Conditions in an offer to purchase
An offer to purchase a house, sometimes called a promise to purchase, often includes conditions. In other words, the buyer and seller must meet certain conditions, within the timeframes specified, for a property to be considered sold.
Elena Maria Bejan, notary at DuProprio, explained, “By making an offer to purchase, a buyer is committing to acquiring the property for sale, provided that certain conditions are met.”
1. Financing condition
When the offer is conditional on the buyer obtaining financing, the buyer must prove that they can get the funds needed to purchase the property. To fulfill this obligation, they must present a mortgage commitment letter with no conditions, which serves as proof of financing. This document indicates the amount the financial institution is willing to loan the buyer to purchase the property indicated in the offer to purchase.
If the buyer is unable to obtain this proof by the deadline set with the homeowner, the promise to purchase could become null and void.
2. Inspection condition
The offer can also be conditional on the property passing a home inspection. If so, the buyer will hire a building inspector to check the state of the home.
If no major defects are found, the condition will be considered met. If, however, the inspection reveals a significant issue, the buyer could withdraw or amend their offer.
What if an inspection report reveals problems?
An unsatisfactory inspection report gives the buyer the right to withdraw their offer. But before making this decision, it is recommended that the two parties discuss the matter. After all, the house still meets some, or even many, of the buyer's needs, and the seller likely still intends to sell.
The first thing to determine is whether the defects are minor or major. It would be a shame to have the transaction fall through for a problem that can be solved simply and easily. But even if the defects are major, it may still be possible to reach an agreement that takes these findings into account. Here are two potential solutions:
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Do the work required
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Renegotiate the price
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Renegotiate the sale price
If the owner doesn’t want to do the work, the buyer will generally try to renegotiate the price, making a second offer that subtracts the estimated cost of the renovations. This will let the buyer respect the budget they set for the purchase.
Of course, the responsibility for the work can also be shared. The details of the new agreement will then simply be added to the Offer to Purchase, and each party will be required to honour the commitments they make in the document.
3. Sale condition
Unless the buyer is a first-time homeowner, they may have a house they need to sell first. In this case, they can make an offer to purchase that is conditional on selling their own property.
The two parties will need to agree on the time the buyer will have to sell their home and thus meet the condition. If the buyer is unable to sell by the deadline, the offer to purchase can be cancelled. Until this condition is met, the seller can keep looking for a buyer thanks to the 72-hour clause.
FAQ
Is a mortgage prequalification sufficient to meet the financing condition?
No. A letter from a financial institution stating that the buyer has been prequalified for a mortgage is not sufficient at this stage. It is only proof of the buyer’s borrowing capacity. A mortgage commitment, on the other hand, states the amount the financial institution is willing to loan the buyer to purchase the property indicated in the offer to purchase.
The buyer wants to remove a condition from their promise to purchase. How should they proceed?
The buyer and seller must sign a declaration stating that the condition has been withdrawn. They can use the Amendments and Notice of Fulfilment of Conditions form.
The offer to purchase was withdrawn after an unsatisfactory inspection. Do I have to disclose the contents of the inspection report to new potential buyers?
Yes. Sellers must tell buyers everything they know about the property. You therefore have an obligation—and it’s also in your best interest—to disclose the existence of an inspection report done for to a previous offer to purchase that was withdrawn.
You have two options: give the buyer a copy of the inspection report (being sure to remove or cover the buyer’s and inspector's personal information) or including all the irregularities or recommendations mentioned the report in your Declaration of the Seller.
Legal notice
The information on this page does not constitute a legal opinion and must not be construed as such, nor reproduced. It is provided for informational purposes only. It is advisable to consult a notary to obtain a legal opinion on a given situation.