When you are buying a house, how does the contract between buyer and seller work? What's in the agreement and how binding is it? In this episode, we discuss what is a real estate purchase contract and when it happens. We also explore up to what point can you cancel or get out of the contract.
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Welcome to Homebuyer's School brought to you by Brookfield Residential.
Hi, everyone. I'm Karl Yeh. Welcome to another Homebuyer's School video, a channel where you get the latest strategies, tactics and tips from home buying experts. And remember, if this is your first time on this channel and you want to get the latest strategies from the experts, hit the subscription button below, hit the little notification bell so you don't miss anything.
Today [00:00:30] I'm joined by Kristy Seibert, Area Manager with Brookfield Residential. And the question we're going to answer today is:
What is a real estate purchase contract?
So the purchase contract is basically the agreement between you as the buyer and in this case the home builder or the home seller.
Karl Yeh: So can you expand when does that happen?
So it happens when the offer is written.
So the purchase agreement would be written out at that time. So it happens [00:01:00] right at the beginning once you have selected your lot location and your home style.
Okay. And does that happen during the down-payment process, I mean, not ... sorry, their deposit?
Right. So typically in order to write the purchase agreement, a deposit is required to hold the home for you.
And then once the purchase agreement is written, that's when all the documents would be sent to your mortgage specialist so that they [00:01:30] can get you a full mortgage approval.
Once you receive your mortgage approval and your purchase agreement is accepted by the builder, at that time you would be able to what we call remove conditions and pay your next deposit.
Can you cancel your real estate purchase contract? When can you do it?
So what happens when, let's say you don't like let's say you put your deposit but you're not ... you cancel for whatever reason?
What happens? Is that agreement still not bound? You're not bound by that agreement, [00:02:00] right?
So within the conditional period, you can back out of the purchase. So that would be when your first deposit is paid to hold the home.
Typically, it's about $1,000. So that secures the home for you.
And so while you're getting your purchase financing in place, at that time you have the ability to cancel the agreement, especially if you can't get mortgage financing [00:02:30] or something comes up where you can no longer move forward with the purchase.
You do still have that option as long as it's before your second deposit or your 5% down payment has been paid.
Does getting a pre-approval have anything to do with it like does that impact your purchase contract or not really?
So the best place to start when looking for a home is to have a pre-approval so that you know what you are approximately approved for. So you kind of know which price range you can explore for your new home.
[00:03:00] That gives you a really good idea.
But, of course, the actual mortgage approval is what we're looking for to ensure that when it comes time to take possession, you will be approved for the mortgage of the home.
So the pre-approval is a great start but it doesn't cover everything and you do need a full mortgage approval in order to move forward with the purchase.
Okay. And remember, if [00:03:30] you want to learn how much you can get pre-approved for and more about mortgage approval, watch our video above.
So I think the last question is:
Can you get out of a purchase agreement contract?
So once your second deposit is paid or your 5% down payment, at that time really you can't cancel the agreement. If you do, you would sacrifice your deposit.
Okay. So the deposit's like a $1,000. So let's [00:04:00] say you went through the home, you liked it, you put your deposit in.
Can you tell me more about the second deposit, what is that?
Kristy Seibert: Mm-hmm (affirmative).
So your second deposit would be paid when your mortgage approval has come through, and you have your financing. So at that time, then that's when you would pay your second deposit, or your 5% down payment.
And once that is paid, then the contract is legally binding because conditions have been removed.
So [00:04:30] at that point, you really can't cancel the agreement.
Yeah. And if you do, you lose your 5% down or whatever the second deposit would be.
Kristy Seibert: Yes, yes. Absolutely, yeah.
Karl Yeh: Okay. Do you have anything else to add?
Kristy Seibert: No, I think that kind of covers everything.
Perfect. So question today for you is:
How was your experience with the real estate purchase contract and did you end up having to cancel that? Why?
Let us know in the comment section below. Thank you very [00:05:00] much for joining us and we'll catch you next time.
Let us know if you have additional home buying questions that we can answer by submitting them in the comments section below.
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About Kristy Seibert:
Kristy graduated from the University of Alberta with a Bachelor of Arts double majoring in Sociology and Human Geography & Urban Planning. After building a new home of her own, she learned more about the process of buying and selling homes and wanted to explore career options in the housing industry. Kristy has been working with Brookfield Residential for 4 years and has sold homes in five different Brookfield communities. She has experience with Single Family, Duplex and Multi-Family homes and enjoys building relationships with her homeowners and guiding them through every stage of their homebuying journey!