Have you just visited your dream house or apartment and are concerned it might be snatched up if other potential buyers make an offer before you? Why not make an offer directly on this property… Or perhaps it would be better to secure a purchase option? Good question! To help you make the best choices, Hermanns Real Estate explains the main specificities and differences between an offer to purchase and a purchase option.
The Offer to Purchase: a Buyer’s Commitment
Definition of the Offer to Purchase
An offer to purchase is a unilateral commitment by which a buyer (the offeror) undertakes to the seller to acquire a property at a determined price. The buyer proposes a price to the seller, whether it is lower than, equal to, or higher than the initially requested price.
From this point, the property owner may either accept or refuse it. If accepted, the sale will be concluded. Indeed, the offer to purchase constitutes a genuine contract that binds the buyer. Otherwise, the seller may issue a counter-offer, to which the offeror may respond if they genuinely wish to purchase the property.
Have you fallen in love with a house or apartment and wish to try your luck by making an offer? We advise you to always limit the validity period of your offer to purchase, otherwise you risk being committed to buying the property until the seller has made a decision. We recommend a period of between 24 and 72 hours within which the owner must respond to you, whether their answer is positive or negative.
A Binding Commitment
Once accepted and signed, the offer to purchase constitutes an official and binding document that commits both parties to respectively buy or sell the property under the conditions specified in the offer to purchase.
As a buyer, if you are not certain that your borrowing capacity allows you to acquire the property, you may add a suspensive condition to your offer to purchase, which will cancel your commitment if necessary, provided you can present sufficient proof demonstrating the refusal of the bank(s) to grant you the intended loan.
As a seller, ensure you have carefully considered any other offers, as you will not be able to retract your decision on the pretext that a more attractive proposal has been submitted to you.
How to Draft an Offer to Purchase?
There is no standard form for an offer to purchase. The buyer may draft it themselves, in writing or by email. However, to be valid, it must include several crucial pieces of information:
- The buyer’s full contact details;
- The property’s address;
- The price offered;
- The offer’s validity period;
- Any reservations or remarks, such as a suspensive condition for loan approval or non-contamination of the soil, for example;
- The date and signature.
To ensure no detail is overlooked and to guarantee the proper drafting of an offer to purchase, consult your notary or seek advice from your real estate agent.
The Purchase Option: a Seller’s Commitment
Definition of the Purchase Option
A purchase option is a genuine contract by which the seller (the promisor) undertakes to sell their property to a buyer at a determined price, provided that the latter exercises the purchase option by notifying their decision to acquire the property concerned.
Unlike an offer to purchase, which implies a decision from the seller regarding their acceptance or refusal of the offered price, the purchase option reverses the decision-making process. Indeed, when the property seller grants a buyer a purchase option, it is the buyer who decides whether the transaction will take place or not.
The Ideal Solution in Case of Hesitation
Because it empowers the prospective buyer rather than the seller, the purchase option allows the buyer a period of reflection before committing. A purchase option can also be used if you are hesitating between several properties. Thanks to it, you could, for example, reserve two properties simultaneously before deciding on the best opportunity. Furthermore, the purchase option will allow the buyer to:
- Gather more information about the apartment or house concerned;
- Assess the neighborhood’s tranquility by speaking with neighbors;
- Consult their bank to ascertain if a mortgage loan can indeed be granted;
- Visit other properties to be certain of having made the right choice;
- Compare the asking price with other similar properties on the market.
A Risk for the Seller
During the validity period of the purchase option, which is generally between a few days and two weeks, the seller will not be able to sell their property to a potential buyer who has offered a more attractive proposal.
Consequently, to protect against an excessive risk, the seller may sometimes decide to accept a purchase option, provided they receive financial compensation in return. This compensation is then collected at the time of signing the option and will be deducted from the property’s sale price if the sale is concluded. Otherwise, the buyer who chooses not to exercise the option will not recover their deposit.
To guarantee its effects, the purchase option must be formalized in writing, specifying the terms of the agreement between the parties, such as the option’s validity period, the property’s sale price, or payment terms. Once the option is exercised, the sale of the property is concluded in strict compliance with the previously defined conditions. Therefore, always ensure the purchase option is drafted meticulously.
Offer to Purchase or Purchase Option… What’s Next?
Once the offer to purchase is accepted or the purchase option is exercised, it transforms into a preliminary sales agreement, which will be mandatorily drafted by a notary to formalize the transaction.
The buyer then pays a deposit, the amount of which generally corresponds to 10% of the sale price of the house or apartment. This sum will be held in the notary’s bank account until the signing of the authentic deed and the handover of keys to the new owner.
Whether you are looking for your future property or planning to sell your building, we hope that these few lines will help you better understand the differences between an offer to purchase and a purchase option, as well as the advantages and disadvantages they entail.
Our team remains at your disposal to assist you with all your real estate endeavors!
