The Agreement of Purchase and Sale: A Complete Buyer's Guide
The APS is the most important document in a residential real estate transaction. Once both parties sign, you are legally bound. Here is what every clause means and what to negotiate before you sign.
What is an Agreement of Purchase and Sale?
An Agreement of Purchase and Sale (APS) is a legally binding contract between a buyer and a seller for the purchase of real estate. In Ontario, the standard form is the OREA (Ontario Real Estate Association) form, though it can be modified. Once both parties have signed and any irrevocability period has passed, it is a binding contract subject only to any conditions (conditions precedent) that must be satisfied before it becomes unconditional.
Key Elements of the APS
Purchase Price and Deposit
The purchase price is the agreed amount. The deposit typically 5% of the purchase price is paid within 24 hours of a firm deal and held in trust by the listing brokerage. It is applied toward the purchase price on closing. If you fail to close after the deal goes firm, you can lose your deposit and be sued for the difference if the seller receives less on a subsequent sale.
Conditions (Conditions Precedent)
Conditions protect the buyer by allowing the deal to be terminated if certain things do not happen within a specified period. Common buyer conditions:
- Financing condition: Gives you time to secure a mortgage commitment. If the lender declines, you can walk away and recover your deposit.
- Home inspection condition: Allows a licensed inspector to review the property. If the results are unsatisfactory, you can terminate.
- Status certificate condition (condos): Gives you time to review the condominium corporation's financial health, reserve fund, rules, and any pending litigation.
Irrevocability Period
An offer has an irrevocability period the window within which the other party must accept, reject, or counter. Once this window closes, the offer dies. Be aware of very short irrevocability periods in multiple-offer situations.
Closing Date
The date on which legal title transfers and you get the keys. Your lawyer needs time to conduct a title search, review documents, and arrange financing typically a minimum of 30–45 days, though this varies.
Inclusions and Exclusions
What comes with the property must be specified. Typical inclusions: appliances, window coverings, light fixtures. Sellers often exclude specific items (a custom fixture, a new appliance they want to keep). Disputes over inclusions and exclusions are common be specific and detailed.
Rental Items
Confirm whether the property has any rental equipment (hot water heater, furnace, water softener, alarm system) and whether you will be assuming those rental contracts. These are obligations that continue after closing and affect your carrying costs.
What to Watch For Before Signing
Key checks before signing an APS:
- Is there a financing condition? Critical for most buyers.
- Is there a home inspection condition?
- Are all inclusions and exclusions clearly listed?
- Is there a Seller Property Information Statement (SPIS)? Review it carefully it does not replace a home inspection.
- Are there any rental items you will be assuming?
- Does HST apply? (Resale homes generally no; new builds generally yes)
Have a Lawyer Review Before Signing
Ideally, have a real estate lawyer review the APS before you sign it not after. Once both parties have signed, your ability to make changes is extremely limited. A lawyer can identify problematic clauses, suggest protective conditions, and ensure you understand what you are agreeing to.