What Conditions Should You Put on a House?
If you have been looking to enter or re-enter the Canadian real estate market, you may have realized there are many terms that you do not fully understand. Whether you are a buyer or seller, it is important to inform yourself before entering into the property sale process. In this guide, we will be covering conditional come sales and answer a number of common questions: What does conditionally sold mean? What is an escape clause in real estate? And more.
| What are Conditions on a House? | Types of Conditions in Real Estate | Are There Risks Associated with Making a Conditional Offer on a Property? |
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What Are Conditions on a House?
When real estate professionals talk about conditions on a home, they are likely referring to a conditional offer. A conditional offer is an offer for a home, made by a buyer, that is tentative upon certain conditions being met. This practice is usually bound legally by a conditional sales contract — which outlines the conditions that need to be met for the sale to proceed. At times, there are also real estate conditions for buyers such as financing conditions, or the sale of buyer’s property condition.
Types of Conditions in Real Estate
There are many types of conditions in Canadian resi real estate, some covering the buyers and others the sellers. Here are a few of the most common real estate conditions and terms:
- Condition Precedent: In simple terms, a condition precedent is a circumstance that must be met before the home can be sold (e.g. the home inspection must be passed)
- Condition Subsequent : A condition subsequent is essentially an event that “pulls the trigger” and immediately voids the deal (e.g. if certain documents are not provided to the buyer with X days of the home purchase, the deal is considered to be null and void)
- Financing Condition: The sale is contingent on the buyer’s ability to secure financing . If the buyer fails to receive complete mortgage approval, the sale can be voided.
- Condition of Sale of Buyer’s Property: The sale is contingent on the buyer’s ability to sell their current home (assuming the home purchase is part of a move)
- Home Inspection Condition : The sale is contingent on the buyer conducting a home inspection and signing off on the results (no problems found)
- Condition to Review Documents: The sale is contingent on the seller providing the buyer with certain documents for review within a certain timeframe
Are There Risks Associated with Making a Conditional Offer on a Property?
As with any real estate contract, there are certainly risks involved with signing a conditional offer. The most obvious risk involved is that the conditions outlined in the document are not met, and therefore, the deal does not go through. Even in cases where the sale ultimately goes through, unmet conditions can lead to delays, paperwork, and, in some cases, legal battles.
Another common clause of concern is the financing condition. If you are looking to buy a conditional offer home, it is important to note that there is always a chance your credit standing will drop between the offer signing and the closing date — even if you have been previously pre-approved for a mortgage . The best way to mitigate this risk is by avoiding making any large credit card purchases or taking out any other loans and ensuring you are making all your loan and credit card payments on time — especially in the weeks leading up to closing.
Of course, conditional offers can also be a very positive thing. In many cases, making a conditional offer gives you flexibility and reduces the risk associated with committing to the property.
“While a conditional offer might delay the finalization of a property purchase, it is important to remember that conditional clauses in most real estate contracts are ultimately there to protect you.”
— Linda Mac , Underwriter & Mortgage Broker Level 2
To learn more about whether a conditional offer contract is right for you, and would align with your mortgage financing plan, contact Clover Mortgage today to get started with a free consultation.
FAQ
What is a financing condition, and why is it important in a purchase offer?
A financing condition is a provision in the seller’s offer to purchase real estate. It gives a fixed period to confirm that the home's mortgage has been approved before finalizing the purchase contract. This essentially makes the offer on the home conditional on receiving the appropriate financing, protecting the buyer with an escape clause.
How does a home inspection condition protect buyers in Canada?
While home inspections are no longer mandatory when selling a home in Canada, buyers can make an adequate home inspection a condition precedent of their purchase offer. During a home inspection, the evaluator will collect detailed notes of the home’s condition and any necessary repairs, preparing a report with a pass/fail rating. A home inspection could save the buyer a lot of money in the long run, identifying major issues before purchasing the home and adjusting their offer accordingly. Although this process is not mandatory, it isighly recommended for all home buyers!
What is the purpose of including a sale of buyer's property condition?
The sale of buyer’s property condition stipulates that if the buyer’s property does not sell within a specific timeframe after purchasing a new home, they can walk away from their new purchase agreement. This condition also gives the seller the right to continue showing the home and collecting offers within this timeframe, ultimately taking the second offer if the buyer fails to meet the condition. The sale of buyer’s property condition is greatly beneficial for both the buyer and seller, ensuring that the buyer is not stuck with two mortgages while also helping the seller solidify a buyer.
How can an appraisal condition affect the home buying process?
A home appraisal condition is a contingency that allows the buyer to withdraw from the purchase if the appraisal is valued at less than the agreed-upon purchase price. Such an appraisal is ordered by the bank when looking to secure a mortgage and determines if the price paid for the property is reasonable based on the current market. If the appraisal comes in below the price paid, the lender will only approve a mortgage for the value of the appraisal, leaving the buyer to pay the difference out of pocket.
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