Your Agreement of Purchase and Sale when you buy or sell a property is the ultimate guide to your transaction. At a first glance it might look like boilerplate. You’ve read one, you’ve read them all…right?
Not quite. The Agreement of Purchase and Sale (“APS” for short) is a legal contract that binds both the purchaser and the seller in your property transaction. While some of the terms may be standard, it’s also the place where you can include (or exclude) any unique conditions necessary to that deal.
So, what goes into an APS exactly, and why is it so important to have the right professional negotiating yours?
Key Terms of an Agreement of Purchase and Sale
There are some obvious key terms that go into your APS, but they’re pieces that you may not think of right away. These include:
The Legal Names of the Buyer and the Seller
Who actually owns the property, and who is actually buying it? If you are legally identified as one name but go by something completely different, your legal name needs to be on the APS whether you are a buyer or a seller.
This is also the opportunity to disclose who legally owns the property that you’re buying. If there are two spouses, or partners, or even a corporation that holds title, that all needs to be listed clearly on the APS in order for the contract to be valid.
Legal Description of the Property
What in the world are you actually buying? Is it a home? Is it the land on which that home is situated? What you’re buying is a specific parcel of land, whether it’s a home on a large acreage, or a condo in a sky-high tower, this legal description needs to be precise.
The legal description will be taken from the land registry. It includes the lot and plan numbers that you will legally own after your purchase.
Price and Deposit Terms
You’ve likely been going through verbal back and forth negotiations with your real estate agent, but ultimately, it’s the number on the paper that matters. It’s important to know exactly what price you’re agreeing on for your purchase, and what that price includes. Agreeing to a purchase at your ‘max budget’ still means that you need to account for closing costs, insurance (including title insurance), legal fees, moving costs, land transfer tax, and anything else that may crop up. It’s crucial to discuss these with your lawyer before your closing date.
Your APS also needs to clearly state your deposit amount. That deposit is going to be a sizable amount of money, and the APS will state how much is due, and when and where it needs to be paid (usually to the listing brokerage). Remember – if your transaction falls apart due to an error, you could stand to lose that sizable deposit.
Fixtures and Chattels
Should it stay or should it go? Your fixtures and chattels should be clearly outlined within your offer – what chattels are staying with you, and what fixtures the seller will be taking with them? Remember, chattels refer to everything that is effectively ‘not nailed down.’
There are standard fixtures that you can expect will stay, like sinks, plumbing, heating and cooling units, etc. Do not assume, however, that things like appliances or even window coverings are guaranteed to stay.
Time Limits
Real estate can move quickly, especially if you’re in a competitive market. When you make an offer as a buyer, the seller only has a certain amount of time to respond before that offer is off the table. They cannot sit and deliberate forever if the APS contains specific time limits.
As a seller, you’ll need to move quickly. You may seek to hold off offers until a certain date and time, and you may even have ‘bully offers’ that come in before that if your property is desirable. Your responsibility is to review offers as they come in, and you can decide whether or not you wish to accept.
Financing and Inspection Conditions
As a buyer, you can insert whatever conditions you like, reasonably speaking, into an APS. If you want the vendors to confirm that the property has not been haunted by ghosts or spirits, you can have your real estate agent write that in there (and yes, this does happen). However, the two most common conditions in an APS involve home inspections, and financing.
Home inspections allow you to bring in a professional home inspector to inspect the state of the property and then issue a report. This needs to be done within a number of days of your offer. It’s important to remember that the inspector cannot report on things that they cannot see (behind walls, etc.) so there is always some risk that issues will not be identified prior to closing. With your sale conditional on a home inspection, you can choose to get out of the deal, and get your deposit back, if you do not like the inspection report.
What if you need to sell your current property to afford your next purchase, and there is no way you can extend yourself that far without completing that sale? You can insert a financing condition stating that if you cannot procure financing, either through a mortgage or a loan or from the sale of your current property, you do not need to go through with the transaction. Without such a condition, you are obligated to complete the transaction whether your current home sells or not.
At the market’s peak during the height of COVID, buyers were routinely waiving these conditions to make their offers more attractive. Today, however, these conditions are not only common once again but are usually a wise idea. Unless you want to risk the costs of a home that may need major upgrades, or can guarantee that you’ll be able to secure financing, these conditions can both save your deposit and save you from potential costly litigation.
How We Can Help
An APS may seem straightforward, but you don’t know what you don’t know. Real estate lawyers are well-trained and have extensive experience reviewing these documents, and they understand how to make a transaction run smoothly. They can advise you on conditions, terms to avoid and include, potential hidden costs, and when a deal is raising red flags.
Working with a real estate lawyer helps ensure that you won’t be taken by surprise, especially on a shady deal. We routinely represent buyers and sellers throughout the Cambridge, Kitchener, and Waterloo Regions, and we know what we’re looking for. Contact us today to learn about how our real estate lawyers can help make your transaction run smoothly.