Buying or Selling Real Estate Privately: Reviewing the Offer
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Buying or selling real property privately means that a real estate agent or agents are not involved in the process. In today's market, we are seeing more and more of these private deals cross our desks. The obvious benefit for both parties in such private deals is that no real estate commission is payable on the transaction. As such, buyers can usually negotiate a lower purchase price as sellers do not have to pay any of this commission out of their sale proceeds: it's a win-win. Nonetheless, in the absence of real estate agents, parties wishing to buy or sell real estate privately should always consult their real estate lawyer before the private offer becomes binding.
The lawyer can either draft the agreement of purchase and sale on your behalf, or review an agreement that has already been drafted by the parties. Typically, and most recommended, is using the most recent Ontario Real Estate Association (OREA) agreement of purchase and sale (Form 100), which can be found online. The following are a list of the more significant aspects of an OREA agreement of purchase and sale for freehold homes that a real estate lawyer should comment on and review with you:
Deposit: Buyers must provide a deposit to secure the agreement and show their authenticity/sincerity to the Seller in completing the deal. It should always be paid to the lawyer in trust, usually the Seller's lawyer, pending the closing of the transaction, when it will then be credited towards the purchase price. Sellers are looking for as large of a deposit as possible, where buyers want the deposit to be as small as possible. The deposit gives some protection to the seller in case the buyer breaches the agreement.
Completion Date: This section stipulates the date the transaction is scheduled to be completed and ownership of the property is to transfer from seller to buyer. The lawyer will advise as to whether or not the date you provided is reasonable or not. For example, if the date is in a week , this short time frame would likely not be feasible for the professionals to complete all the necessary steps to close the transaction (e.g., fulfilling requirements for mortgage financing, conducting all relevant searches on title, obtaining a tax certificate, etc.).
Title Search: The date for the buyer's lawyer to conduct a search of title (e.g.,, checking to ensure no outstanding work orders or liens on the property) should be a reasonable amount of time before the completion date. In addition, both parties should carefully consider what is being stated as the present use" of the property in this section. For example, if the present use is stated to be "legal duplex", the seller is warranting that this particular zoning/use to the buyer can be continued on the property. If, in fact, the home is actually only zoned as a single family residence however (i.e., it doesn't meet the strict requirements of the municipality for a legal duplex), the buyer would have a claim against the seller for misrepresentation; the remedy may be for the seller to pay all the buyer's costs to make the property a legal duplex.
Execution: The lawyer should also inspect the entire agreement to ensure all pages have been correctly executed (signed, initialled, witnessed, dated) by the parties. A common mistake is not having the signatures of the parties witnessed by a third party. In such a case, the validity of the agreement is at risk and may be questioned.
Schedule A: This is a highly important section that usually contains numerous additional representations, warranties, conditions and/or other rights of the parties with respect to the transaction and should be acutely examined and usually re-drafted by the lawyer(s). Some of the more common provisions include:
Making the agreement conditional on the buyer's financing, the buyer's inspection of the property, the parties' lawyers' review/approval of the agreement, the buyer's due diligence respecting the property, the buyer obtaining a building permit, the buyer selling his home, etc.
Certain representations respecting the chattels and fixtures, use of the property for growth/manufacture of illegal substances, compliance with environmental and municipal by-laws, accuracy of the survey, the removal of debris/cleanliness of the property on closing, etc.
Allowing parties certain additional rights, such as the ability to assign the agreement to another party, access to the property further times prior to closing, re-inspection of the property, etc.
Of course, probably the most important provision to have in your private offer is one that states that the offer is conditional upon your solicitor's approval/review. Always consult with an experienced real estate lawyer when considering buying or selling a piece of real estate privately, before signing. The decision could save you potential headaches down the road, not to mention many thousands of dollars.