Purchasing a Property Privately
Buying a property through a private sale should be a very straightforward process. Once you become informed, the buying experience can be exciting and fun. With assistance from professionals in their respective fields, you can be confident that the purchasing process will progress smoothly.
Step 1: Become Pre-Qualified for Your Mortgage
Before you start to look for a property, it is recommended to visit your financial institution or mortgage broker to become pre-qualified. The mortgage specialist will review the different types of mortgages available to you to determine what best suits your needs. They will also review your personal financial status to determine what you can afford and give you a pre-qualification commitment for a mortgage within your financial limits for a pre-determined period; often for 90 or 120 days. The benefits of a pre-qualification commitment include:
- Determining your purchase price range;
- Indicating to the vendor that you are a serious buyer; and,
- Assisting in making the financial aspects of the offer process simpler and faster.
- Apply here to get your pre-qualified mortgage today!
Step 2: Choose a Lawyer
Whether you end up purchasing a property privately or a property listed with a real estate agent, you will still require the services of a lawyer to assist you with the closing procedures. Your lawyer will prepare the Agreement of Purchase and Sale form for you, protect your interests throughout the property buying process and handle the closing transactions. Your lawyer will be an objective third party in the transaction and we suggest you include them in your plans early on even for quotes on closing costs, how to reach them if you have questions or want to draft an offer outside normal business hours, etc. We also recommend that you choose an experienced real estate lawyer and understand about their various service options and associated fees.
The Offer Process
Once you have found a property that you would like to purchase, there are two ways that you can initiate the offer process. The Vendor may also have a preference as to how to handle the negotiations.
Some options include:
- Negotiate directly with the Vendor. Working out the main details with the Vendor ahead of time can make the offer process go much quicker. Grape Vine Vendors have forms which can be used to create a draft offer (not legally binding, but useful to gather all details for both parties to hand to their respective lawyers). If you and the Vendor come to an agreement on the details, then you (the Buyer) would take the draft to your Lawyer to have a formal offer prepared. This offer should then be delivered to the vendor or the vender’s lawyer for consideration within the irrevocable period (stated time frame the other party has to respond before the offer expires).
- Go directly to your lawyer to have an offer prepared. If you prefer, prior to any negotiations with the seller, you as the buyer, can have a formal offer written up by your lawyer and present it to the Vendor. They would review the Offer (most likely with their lawyer) and would then negotiate the details with you/your lawyer.
Counter offers may go back and forth until a final agreement has been reached by all parties. At that time, the property would then be conditionally sold (if conditions) or sold firm (if no conditions). There are some other extenuating circumstances such as a property conditional upon the sale of another property but we cannot possibly cover all situations so these scenarios are to be addressed between you and your lawyer.
It is important to stay in touch with the Vendor and your Lawyer during the offer process to ensure that all deadlines have been met.
- For example, if you have requested 5 days to arrange for your financing, a waiver or fulfillment form (provided by your Lawyer) must usually be sent to the Vendor or Vendor's Lawyer within that time period depending upon how the condition was drafted.
The property is only considered SOLD firm when all conditions have been met.
Some Terms To Be Familiar With During The Offer Process
Deposit: A deposit may accompany any formal offer, however, the offer will state the deposit amount and terms for delivery. The amount may be dependent on the price of the property or the level of commitment the buyer wants to show to the seller. Your lawyer can advise you on a realistic amount based on your situation and in many cases the Vendor will request a specific amount. The deposit cheque should be made payable to the Vendor's Lawyer “In Trust”. It is important to not take a deposit in to your own name as there are legal requirements for holding deposits in legally established and approved trust accounts.
Fixtures: These are items that are attached or built-in (ceiling fans, light fixtures, built-in shelving, etc.). The Vendor should have a list of what they are taking with them and the details should be reflected in the formal offer. If you are unsure about something, double check it with the Vendor.
Chattels: Also known as Inclusions. These are moveable items that the Vendor is including in the sale (appliances, draperies, etc.). Any items that the Vendor has agreed to include in the sale should be listed on the formal offer.
Irrevocability: If you are filling out a formal Agreement of Purchase and Sale Form, this is the amount of time that the other party will have to review the offer and present you with a counter-offer or acceptance. 24, 48 or 72 hours are suggested options depending on each party’s availability. If the timeframe lapses, the offer expires.
Completion Date: Also known as Closing Date or Possession Date. This is the day that you take possession of your purchased property. Don't forget to be in contact with your lawyer, pack your items, book your moving company, etc ahead of time.
Conditions: As an example, you may want to request a certain amount of time to get a property inspection and arrange for your financing. These would be considered conditions to the purchase of the property and can be outlined in the offer or as an attachment (Schedule) to the offer. It is recommended that you consult your lawyer to ensure that these conditions are worded correctly. It is also recommended that you select an experienced Property Inspector and obtain references for the inspector’s work from previous clients.
Do You Require a Real Estate Agent When Buying a Home or Cottage That is Privately Listed?
When you are purchasing a property privately, you do not require the services of a real estate agent to negotiate on your behalf. If you enlist an agent to help you, someone will have to pay the agent’s commission. This could leave you and the Vendor with less flexibility regarding an agreed price if someone needs to compensate the agent. If you are searching for a property and are asked to sign a Buyer Representation Agreement, it is your option to sign with that agent/brokerage or continue searching on your own. If you decide to sign the document, we suggest you discuss the option of excluding private sale properties that you find on your own, or properties that offer varied commission structures, otherwise you may be locked in to paying all or a portion of the commission that was outlined in the Buyer Representation Agreement, even for a property that you find by yourself. It is always recommended to have a lawyer review any documentation you are considering to ensure you fully understand your obligations prior to signing.
What If You Already Have A Real Estate Agent?
If you have signed a Buyer Representation Agreement with a real estate agent allowing them to act on your behalf, you can still consider purchasing through a private sale. Many vendors are open to paying part or all of the Buyers’ Agent commission, provided that the price you are offering is adequate. Either you or your agent should contact the Vendor directly to discuss if they are interested. Always read your contract with the real estate agent before assuming anything as schedules or fine print may have you bound to certain restrictions. It is always recommended to have a lawyer review any documentation you are considering to ensure you fully understand your obligations prior to signing, however, if you are already in a contract, a lawyer can also review it for you to advise on what requirements you are bound by within that agreement.