What is APS in real estate?
As the weather gets warmer, more people are looking at houses and making offers. The first step in buying a home is signing the Agreement of Purchase & Sale (APS). APS in real estate is a legally binding contract between the buyer and seller that outlines the terms and conditions of a property transaction. The APS includes essential details such as the parties on the title/deed, real property identification, completion date and title search, Chattels included, fixtures excluded, and more. The APS in real estate serves as the foundation of a real estate transaction, ensuring that both parties understand and agree to the terms of the sale.
Unfortunately, most people do not read the APS before signing it. This often results in them agreeing to fees, deadlines, and damages they are unaware of. Understanding the “Agreement of Purchase and Sale in real estate” is crucial to avoid unintended commitments. It’s also difficult to get out of a signed APS – the quitting party usually needs to pay for the innocent party’s entire damages – which could be the whole value of the house. So, if I’ve convinced you to read and understand the APS before signing it, I’ve done my job and likely saved you from many future pain and losses. But just how do you read an APS with so many legal jargon? I’ll walk you through step by step.
What does APS in real estate cover?
The Parties on Title/Deed
Let’s imagine Anna wants to buy a house with her mother, Tracy. Both Anna & Tracy’s names must be listed as buyers when signing the agreement for the purchase and sale of real estate (APS) and when getting a mortgage. Although the seller usually doesn’t mind who’s on title and will agree to future changes (but may charge you additional fees for changes), the mortgage lender is typically picky. This usually has to do with the house owners’ personal credit and other mortgage qualifications. Mortgage lenders will often make an entirely new mortgage (with a new set of fees) if the people on the title were to change afterwards.
For those who find themselves puzzled by the legal terminology in the APS, seeking professional guidance is a wise step. Varity Law’s real estate lawyers can offer invaluable assistance, ensuring you fully understand the document you’re signing.
There are also other personal, tax, and inheritance considerations for choosing who to put on title. Those will be addressed in a future blog.
The identification of real property
Of course, it’s essential to get the address and the size of the house correctly. What’s not so obvious is that all parts of the house must be listed. Let’s say Anna & Tracy are buying a condo that comes with a locker and a parking spot. However, on the agreement for the purchase and sale of real estate (APS), only the locker is listed. According to this alone, the seller is free to sell the parking spot to another party.
Completion Date and Title Search
Completion date is the closing date of when the property will be transferred to Anna & Tracy. They should be looking for a real estate lawyer well in advance of the closing date, and definitely at least one week before. There are many legal aspects that must be completed before the closing date, and if they look for a lawyer too late, then they are at the risk of not closing on time. The seller will usually fine the buyer a daily amount if this happens.
For essential legal strategies and advice on safeguarding future ownership rights, you can learn how to protect real estate ownership.
From the buyers’ perspective, the title search and closing date should be set as close as possible, and from the sellers’ perspective, they should be set as far as possible. The title search date is the deadline for the purchaser’s lawyer to require the seller to fix things before closing. For instance, the lawyer will often require the seller to pay out any existing debts, fix damages to property, and sometimes even correct renovations that were done without a permit in advance. Ensuring that the agreement for the purchase and sale of real estate is thoroughly reviewed and understood is crucial for both parties to protect their interests and ensure a smooth transaction. For a list of resale property due diligence searches that the lawyer should perform, read what is involved in resale property purchase.
Chattels Included
Simply put, “chattels” are things that can be removed from the house without damaging the house. They typically include apliances, washer/dryer, lamps, refrigerators, etc. The agreement for purchase and sale of real estate (APS) considers all chattels to be automatically excluded (does not come with the house purchase) unless they are specifically listed in this section.
Thus, if Anna & Tracy wants that brand new refrigerator to be included, they should ensure it’s specifically listed and identified in this section.
Fixtures Excluded
Simply put, “fixtures” are things that cannot be removed from the house without damaging the house. Examples include certain styles of chandeliers, sunroofs, decks, etc. The APS considers all fixtures to be automatically included (comes with the house purchase) unless they are specifically listed in this section.
So, if Anna & Tracy think that chandelier is hideous and use too much electricity, they should ensure it’s specifically listed as an excluded fixture.
Rental Items
These are things that are not owned by the seller but are rented on a long-term basis. Examples include a hot water tank, furnace, and refrigerator. The rent is usually a monthly fee that the house owner must pay.
So, if Anna and Tracy do not want to continue renting an ancient and expensive hot water tank, they need to ensure it is not listed in the rental items section. Otherwise, they are obligated to continue renting it.
In most cases, the buyers don’t have much choice if the seller is locked into a 10 or 20 years contract with the rental company. Nevertheless, this could be used as a negotiation item which may result in decreases to the purchase price.
Schedules – Conditional APS in Real Estate
This section, at the end of the agreement of purchase and sale (APS) in real estate, lists additional terms that are not included in a standard APS. It typically includes conditions that the buyer or seller must fulfill before this APS becomes binding.
Some useful conditions include:
- The buyer must have mortgage approval before the APS becomes binding
- The results of due diligence from the purchaser’s lawyer must be satisfactory (e.g. the buyer should not be inheriting any debts or problems with the house that were created by the seller)
- The property must be both empty and clean when given to the buyer
Conclusion
Those are just a few important things to watch out for before signing a binding Agreement of Purchase & Sale (APS). It’s always good to get a real estate lawyer to review the APS first and make necessary changes. At Varity Law, the nominal legal fee paid for reviewing the APS can also be rolled into your closing legal fee.
This article is only meant to give general legal information. For legal advice on your specific legal situation, please consult a legal professional. If you have any questions about real estate transactions, feel free to book a 1st free consultation with us here: https://calendly.com/sabrina-668/1stfreeconsult
