For most of us, buying a home will be far and away the biggest purchase we ever make. And that big purchase comes with complex layers of contracts and processes, much of which we don’t seem to understand.
According to a recent survey by the Real Estate Council of Ontario (RECO), almost one third (32 per cent) of first-time home buyers responded that, “they did not feel prepared and knowledgeable about the process,” and 43 per cent didn’t clearly understand at least one section of the key contract, known as “Purchase and Sale Agreements,” or PSAs for short.
Given that the average price of a house in Canada (as of October 2014) is just under $420,000, a lack of knowledge could have huge implications. “Signing your name on the dotted line is not something to be taken lightly when you’re dealing with binding contracts for significant values,” says RECO’s Joseph Richer.
We couldn’t agree more. Read on for a better understanding of PSAs.
Your Own Custom Contract
While most agents will use a fairly standardized version of a PSA developed by their local real estate board, each contract is highly customized for each purchase.
Obviously, the names of the buyer(s), seller(s), and property details that appear on the first page will be unique to each deal, but pretty much any of the other clauses and details can be changed as well, provided both parties agree to them. The ovals at the bottom of each page for “Initials of Buyer(s)” and “Initials of Seller(s)” are a way to document that each party has read each page of the document.
The “Chattels Included” and “Fixtures Excluded” sections are two areas that are almost always filled out with house-specific details. The lights, drapes, appliances, and so on that are to be included or excluded from the purchase price are typically included on the listing sheet. The buyers’ agent will add these to the contract ahead of the offer presentation.
But, as a would-be buyer, if you really want a certain item included – such as the dining room chandelier – you’re free to make an amendment to the list of exclusions. It’s up to the seller to decide if that light is a deal-breaker or not.
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Most of the other clauses included in the contract can also be modified, provided all buyers and sellers agree to the changes – and indicate their agreement by adding their initials next to the change.
Carved In Stone?
Another surprising finding from the RECO survey was that more than half of all buyers (55 per cent) thought they’d automatically get their deposit back if a deal fell through. When you (or, more likely, your agent) hands over a deposit cheque to the seller’s agent, the latter’s brokerage deposits the funds into a trust account. You’ll only get it back when both you and the seller agree to it.
Say, for example, you submit an offer conditional on a home inspection, but the home inspector flags a number of potentially costly issues that make you decide that the offer you made is higher than what you’re now willing to pay. If the homeowner disputes the inspector’s findings, there is nothing obligating them to automatically return your deposit and cancel the deal. If the two parties can’t come to an agreement, a court will have to decide who ultimately gets to keep the money.