You’ve found the home of your dreams and you’re ready to present your offer to the seller. You know the dollar amount you want to include and you’re hoping it gets accepted but, before you start embracing your new community and dreaming of backyard BBQs, you’ll want to consider some important conditions.
Once you’ve made the decision to buy, a legal contract outlining the details of your agreement is prepared. This is known as an Offer to Purchase. In addition to specifics such as the sale price, terms and closing date, the offer also outlines conditions, or contingencies that must be fulfilled before you agree to finalize the transaction. Conditions within an Offer to Purchase, such as securing financing, undertaking a home inspection and selling your current home (if applicable) are designed to protect you against unforeseen problems.
Not surprisingly, the most important condition is based on your financing, without which there is no deal. Having your mortgage agent secure a pre-approval is a good place to start when house-hunting, but isn’t a guarantee of secured financing. You need to receive confirmation from your mortgage agent that you’re approved for the necessary funds based on a specific property.
Another extremely important condition is the home inspection. A professional home inspector will evaluate the property, both inside and out, and determine whether there are any areas of concern. You’ll receive a written report and it’s up to you to determine whether any possible issues identified would prevent you from buying the home.
If you’re an existing homeowner, you may also want to include a condition that the purchase of your new home is dependent on the sale of your current home, especially if you’re using the money from one property to buy another.
Why conditions are important
Real estate transactions involve many moving parts and substantial sums of money, so it’s vital that you protect your interests. While the thought of having to walk away from your dream home may be disheartening, the possible repercussions of excluding conditions in your contract could be much worse. There have been some cases where buyers have been sued for hundreds of thousands of dollars so, while potentially cumbersome to the seller, they’re essential to responsible home buying and financial peace of mind.
If, for some reason, you’re unable to obtain the required funds, and with satisfactory terms, a financing condition will allow you to back out of the deal. It’s not enough, however, to simply have a change of heart and say you weren’t able to secure financing. You’re required to act in good faith and demonstrate that you’ve made serious attempts to obtain the required funds but were turned down by your lender. You can face serious legal action if the seller feels proper attempts weren’t made.
If you’re prepared to buy the property without a financing condition and then discover you can’t obtain the funds, there could be serious implications. As an example, if the seller finds another buyer who ends up paying a lesser amount than you were offering, you may be on the hook for the difference, which could be significant.
Imagine the consequences if you don’t insist on a home inspection. Everything looks fine but, after moving in, you discover significant foundation defects or a leaky roof. These issues would have been discovered through a home inspection and protected you from costly expenses. Your home inspector can also identify any structural or wiring concerns that aren’t to code, which may affect your insurance. There are also many safety and health-related issues, such as radon, carbon monoxide and mold that can be detected, and a home inspection clause will allow you to walk away from the deal. Alternatively, you may be able to use the results of the inspection to negotiate a lower purchase price.
And what if you decide not to include a condition based on the sale of your current home? Will you be able to carry two mortgages if your home doesn’t sell? The repercussions could cost a small fortune. By including a condition of sale in your offer, you’re securing your new home while you sell your existing one. There’s usually a timeframe stipulated in the contract and, if you don’t sell your home during that period, you can walk away from the deal.
Have questions about conditional offers? Answers are just a call or email away!