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Anatomy of the deal

This is it. You're at an open house, plodding your way through your dream home. It has everything on your list and then some: safe neighborhood, hardwood floors and parking, not to mention 200-amp electrical service and closets galore.

You've seen what feels like a million other houses and you're finally ready to put in an offer. You turn to your agent and give her the look, the cool one that says, "I want this house, lady. Do your thing."

But what, exactly, is her thing? You may not care right now; you're too busy deciding if the hallway should be painted saxon green or radicchio red.

But later, you'll ask yourself: Between making the initial offer and collecting the keys to my new pad, what happened?

Bankrate spoke to real estate expert Sandra Chaisson, an agent with RE/MAX Nova in the Halifax are, who agreed to pull back the curtains and share the inner workings of how a deal is made.

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The offer
The first thing your agent does is fill out an agreement of purchase and sale, which spells out the details and conditions of the sale from your perspective. It's your wish list.

This could be a firm or conditional offer. If your offer depends on your qualifying for a mortgage, it is conditional. There are other conditions you might want to attach to your offer, though. "Insurability of the property, successful building inspection, successful title search, water and septic tests if applicable," says Chaisson.

Your offer will include a deadline for a reply from the sellers -- usually 48 hours -- and a deposit, typically between three and five percent of the offered price.

In a cooler market, your offer may be accepted as is. The sellers will sign your offer and send it back to your agent. That means the deal is done, and you are committed to buying the home. Skip to closing the deal.

If you don't hear back before the deadline passes, your offer has been rejected. Often, though, sellers come back with a counteroffer.

The counteroffer
"This means the sellers do not accept the offer, but feel it is a good starting point for the negotiation process," says Chaisson. "They would formally reject your offer and submit a counteroffer, spelling out the details and conditions deemed acceptable."

You can expect to see a higher price or a different closing date; anything is possible. You can accept this deal, but you can't counter the counteroffer.

"If you are still interested in the property [but not the new terms], you must submit a new offer, and begin the process all over again," says Chaisson. "This process of offer and counteroffer can happen several times, until either a deal is finally agreed upon by both parties, or they decide to move on."

Closing the deal
You need a lawyer and usually your real estate agent will recommend one. "I can't stress strongly enough to people to work with a lawyer who specializes in real estate law," says Chaisson. "Deals can get complicated very quickly."

If everything is clear with your offer, your lawyer will search the title of the property to ensure there are no legal obstacles to obtaining clear title to it. The lawyer will also ensure all tax payments are current and that there are no liens on the home. This process typically takes 10 days.

During the negotiation, conditions may have been attached to the sale. During closing, both parties get the chance to ensure they have been met or to do what is necessary to satisfy them. "The time allowed to perform this due diligence varies according to circumstances, but is typically a few business days," says Chaisson.

You need to prove to the sellers that you can afford to buy their house. If you've already been pre-qualified by your lender, Chaisson says, the financing clause should be wrapped up within three days.

So what happens if some of the conditions are not satisfied? The deal can fall through, in which case you start going to more open houses. "Some conditions are deal breakers," says Chaisson, "the inability of the buyers to obtain adequate financing being a common one."

Or you could return to the negotiating table. If the building turns out to be uninsurable or an inspection reveals unexpected problems, you may find yourself renegotiating. Often the sellers agree to fix the defect before the deal is finalized, or they reduce the price to reflect the cash you spend fixing it. This wheeling and dealing takes place between your agent and the seller's agent.

"By far the most common issue that arises is a latent defect in the house: an oil tank or wiring which is too old, in which case the house is not insurable; defects which came to light as a result of the building inspection, such as a foundation which leaks," says Chaisson.

During closing, you have time to make sure the property is insurable, usually five days. You don't have to insure the property, as you don't officially own it yet, but you need to make sure there aren't any features that will make it impossible to insure when you move in.

"These days, insurance companies are very prickly about what they insure. What used to be a given no longer is, and this clause can occasionally be problematic due to heating systems, wiring, roofs, oil spills and so on," says Chaisson.

At closing, the sellers will provide your lawyer with a ton of documentation, including 12 months of heating bills, a property condition disclosure statement, current tax assessment and copies of lease agreements for any leased equipment, such as furnaces and hot water heaters.

Once all the conditions are met, a sold sign goes up on your dream home.

On the actual closing date, often between 30 and 90 days from the time you make your initial offer, you should do a walk through of the house. Make sure it has no major structural damage and that the appliances work. If light fixtures or built-ins were part of the deal, make sure they're in good condition.

"After walking through the house, the buyers should meet with their lawyer to sign all of the documents, release the funds to the vendors and pick up the keys," says Chaisson.

Jasmine Miller is a writer in Toronto.

-- Posted: Sept. 20, 2004
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