So, you’re finally ready to take the plunge and put an offer in on your dream home or future rental property. In addition to the usual madness that unfolds throughout your day, you now have to turn your mind to putting an offer in a home.
The simple, less complex solution to the madness is to speak to your real estate lawyer and/or realtor.
With Ottawa’s booming real estate market, it is getting more and more difficult to purchase a home. However, below are some examples as to why you should make your offer to purchase conditional.
1) Conditional on Lawyer Review – General:
This type of condition may seem rather trivial but having a lawyer review an offer to purchase can be vital. The reality is that most residential agreements of purchase and sale are not conditional on their lawyer’s review. Say for instance that you wanted to put an offer in on an older property. You put the offer in and now have a firm agreement signed back from the sellers. You are excited because you have plans to build a luxury pool. However, prior to closing, you find out from your lawyer that the property has a restriction on pools and your dream pool will remain nothing more than a dream. If you had your lawyer review the agreement ahead of time, he or she would have been able to look at title to the property and see if there were any restrictions on your intended use of the property.
2) Conditional on Lawyer Review of Status Certificate:
For condominiums, this is a must. A status certificate is a document prepared by the condominium corporation and is essentially a snapshot of the condominium. For instance, a status certificate informs you of any lawsuits, building deficiencies, large increases in common expenses and if the current owner is in default of their monthly common expenses. In a hot real estate market, buyers are reluctant to make agreements conditional. However, sometimes this can come back to burn them. Also, as a side note, most mortgage lenders require a copy of the status certificate as a condition of the mortgage. All of this being said, let’s say that you purchased a property with no conditions attached – you now have a firm agreement of Purchase and Sale. Prior to closing, you order the status certificate and it turns out there is a deficiency in the building and the condominium does not have adequate funds in their reserve fund to cover the cost of the repairs. It turns out that the condominium corporation will need to levy a special assessment against all unit owners in order to cover the cost. The cost of the special assessment is $15,000.00 per unit and you must pay this amount by within a few months after closing. If you would have made the agreement conditional on the lawyer’s review of the status certificate, the lawyer may have uncovered that there were major deficiencies and that the condominium corporation was levying a special assessment.
3) Conditional on Inspection;
I know, I know…I am starting to sound like a broken record but this one is very important. If you purchased a property that wasn’t conditional on an inspection, especially an older home, you may have an uphill battle ahead of you. For example, if you purchased a property with no conditions, you move in to only discover that the basement is riddled with black mould and that the home is uninhabitable. If the seller knew of this and knowingly hid the mould from you, that’s one thing and you may have some legal recourse. However, if the mould was not so apparent to a lay person, including the sellers, and could have been discovered by a qualified inspector, the cost to remediate the mould could have been deducted from the purchase price, or the seller could have been compelled to remediate the mould prior to closing.
4) Conditional on Finance;
I promise this is the last time I say this, but this condition is imperative, especially when you are banking on getting a mortgage/line of credit to close your transaction. Often, buyers want to be sure that they have a firm mortgage approval from a mortgage lender before firming up their agreement. Let’s say you put an unconditional offer in on a property. You previously purchased a property and are confident that since the bank approved you then, they should have no problem doing the same now. However, when the bank goes to do their appraisal of the property, they notice that there are major foundational deficiencies and refuse to grant you a mortgage. Like most people in this world, coming up with hundreds of thousands of dollars in a short period of time is near impossible. In short, if the agreement was conditional on financing approval, the bank may have been able to appraise the property ahead of time, so that there were no surprises prior to closing.
Often times, it is not feasible to make an agreement conditional on the fulfillment or satisfaction of all conditions. This may be because there are multiple offers and you want to have a competitive offer or, you just don’t have enough time to fulfill the conditions. At the very least, if possible, you should speak with your real estate lawyer prior to signing the offer. Many people rely on their real estate agent until after a deal is signed – a real estate lawyer should be part of your team from the early stages on. For most people, real estate is the biggest purchase they will ever make, and a core part of their financial security. While the service costs can seem high when buying, it is well worth the investment to avoid headaches – and money – down the road.
Our Real Estate and Development team are experts in both residential and commercial real estate transactions and are here to help you with every step of the process.