Entering the world of real estate as a homebuyer can be both exhilarating and daunting, and a key milestone in the journey towards homeownership is signing a purchase contract. This document, dense with legal terminology and intricate details, is the blueprint of your purchase, outlining the rights and responsibilities of both buyer and seller. While your lawyer should walk you through things, understanding the nuances of a purchase contract is important, as it not only safeguards your interests but also sets the stage for a successful transaction. This article aims to demystify the purchase agreement, offering insights and tips to navigate its clauses with confidence, ensuring you’re well-informed and prepared to make one of the most significant investments of your life. 

What is a purchase contract? 

A purchase contract, also known as a sales agreement or purchase agreement, is a legally binding document that outlines the terms and conditions of a transaction between a buyer and a seller. Both parties must agree to the terms laid out in the purchase contract before the sale can be considered final. Purchase contracts are commonly used in the sale of real estate, vehicles, and other high-value items. 

What should the contract cover? 

Typically, this contract contains information like the buyer and seller’s details, a description of the item sold (in this case, a new construction home), the purchase price, payment terms, delivery method, and any warranties provided by the seller. It also outlines specifics such as the lot, model, upgrades, price, and financing terms. Furthermore, it should address restrictions and obligations that could impact your rights as a homeowner, including: 

• Easements or rights of way on the lot, like a fire hydrant or electrical box. 
• Subdivision rules, such as tree planting restrictions or limitations on vehicle parking and maintenance. 
• Local bylaws that govern activities in the area, like rules on additional suites, home businesses, or storage structures.
   

All of these details are typically outlined in “Schedules” that are part of the Agreement of Purchase and Sale. 

Making the offer 

Often, the Agreement starts with your offer to purchase the home from the builder. Once you sign the offer, it is binding on you, i.e., you have agreed to all the terms and conditions set out. If your builder accepts the offer and signs the Agreement, it becomes binding on both parties. Similarly, if your builder presents you with a contract, it is an “offer to sell” that becomes legally binding on both parties once you accept. 

When you are not dealing directly with the builder, the sales representative may not be able to “close the deal” on the spot without a review by the builder. Approval or counteroffer is usually quick. However, you may consider adding an irrevocable date to your offer—a deadline for the builder’s response, after which your offer is no longer valid. Before signing anything, you need to carefully review the contract document. Take your time and make sure that all points are covered and that all Schedules are attached and noted in the Agreement. 

It is also recommended that you have a lawyer review the Agreement of Purchase and Sale before you sign it. Alternatively, you can make your offer conditional on a favourable review by your lawyer. It is sometimes wise, and less costly, to agree with the builder on price and terms before involving a lawyer. (If you cannot reach an agreement with the builder on these fundamental points, there is no need to pursue the contract any further.) This condition, like all other conditions, should be written into the main body of the Agreement of Purchase and Sale, or attached as a separate Schedule with a brief notation in the main text. 

From Offer To Contract 

The process from first offer to final agreement can be quick, or it may involve several steps over a longer period of time. It can be an intense time, but bear in mind that you and the builder are working towards the same goal. 

Your signed offer is presented to the builder who, by the irrevocable date, will either: 

• accept it as written. Their signature on the offer results in a contract that is binding on both parties. Or, 
• counter your offer (by changing the price, terms, closing date or other points). Changes are made directly in the Agreement of Purchase and Sale document. A new irrevocable date is set, by which you must respond to the builder’s offer, failing which the offer is no longer valid. 

If your builder makes you a counteroffer, you may decide to accept it or you may wish to re-counter. This process continues until an agreement has been reached between you and your builder, or you determine that an agreement cannot be reached.
 

If your accepted offer was conditional on financing, you now need to apply and receive approval for a mortgage within the time specified in the contract. If you are unsuccessful in obtaining the necessary funds, the contract is no longer valid or binding, and your deposit will be returned to you in full. The same process holds true for all other conditions written into the contract. 

Bring a copy of the Agreement to your lawyer. When it includes a condition for a legal review, the lawyer may suggest changes to the wording and the clauses of the contract to further promote your interests.   The builder should be notified immediately of these recommendations, allowing enough time for a review by the builder and/or the builder’s lawyer before acceptance or possible counter. Once your offer has been accepted and all conditions have been waived, you have a firm contract. To learn more about your lawyer’s role and change orders to your contract, click here. 

In conclusion, navigating the purchase contract when buying a home is a critical step in the home buying process. Before signing anything, it is highly recommended to carefully review the contract document, ensuring that all details are accurately covered and that any additional schedules are attached and noted in the agreement. 

To ensure a smooth transaction, it is advisable to have a lawyer review the Agreement of Purchase and Sale before signing. Your lawyer can provide valuable insights, suggest changes to protect your interests, and ensure that all necessary legal aspects are in order. By understanding and clarifying all aspects of the purchase contract, you can proceed with confidence in the purchase of your new home. 

Further reading: learn about the different types of mortgages and new home warranty here.