that you have no further obligation regarding your old mortgage if it is being assumed by the buyer
  • confirming that all payments for which you are responsible have been made
  • arranging for you to sign the transfer documents
  • preparing a statement for you outlining where all the purchase money was disbursed and giving you a cheque for the balance.

What costs can you expect?

  • the commission you agreed to pay your brokerage
  • the legal fees to discharge any existing mortgage whether or not you engage your own lawyer
  • the HST on the real estate commission and on your legal fees
  • any prepayment penalty levied by the financial institution for early pay-out of an existing mortgage
  • your share of the property taxes for the year if the current year’s taxes have not yet been paid, plus any penalties due for late payment of unpaid taxes

The day has arrived! You have signed the documents, packed your boxes, received your cheque and turned over your keys.

Your home is sold! Congratulations!

Lets get started today