How to Make an Offer on a House in Canada: A Homebuyer's Guide

Regardless of the market, every Canadian homebuyer must submit a formal offer to purchase a property. Understanding this process is key to a smooth transaction, especially in a competitive seller’s market where quick, decisive action is essential.

Here is your comprehensive guide to getting your ducks in a row and making a winning real estate offer in Canada.

🔑 Step 1: Prepare for Making an Offer

Before you find the perfect property, prepare your finances to ensure you can act fast and with confidence.

Secure Your Finances: Down Payment & Deposit

You need funds for two distinct, upfront amounts: the down payment and the deposit (also known as earnest money).

The Deposit: This is cash offered with your offer to show the seller you are serious about the purchase. A more substantial deposit can be a huge advantage in a bidding war. It is held in trust and contributes to your down payment upon closing. If you walk away from a firm deal, you typically forfeit this amount.

The Down Payment: This is the lump sum paid at closing. In Canada, minimum down payments vary based on the purchase price:

$500,000 or less: 5% minimum.

$500,000 to $999,999: 5% of the first $\$500,000$ and 10% of the remainder.

$1,000,000 or more: 20% minimum.

Remember: A down payment under 20% requires mortgage loan insurance (often called CMHC insurance).

Create a Realistic Purchase Budget

While your bank gives you a pre-qualified or pre-approved mortgage amount, your actual offer budget must be lower. Use a spreadsheet to calculate all costs, including:

·         The deposit and full down payment.

·         Closing costs (legal fees, land transfer tax, etc.).

·         Any tax implications from withdrawing funds (e.g., from an RRSP).

·         Estimated monthly expenses (mortgage payments, property tax, insurance, utilities, condo/HOA fees).

Knowing your maximum affordable offer before you bid will prevent you from getting caught up in the excitement and becoming "house poor."

🤝 Step 2: Determine Your Offer Strategy

This is where your real estate agent's expertise is invaluable.

Get Mortgage Pre-Approval

Unless you are paying cash, mortgage pre-approval is non-negotiable. It helps you:

·         Know your absolute spending limit.

·         Reassure the seller that your financing is secured.

·         Lock in the current interest rate for up to 120 days, protecting you from rate hikes.

Decide on an Offer Amount

Your offer price should be based on a blend of three things:

1.      Fair Market Value: Ask your agent to conduct a Comparative Market Analysis (CMA). This compares the property to similar, recently sold homes in the area to help you gauge its true worth.

2.      Current Market Conditions: In a buyer’s market, you have room to negotiate below the asking price. In a seller’s market with multiple offers, you may need to bid at or above asking to be competitive.

3.      Your Budget: Never exceed the maximum offer you determined in your purchase budget.

Consider a Second Viewing

If you plan to bid, do a second walkthrough at a different time of day. What seemed peaceful in the morning might be loud or busy in the evening. This also allows you to evaluate how the home will suit your needs for the next five years or more.

Timing Your Offer

In many Canadian markets, desirable properties receive multiple offers within 24 to 48 hours. If you love a property, there’s usually no reason to wait—acting quickly can be a significant advantage.

📝 Step 3: Drafting the Legal Paperwork

Your real estate agent will prepare the Real Estate Purchase Agreement, which is a legal document. Before signing, make sure you understand every detail.

Required Details for a Valid Offer

The offer document must include:

·         Your legal name, the seller's name, and the property address.

·         The purchase price and the amount of your deposit.

·         All inclusions and exclusions (e.g., are the fridge and curtains staying?).

·         The desired closing date (possession date).

·         The date your offer expires (giving the seller a deadline).

·         Any conditions that must be met (e.g., home inspection).

Firm vs. Conditional Offers

The type of offer you submit can dramatically affect its appeal to the seller:

Common Conditions:

·         Conditional on Financing: Gives the buyer time for their lender to approve the mortgage and a property appraisal.

·         Conditional on Home Inspection: Allows the buyer to hire a professional to check the structure, plumbing, and electrical systems. If issues are found, the buyer can request repairs, a price reduction, or back out.

Other Factors to Strengthen Your Offer

Beyond the price, consider adding value to make your offer more attractive:

·         Larger Earnest Money Deposit: Signals serious intent to purchase.

·         Possession Date Flexibility: Accommodate the seller’s preferred closing timeline.

·         Fewer Contingencies: An offer with fewer conditions is less risky for the seller.

🗣️ Step 4: Negotiations and Closing

Your initial offer sets the stage for negotiations. Be prepared for the seller to accept, reject, or counter your proposal.

·         Know Your Limits: Have a clear bottom-line price and be ready to walk away if the deal no longer makes financial sense.

·         Be Responsive: Respond promptly to any counteroffers to maintain momentum.

·         Consider Non-Price Terms: Sometimes, a flexible closing date or waiving a minor request can be more appealing to a seller than a slightly higher price.

Once your offer is accepted and all conditions are met, it becomes a binding contract. Your real estate lawyer will take over to finalize the closing process, which includes title transfer and the disbursement of funds.

Don't go it alone! Working with an experienced Canadian real estate agent and a lawyer is the best way to avoid potential pitfalls and ensure your best interests come first when submitting your home purchase offer.

Would you like to search for an experienced real estate agent or learn more about the difference between a deposit and a down payment?