Most real estate purchase contracts contain condition(s) of some kind.
Typically, buyers are not in a position to submit an offer without them.
In real estate terms, a condition is a “subject to” clause stating a certain action
or event must be carried out before the contract becomes binding upon both parties. If either party does not carry out their condition, the contract ends.
Both buyer and seller must agree to the conditions along with the specified period of time to carry out the conditions (condition period).
The most common conditions a buyer may request are Financing, Home Inspection and Sale of Buyers Home.
Financing Condition: Once a buyer has found a home they wish to purchase, they must get approval from their financial institution. This condition protects the buyer so they don’t find themselves in breach of contract because they couldn’t get financial backing. Generally, if a buyer has been pre-approved (and we don’t recommend house shopping until they are pre-approved), the process of securing mortgage financing is fairly straight forward.
It’s important to note though, Mortgage Financing and a Pre-Approval are not the same thing; people often mistake the two. A Pre-Approval is the lender telling you how much you can afford by evaluating your current income, debts & expenses, while Mortgage Financing is the lender approving you for a mortgage on the specific property you’ve put an offer in on. They want to ensure the amount of money they’re lending you for that property is worth the amount you’ve agreed to pay for that property.
Financing conditions typically take 5 business days to procure. If a buyer is already pre-approved, 5 business days is generally more than enough time to waive the financing condition. Once the buyer receives the approval from their lender, the financing condition will be waived meaning the buyer no longer has an ‘out’ because of financing.
Property Inspection Condition: It is so important to have a home inspection done on a property by a bonded, reliable home inspector. Inspections on the average residential property can cost somewhere between $200 - $800 depending on the size of the property.
The inspector will do a thorough inspection of the home’s interior & exterior. He’ll check the roof, plumbing, heating, electrical and basement. He’ll advise of any suspected water damage, general maintenance issues and any items he feels need replacing or repairing.
The purchase contract states that the contract is subject to the Buyer’s approval of a Property Inspection. This basically means that a Buyer has an ‘out’ if they are not happy with the inspection findings.
A Home Inspection Schedule is sometimes included with a purchase offer. This schedule outlines the inspection specifications in more detail:
- This contract is subject to the buyer’s approval of a property inspection, performed by a licensed property inspector in the province of Alberta.
- AND, if the buyer chooses not to waive their conditions in the contract for any reason, the seller’s brokerage must return the initial deposit to the Buyer
- In the event the Buyer does not give the notice to waive/release the Property Inspection Condition, the Seller is entitled to a copy of the complete inspection report.
- The Seller must request the property inspection report no later than 9 p.m. on the second day following the Condition Day.
- The Buyer must provide the property inspection report no later than 9 p.m. on the second day following the day the Seller requests it.
I typically advise Buyers to schedule the inspection towards the end of the condition period when they’ve got a good idea whether or not their financing has been approved. This way, they are not shelling out the money for a home inspection if they can’t get mortgage financing.
Sale of Buyers Home Condition: Often times a buyer will find a home they like before selling their existing home. Most buyers are not in a position to carry two mortgages, so they will include a Sale of Buyers Home condition with their purchase offer.
How the SOBH condition works is, the buyer will ask for a certain period of time (30-60 days depending) to sell their existing home in order for their new purchase transaction to be completed. It’s a risky situation for a buyer because the seller can still accept back up offers.
A Sale of Buyers Home Schedule must be included with the purchase offer. It states that :
- The buyers must have their existing home listed within 24 hours of an accepted purchase offer
- The seller’s brokerage will continue to advertise and market the property until the buyers waive all of their conditions include the Sale of Buyers Home condition
- The seller’s can accept a back-up offer (‘Second Contract’)
- A back-up offer can include a Sale of Buyers Home Condition
- A specified time period that the buyer would have to waive all their conditions should the sellers accept a back-up offer.
Conditions are included for the most part to protect the buyers. Any purchase contract has some level of risk. It’s important to understand what you’re offering or accepting when it comes to any real estate transaction. A trusted, qualified REALTOR® will walk you through the steps and ensure that you’re protected at all stages of the real estate transaction.
ABOUT THE AUTHOR: Meagen Mackenzie is a REALTOR® and Accredited Staging Professional with RE/MAX iREALTY INNOVATIONS
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