Enhancing a promise to purchase prior to acceptance
Once the buyer has signed his promise to purchase, he may find it necessary to make changes in order to enhance his proposal to the seller. In other words, he wants to make his offer more attractive.
This is often the case when the buyer’s broker learns that other proposals are being submitted simultaneously with its own. The seller’s broker must inform any unrepresented buyer to whom he is providing fair treatment of the existence of such other proposals, just as he must inform any broker representing a buyer, who will in turn inform his client of the existence of these other proposals.
Informed promptly, the buyer may want to make his promise to purchase more competitive, whether by increasing the price he is offering, by withdrawing a condition, or by reducing a deadline, such as the date of signing of the deed of sale.
There are many ways to enhance a promise to purchase, and these must be considered based on the context of the transaction and, in particular, the needs of the buyer and the means at his disposal. The broker must advise his client carefully by explaining the concept of bidding wars and proposing other solutions (e.g.: adding a deposit if his promise did not include one). The buyer must be aware of the risk of not enhancing his offer if he is not the only interested party, just as he must not lose sight of the fact that it is not advisable to buy at any price. Not enhancing his promise to purchase must always be part of the options offered to the buyer.
The buyer may also want to enhance his offer to the seller because he realizes from the outset that certain conditions will be difficult to accept. He may wish to facilitate and shorten a potential negotiation. For example, when the promise to purchase was drawn up, the strategy was to make a very lowball offer. Upon reflection, the buyer wants to amend his promise to purchase to increase his offer. The broker must explain to the buyer that he cannot make any changes to his promise to purchase once it has been signed.
The change must be made using the form Enhancements prior to acceptance, which will be submitted to the seller along with the promise to purchase. This change can also be made if the promise to purchase has already been submitted, but the seller has not yet replied and the deadline for acceptance by the seller has not yet expired.
The Enhancements prior to acceptance form should not be used to reply to a promise to purchase or to make a counter-proposal; the proper form to use for this purpose is the mandatory Counter-proposal form. It should not be used either to amend an accepted promise to purchase, which requires the use of the mandatory form Amendments.
E1. Reference to principal form
In clause E1 the broker must enter the number of the Promise to purchase form being enhanced.
E2. Enhancement of the promise to purchase (prior to acceptance)
The enhancement being made to the promise to purchase must be detailed in section E2. If it is the price offered, the broker must enter the amount, in words and numbers, in clause E2.1. The provision already provides that the methods of payment, usually set out in clause 5 of the promise to purchase, will be adjusted accordingly. The broker may also specify the details of the enhancement in clause E2.2, particularly when the change to any of the methods of payment constitutes an enhancement in itself (e.g.: of a much larger deposit). He must also include in this paragraph any other change to the promise to purchase that may constitute an enhancement in the eyes of the seller, e.g. the removal of a condition or a shortened time frame.
E3. Other conditions
Clause E3.1 states that all other conditions of the promise to purchase set out in E1 remain unchanged.
E4. Signatures
The form must be signed by all persons who signed the promise to purchase as prospective buyers, acknowledging that they have read and understood the form, agree to the enhancement and have received a copy of the form. The place of signing, date and time must be entered, and a witness may be asked to sign. The seller identified in the promise to purchase can then reply by signing the form, thereby acknowledging having received, read and understood the enhancement and agreeing to be bound by the terms set out in the form in the event that the promise to purchase is accepted. The place of signing, date and time must be entered, and a witness may sign.
If the seller’s spouse intervenes in the promise to purchase, they must also sign to confirm that they have received, read and understood the enhancement, and will concur should the enhancement be accepted, and intervene in the notarial deed.
For more information: Receipt of several promises to purchase?
