Buying and Selling with Conditional Offers

What is a Conditional Offer?

When a buyer brings an offer to a seller, it might include, alongside the price and closing date ‘conditional on…’ The most common conditions are home inspection and financing. The buyer is saying, for example, ‘I will pay you this for your home as long as my mortgage gets approved.’ Why do this? Because once all waivers are signed, it’s a done deal, and there are very few things that will get either party out of it so it’s safest for the buyer to ensure they have the latitude to do things they need to do.

It it can feel risky to the seller when a buyer includes conditions, because they could lead to the deal falling through. The best thing the seller can do to avoid that happening is disclose, disclose, disclose. If they know anything that could possibly affect the sale just put it out there right up front.

Home Inspection Impact

As a buyer it’s important for the condition to be written so as not automatically give the seller the option to fix it so they can make the deal go through. You can certainly negotiate who fixes it but leave yourself the room to walk if you wish. So, if the Inspector finds something like vermiculite that has been infected with asbestosis, you can back out completely or say to the seller “you have to fix this to my satisfaction or reduce the purchase price enough for me to take care of it.” The buyer may then find a quote that the seller feels is too high, or if the seller wants to fix it the buyer may not feel confident it will be done properly – so they negotiate.

The Financing Condition

This one can be very important because a buyer cannot be approved for a mortgage on a specific home until the deal is drafted. They could go in confident in their pre-approved financing and other arrangements only to find the bank does not agree on the value of the home and will not provide a full mortgage, or the promised assistance from the in-laws falls through.

In a really competitive market you may feel pressured not to include conditions in your offer in order to win the bid. If you do that you need to be 100% confident you can deal with the result if something comes up, like an alternate way to cover the mortgage if the bank says no. That’s a tall order.

Don’t be Scared Off

These conditions and actually finding a problem does not have to make the deal fall apart. It’s all about negotiation. On a home inspection issue, maybe the buyer gets multiple quotes and presents them to the seller for discussion, or the seller agrees to provide a guarantee from the professional they hire so the buyer knows it was done properly. Maybe the buyer needs more time to find alternate financing. There is always a way to make both sides happy.

This is where you need to be confident that your agent is experienced at solving problems, plus well-liked, respected and known to other agents, and carries some clout. If a deal falls through it can not only waste valuable time but stigmatize the home, so the selling agent needs to feel confident in what the buying agent is telling them (such as, “I know my clients will be clear on the financing, we just need to cross ‘T’s and dot ‘I’s”) in order to recommend that their clients accept the condition. The buying agent also needs to feel confident that the selling agent has done everything properly, including disclosing everything they should.

What Can De-rail Things After the Deal?

There are a few things that can make it all go pear-shaped after everything is signed, such as lawyers disagreeing on a legal detail, or something that should have legally been disclosed by the selling agent comes to light. For example, if it’s found that a violent death happened on the property and the agent did not disclose this, the agent can be sued and the buyer has legal recourse to back out of the deal. I had a client forbid me to disclose a violent death that occurred on her property and my governing body advised me to resign the listing. I did, another agent took it up but did not disclose the death.

Smart agents wouldn’t even take the risk or put their clients at risk and disclose up front. Experienced agents can also solve many of these problems. I had a scenario where the lawyers delayed the close so suggested the buyer move into the property and pay rent until the lawyers sorted out their issues. It all worked out in the end.

This is Not a Game

There is a lot of money changing hands, and a lot of emotions involved. Your agent has to know and respect people’s beliefs and fears (i.e.: violent death on property), their needs and desires, as well as the law. They need to be resourceful and able to garner the trust and support to solve any problem. You need a really good agent to represent you, who works in your best interest, knows what they’re doing and has the clout to do it – you do not need an agent who will just push a deal through.

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