Purchasing a home has a great deal of inherent risk, that is why sometimes buyers and sellers look to mitigate that risk by using certain protections when making an offer. That is where conditions on an offer to purchase come in.
When a buyer’s offer is accepted by a seller, both parties are entered into the contract. However, when making an offer, either party has the choice to make the agreement contingent on certain factors.
These criteria, or conditions, are clauses that would void or alter the purchase/sales contract if certain obligations are not met. These obligations can typically fall under three major categories: home inspection, mortgage approval, and lawyer’s review of the agreement.
Mortgage or Financing Condition
It is common sense not to purchase something that you don’t have the money to pay for, that’s exactly the purpose of a mortgage or a financing condition in your offer. The financing condition clause protects the buyer in the case they are not able to secure a loan.
This clause allows the buyer a predetermined period of time (usually 3-5 business days) to secure a lender that will issue a mortgage after the date the offer is accepted. If the buyer is unable to secure a lender that will commit to a loan, the buyer may invoke this clause of the agreement and walk away from the sale with the down payment and no other penalties.
It is always a good idea to get pre-approved by a mortgage lender prior to putting in an offer. This process will give you a better idea of what you can afford and what the lender is willing to lend you. Although the clause may allow you, as the buyer, to walk away from the transaction, it is always a good idea to have your mortgage lined up.
A home inspection is one of the most important clauses to include in a closing agreement. This contingency allows the buyer to have a third-party inspect the property after putting down a deposit.
The purpose of this condition is to ensure that there are no issues with the property such as damage. However, if something does appear to be wrong, a home inspection contingency allows the buyer several options. They may either request that it be fixed at the sellers’ expense, renegotiate the price to factor in costs of the repairs they would have to pay or ultimately back out of the sale. It’s rarely advisable to waive an inspection contingency, for more information of why home inspections are a must have, visit this blog.
Lawyer’s Review Condition
Before entering a binding agreement that may involve a very significant purchase such as a home, it is always wise to have the agreement reviewed by a lawyer.
There have been many cases where both buyers and sellers did not understand their obligations under a binding agreement of purchase and sale. Some of these cases have resulted in litigation and heavy financial judgements against buyers or sellers. Having a lawyer review clause in your agreement will allow for a few days to have the agreement properly reviewed, giving you peace of mind.
Waiving All Conditions in a “Hot Market”
The Real Estate market has been highly competitive across North America for the past few years with properties often receiving multiple offers and bids in attempts to purchase the property.
As a buyer, it is ultimately your decision whether you would like to waive or forego any certain conditions in order to make your offer more attractive to the sellers. For example, a seller would typically see an offer with no conditions more attractive than an offer with certain conditions.
Quite simply, it gives sellers more certainty as opposed to having to wait days for all conditions to be satisfied and risking having to re-list their property should the deal fall apart.
While removing conditions may increase your chances of securing the property, it comes with taking on additional risks. For example, if you agree to purchase a property without an inspection and find out there are damages and issues after the fact, those issues become your responsibility.
When making an offer on a home it’s wise to use an experienced Realtor that can help you ensure you have proper protection. If you have any further questions, rest assured that the Deeded team is here to support you in any way we can. We can connect you with one of our independent real estate lawyers who would be glad to assist you. Send us an email and we would be happy to answer any questions you have or provide recommendations to suit your situation.