Understanding the Promise to Purchase: Guide for First-Time Buyers
The promise to purchase is a pivotal step in the process of buying your home. It is the decisive moment when you express your interest in a property and commit to making an offer to the seller.
It is essential to understand the role of the promise to purchase in the house buying process, what it entails, and how to properly prepare for it. Having a good knowledge of this step will allow you to be better equipped to make the right decisions and successfully purchase your first home.
SUMMARY
What is a promise to purchase?
What is the difference between an offer to purchase and a promise to purchase?
What is included in the promise to purchase
Steps before submitting a promise to purchase
Can a promise to purchase be cancelled once submitted?
The options of the seller upon receiving a promise to purchase
The role of the real estate broker
What is a promise to purchase?
The promise to purchase is a document by which a potential buyer signifies to the seller their firm intention to acquire the property. The document includes the conditions under which the buyer is willing to buy the property.
Once the seller has received the promise to purchase, it becomes irrevocable. It is a formal and legal commitment that binds the buyer to the seller once accepted by the latter.
What is the difference between an offer to purchase and a promise to purchase?
An offer to purchase and a promise to purchase are the same. However, while both expressions are commonly used, the official designation is “Promise to Purchase”.
What is included in the promise to purchase
The promise to purchase must contain at least the following elements:
- Identification of the parties involved
- A brief description of the property
- The purchase price and financial terms
- The declarations and obligations of both parties
- The purchase conditions such as inclusions and exclusions, property inspection, review of documents, undertaking of a mortgage, sale of the buyer’s current home, etc.
- The date of occupancy of the property
- The conditions (deadline) of acceptance
The promise to purchase must include all the details and conditions that meet your needs. The offer must be realistic based on the information provided by the seller (inclusions, exclusions, preferred date of occupancy, etc.) to be considered by the latter.
Click here to view a specimen of the promise to purchase form provided by the Organisme d’autoréglementation du courtage immobilier du Québec (OACIQ) for a residential property of less than five (5) units excluding the co-ownership.
Steps before submitting a promise to purchase
Submitting a promise to purchase requires some thought in order to avoid costly mistakes.
Determining your needs and your budget
The promise to purchase must reflect your needs. Therefore, you must determine yours needs to write them in the promise to purchase. Taking the time to determine your criteria allows to ensure that all your conditions are included in the document.
Before writing a promise to purchase, you should make sure to have set your budget and your limits. In a context where multiple offers are frequent and lead to overbidding, it is important to know your limits and not be taken by emotions to submit an offer that could be honored.
Understanding the market that you are buying into
Find out about the status of the real estate market so that you can prepare accordingly.
In a market favorable to sellers, where the competition between buyers is high, your promise to purchase will have less flexibility and negotiating power. You must adapt to the situation in order to submit an interesting proposal while respecting your needs.
On the other side, in a market favorable to buyers, you will have more latitude when submitting your promise to purchase.
Keeping well informed and seeking advice from a real estate broker
Before submitting a promise to purchase on a property, make sure that you understand the terms of the commitment you make with the seller. For example, you should find out what entails a sale without legal warranty "at the buyer's risk and peril" should it be a condition set by the seller.
In the same sense, in order to be compliant, and in your best interest, seek advice and support from a real estate broker who has the expertise to ensure that you complete a comprehensive promise to purchase that meets your need. The broker will also make sure that the process is intelligible and clear for you every step of the way.
The broker is also responsible for providing the promise to purchase to the seller within a reasonable time frame.
Can a promise to purchase be cancelled once submitted?
The short answer is no. Once the seller has received the promise to purchase, it is irrevocable until the expiration date set in the document. However, the Civil Code of Québec allows for a short period of time to withdraw from the offer, namely, the time between the moment the buyer signed the promise to purchase and the moment it reaches the seller.
The options of the seller upon receiving a promise to purchase
When receiving a promise to purchase, the seller has three (3) options: decline, accept or make a counter-proposal.
Declining the promise to purchase
The seller can decline an offer for any reason even if it meets all of his requests. For example, the seller received many offers, but can only accept one.
Accepting the promise to purchase
Once the offer is accepted by the seller, the process begins: both parties must meet the conditions stated in the offer, within the set deadlines.
A counter-proposal
The seller returns a counter-proposal if interested by the promise to purchase, but with some conditions to modify such as the price, inclusions or exclusions.
Upon receiving a counter-proposal, you have the option of accepting, declining or submit a new counter-proposal.
The role of the real estate broker
The role of your real estate broker is to support you in drafting the promise to purchase, taking your needs into account, as well as to negotiate on your behalf.
The seller’s broker guides his client in the decision-making and handles the negotiations in order to obtain the best possible conditions.
In any case, real estate brokers are responsible to act in the best interest of their client, the goal being to handle a transaction where both parties are satisfied.
The real estate broker is your best ally for strategic support with the promise to purchase and negotiations, but also throughout the entire purchase process.
The promise to purchase is a critical step in the sale and the purchase process of a property. Knowing your needs and getting support from a real estate broker are key elements to a successful transaction both on yours and the seller’s side.
