In a seller’s market, there is keen competition for homes in many price brackets. Buyers are anxious and worried about losing a bidding war on a seemingly perfect property. Furthermore, the heated market may cause buyers to feel pressured to make an unconditional offer. No inspection. No financing condition. No condition to sell the buyer’s current home…and there are others that could be included. In the absence of any conditions, some buyers even include a large deposit to indicate to the seller that they are serious.
Unfortunately, many things can and do go wrong in the sales process for a home; big things that may get the buyer who did not include conditions in a lot of hot water! For example, on an ordered appraisal and inspection, multiple deficiencies may show up and the Canada Mortgage and Housing Corporation may refuse to insure the property. As a result, lenders may refuse to finance the transaction. The buyer may then have no choice but to back out of the deal. They will, in turn, lose their deposit and may be sued by the seller for breach of contract, the damages for which could be the full purchase price. Even the strongest clients can get burned (i.e. salaried, full-time employees with many years on the job, a good down payment and excellent credit). In fact, it’s often the property rather than the borrower that can cause the deal to fall apart.
Thus it is always best to include conditions in the offer or at least be fully aware of the risks of not doing so. If the conditions are satisfied within the allotted time frame, the offer becomes “firm and binding” and buyer and seller can happily proceed toward closing. If not, the deal is off, and the deposit is returned to the buyer.
Download the PDF: Concepts Newsletter – Spring 2010