It’s almost crazy to think that in early 2022, a conditional offer was cringe-worthy. Sellers were listing their homes and waiting for the offers to come in on offer day. This was referred to as holding offers. As a result of this, 90% of offers were firm offers (which we discuss later on). The remaining 10% contained a condition of some kind.
The conditional offers immediately went to the bottom of the pile, regardless of how good the price was.
Now, with far more listings in Guelph real estate, buyers are able to get conditions back into their offers. This allows them to make more informed decisions.
What is a conditional offer?
Simply put, a conditional offer is just that – an offer to purchase a home under certain conditions. The conditions must be fulfilled by a certain date. If the conditions are not by the deadline, the agreement becomes null and void. The property goes back on the open market
What are typical conditions?
Although technically there can be a condition on just about anything, there are a few very common conditions that are included in an agreement of purchase and sale. These include:
This condition is typically included so that the buyer can discuss the purchase with their bank or lender.
If you have an offer conditional on financing, the buyer and lender know exactly what they’re working with in terms of price and qualifications.
This allows both buyer and lender to make informed decisions. Things like whether they can afford the house and what mortgage rate they’re going to receive. If the buyer doesn’t like these terms, they will be able to back out of the agreement, usually without penalty.
The other component of a financing condition is that the property can have a home appraisal by a bank. This will determine if the buyer paid fair market value for the property. Appraisals are less of a concern if a house sells under the asking and there are comparables.
However, typical conditions are five business days long. The length of time it takes to organize an appraisal in today’s market is often much longer than this. So, the condition cell for five days may not allow enough time for an appraisal to actually happen. You should speak to your lender about options.
In a strong sellers market like we just experienced, buyers did not have the opportunity to include a home inspection condition or clause in their offer.
If a buyer wanted to do a home inspection, but wanted to remain competitive they would do a pre-inspection. This is done before the offer day so that their offer did not have this condition.
Like a financing condition, inspection condition gives the buyer time for due diligence. It allows them to properly do a home inspection within the conditional period. Buyers have a chance to go over the inspection results and potentially price out repairs/ updates.
Status certificate condition
This is only relevant in condominiums or townhouses for sale that are managed by a condo corporation. A status certificate outlines the financial health of the condo corporation.
As well, the status certificate gives an overview of the budgeting of major repairs and updates. It also outlines any condo rules that the new owner may need to follow.
Years ago, most offers had the condition that a status certificate be reviewed by a lawyer. Now, most status certificates are available online very quickly. Many buyers are reviewing them first so that their offer does not need to contain this condition.
Do not underestimate the importance of a status certificate. Don’t have a chance to review it prior to your offer being submitted? You should write in a condition, even if it is only a day or two.
Imagine buying a condo that doesn’t allow pets and you have a beloved dog. This oversight could have been avoided if the status certificate was reviewed prior to a firm deal.
Sale of property condition
As a listing agent, this is not likely the condition that your sellers will be excited about. However, in today’s market it’s still an offer.
A sale of property condition means that the buyer is willing to purchase your home. However, it’s under the condition that they sell their home too. This prevents the buyer from potentially owing two homes.
This condition is typically about 30 days long or so (although negotiable). This allows the buyer ample time to prepare and list their home for sale. In the event that their home doesn’t sell by the deadline? The deal becomes null and void, or is renegotiated with a new date.
There is one other element to a sale of property condition that most sellers will require. By excepting a sale of property condition, the seller has tied up their home for at least 30 days. To potentially entertain better offers during that time, the seller may ask for an “escape clause”.
The seller will implement an escape clause (typically 24 or 48 hours) if they receive an offer they like better than the current offer they have. They then have to give 24 or 48hrs first right of refusal to the existing offer. The existing offer either has to firm up the deal and waive the condition, or walk away from the deal. Waive the condition and the deal is done. Walk away and the seller can take the new offer.
If a house sells conditionally, can I bump them out with a better offer?
No. This is a common misconception. Let’s say a seller has accepted a conditional offer (also known as a contingent offer in the United States). They must entertain the timeframe of the conditions before they can accept another offer. They are in a binding agreement with the current purchaser/buyer.
As an example, let’s say it’s June 23. A detached house sells conditionally on a financing condition until June 30 at 5 PM. This means that the buyer has until 5 PM on June 30 to waive the condition. If they don’t, at 5:01 PM on June 30 deal is dead.
In this case, the seller will to continue showing the house during the conditional period. The seller is doing this because in case the current offer falls through, they would like a backup plan.
In the event that another buyer has interest in submitting an offer, that offer must wait until the outcome of the current buyers condition date (in this case 5PM June 30th).
The new buyer cannot bump the current buyer regardless of how good the price is. This is because the seller has already agreed to give the current buyer until June 30 at 5 PM to waive conditions
Is there a penalty if I don’t waive the conditional offer?
This is where having an experienced Guelph realtor protects you. We always right into our agreements that if the buyer does not waive the condition by the due date, that they get their deposit back in full, without penalty.
It’s worth noting that if you write a conditional offer, it’s with intent. As in, if you write a conditional offer on financing you have the intent to follow through with the deal pending your financing approval.
The intent of a condition is not to give you more time to decide if you like the house. It’s not a back out clause if you have buyers remorse or find something better. Although rare, you can be held liable if you claim you can’t complete a deal due to financing and the seller finds out that was not the case.
What happens if I don’t have conditions in my offer?
If you submit an offer without conditions, this is a “firm” deal. In other words, you have agreed to buy the house without any conditions whatsoever. Sellers love this because legally they sell their house- any issues that arise with the buyer are not their problem.
With a firm deal, there is no condition date or backing out of the offer if accepted by the buyer. The buyers must close on the property on the closing date outlined in the agreement.
In early 2022 when the market was very aggressive, in order to have a chance you had to have a firm offer.
This can be dangerous if you have not spoken to your bank or had a home inspection.
It doesn’t matter to the seller how you get the money to close on the house, you just have to. You’ve also elected to wave a home inspection condition. This doesn’t leave you a lot of leverage if you find problems when you move in the home.
How do you waive conditions in a conditional offer?
The way we write real estate contracts is that the buyer agrees to purchase the property If they waive the conditions.
So, if the seller chooses a conditional offer, waiving conditions is 100% in the buyers control. If the buyer doesn’t sign a document waiving the conditions by the deadline, the deal is dead. The seller cannot force the buyer to waive the conditions.
How long is a typical conditional offer?
The standard for a conditional offer is typically five business days from when a seller accepts an offer. However, this is completely up for negotiation and there is no right or wrong answer.
Savvy buyers may have lined up a home inspector for the next day. Therefore, they only need two business days for the condition. This makes their offer more appealing to a seller.
Generally speaking, the longer the condition date, the less appealing it is for the seller. Because a seller can’t bump out an existing conditional offer, they have no control over conditions. They just want the deal done as fast as possible.
This prevents them from losing momentum in the market.
Have more questions on a conditional offer? Get in touch with Beth and Ryan’s real estate team, Guelph Realtors. We’re happy to answer any questions you may have.