Bank of Canada Paused the Policy Rate at 2.25%
Agreement of Purchase and Sale
An agreement of purchase and sale is the written, legally binding contract between a buyer and seller that sets the price, terms, and conditions of a home sale. Also called an offer to purchase, it governs the deal from acceptance through closing and usually includes a financing condition.
Agreement of Purchase and Sale Quick Facts
- A binding contract between a buyer and a seller
- Also known as an offer to purchase
- Sets purchase price, deposit, closing date, and conditions
- Often, conditional on financing and a home inspection
- Governs the deal from acceptance to closing
Best Mortgage Rates
What Is an Agreement of Purchase and Sale
An agreement of purchase and sale, also called an offer to purchase, is the contract a buyer submits to a seller to buy a property at a set price. Once both sides sign within the time the offer is open, it becomes binding and sets out the deposit, the closing date, and the terms and conditions of the agreement.
Most agreements include conditions that must be met before the sale is finalized, such as a financing condition, a satisfactory home inspection, or a status/estoppel certificate review for condominiums. If a condition is not met, the buyer can usually withdraw. The deposit is held in trust and later counts toward the down payment at closing.
Why the Agreement of Purchase and Sale Matters for Mortgages
The agreement drives your mortgage timeline and protects your deposit. Canada Mortgage and Housing Corporation (CMHC) reminds buyers that “an offer to purchase is a legally binding contract,” so the terms you sign commit you once conditions are waived.
Your lender uses the agreement to finalize the mortgage, since the price and closing date set the loan amount and funding date. A financing condition gives you time to secure mortgage approval, so removing it before your mortgage is confirmed carries real risk.
Common Features of an Agreement of Purchase and Sale
A few core elements appear in almost every agreement.
Firm versus conditional offers: A firm offer has no conditions and binds immediately on acceptance. A conditional offer depends on items such as financing or inspection/status and is firm only once those conditions are met or waived.
Deposit: A good-faith sum for deposit, often 2% to 5% of the purchase price, held in trust by the listing brokerage and applied to the down payment at closing.
Conditions and closing date: Conditions protect the buyer, such as financing and home inspection, while the closing date sets when ownership, title and possession transfer, commonly 30 to 90 days out.
When you offer $600,000 on a home with a $30,000 deposit and a 5-day financing condition, your lender will need to approve the mortgage within those 5 business days. This allows you to waive the conditions, thereby making the deal firm. If financing falls through, you can withdraw your offer and recover your deposit within 5 business days.
Common Mistakes and Misunderstandings About the Agreement of Purchase and Sale
- Assuming a conditional offer can be cancelled for any reason
- Treating the deposit as separate from the down payment
- Believing a verbal agreement to buy a home is binding
- Waiving the financing condition before the mortgage is approved
- Confusing the closing date with the offer’s irrevocable date
We’re curious…
Are you a first-time buyer?
Frequently Asked Questions (FAQ) About the Agreement of Purchase and Sale
What is the difference between an agreement of purchase and sale and an offer to purchase?
They are the same document. The buyer’s offer to purchase becomes the agreement of purchase and sale once the seller accepts it within the time the offer is open.
Is an agreement of purchase and sale legally binding?
Yes, once both parties sign it. Conditions such as financing or inspection can still allow the buyer to withdraw until those conditions are met or waived.
What is a financing condition in an agreement of purchase and sale?
It makes the purchase conditional on the buyer arranging a mortgage. If approval is not secured within the set time, the buyer can withdraw and recover the deposit.
Can I back out of an agreement of purchase and sale in Canada?
Only if a condition is not met or the contract allows it. Walking away from a firm deal without cause can cost you the deposit or lead to legal action.
Does the deposit count toward my down payment?
Yes. The deposit is held in trust and applied to your down payment at closing, reducing the cash you still owe on the closing date.