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Know the Risks of a No-Conditions Offer

Sale conditions help protect you. Yet you may feel pressured to leave them off.

In a stormy seller's market, buying a home can be tough. Taking off all sale conditions is like jumping in the water without a floatie — your clean offer will appeal to the seller, but you're now exposed to risk.

Jumping in conditions-free? Here's what you need to know.

Taking off all conditions to buy a house (called a 'clean' or 'firm' offer) can make your bid a lot more attractive to a seller. It also means that you're swimming free and unprotected if something goes wrong. All of the sudden — you may find that you're UNABLE to pay for the home with a mortgage loan or cash, or that unforeseen major repair expenses or safety issues are lying in wait AFTER you've signed on the dotted line.

It's simple, sale conditions protect the buyer. But a seller can hold all the cards when there's intense competition for their home. So if you feel that you need to go in clean — be prepared and take steps to reduce your risk.

What exactly is a no-conditions offer?

  • It goes to the seller stripped of the usual conditions of sale that protect you from certain risks. For the seller, those same conditions can interfere with the final sale, if something happens and you decide to back out.
  • Once this type of offer is accepted by the seller, that's it — the sale is immediately and legally binding.
  • If the financing doesn't come through, not only will you forfeit the sale, you'll lose your deposit and may face legal action from the seller to cover any losses during the time frame. And because you waived all conditions, you get the house as is, with little-to-no heads up if a ton of repair costs await.

A sale offer with conditions means that the title remains with the seller until all conditions are satisfied by a specified deadline. Will a home inspection turn up past flood damage? Will the lender not provide a full mortgage approval, even though you've been pre-approved? With conditions, you have a level of protection — and the ability to back out — before 'officially' being on the hook for that particular home. The seller is still able to consider other offers during the conditional period, but has to allow you first right of refusal.

Another type of clean offer can be a pre-emptive bully offer, which attempts to get in ahead of the traditional offer process.

What sale conditions are typically waived?

The four big ones are: Financing, Sale of Home, Home Inspection, and Condo Document Review. Waiving them can expose you financially and legally. Plus, there may be a safety risk if the home is in a bad state of repair. If you need a mortgage to buy the home, you'll be at the lender's mercy; if it's an outright cash offer, it's important to have the cash available by the closing date.

Financing Condition Allows you time to be assured of final lender approval or to know if an appraisal will demand more money to fund the deal Your mortgage approval could be denied, or you may be unable to provide the extra cash for an appraisal shortfall
Sale of Home Condition If the sale of your current home falls through, you can back out of the new home sale as you won't have the funds in time If the sale of your current home falls through, you'll still be required to pay for the new home
Home Inspection Condition Allows you time for a professional home inspection and to go back to the seller or back out if major issues are found The home may need major structural or system repairs that you can't afford, or that interfere with living safely in the home
Condo Document Review Condition Allows you time to understand the specific operation and maintenance details of the condo to assess future costs and risks You may be unprepared to contribute to major-repair funds or condo fees, or be unaware of upcoming construction projects

Are there other risks in taking off all sale conditions?

In addition to the above risks, you may be taking on:

  • Major issues that may affect your home's value. Is there mould or pests behind walls, or a retaining wall that isn't retaining? Certain problems may reduce your home's resale value and affect your financial investment strategy.
  • Proving that the seller knew of existing major defects. A seller legally has to disclose major defects, such as asbestos, mould, or previous flooding, . But if you're looking for legal recourse after you take possession, it would have to be proved that the seller was aware of issues when selling to you.

Why are no-condition offers even a thing?

In a buyer's market, the buyer has the advantage (and more rights).

When housing markets are in a state of high inventory or less buyer interest, the lack of competition for a home usually means being able to add sale conditions and the seller (mostly) has no choice but to accept — they want to sell their home.

Here's a simple illustration of a buyer's right to add conditions, in this case adding a clause of 'adequately passing a home inspection' to finalize the sale:

Buyer: The home inspection report indicates that the heating system of the home needs to be replaced immediately. Are you willing to reduce the price of the home enough so I can afford to fix it?
Seller: No, this house is worth the price I'm asking.
Buyer: Buh-bye! (With this condition placed on the sale, the buyer can back out and keep looking for a better choice).

Now put that idea on repeat for any other problems that may crop up to when trying to buy the home of your dreams, like your mortgage financing not being approved, your existing home not selling, or discovering a crack in the foundation. With conditions, you have more rights and are more protected.

But in a seller's market, the seller has the advantage (with buyers feeling pressured to give up certain rights).

When buyers are plentiful and inventory is low, the seller is in the driver's seat to make (a lot?) more on the sale and take on (a lot) less risk through buyer conditions. When the offer process descends into an all-out bidding war, taking off all sale conditions can entice a seller to accept your bid above others. A no-conditions offer protects the seller and their sale. With bids tripping over each other to win the sale, no conditions mean a seller doesn't have to wait for your mortgage approval to line up, or a home inspection that might tank the sale or force home fixes to finalize the deal.

And usually, all it takes is one — one buyer putting in a no-conditions offer to beat out the competition, and then suddenly other buyers in a heated market are considering this tactic to try to buy a home.

How can you reduce your risk?

A trusted realtor can be an essential guide. An experienced realtor who advocates for your best interests can help choose the right strategy for your no-conditions offer, such as a home that may carry less risk for repair, appraisal or funding issues, or outline other details to reduce or prepare for potential pitfalls.

A solid mortgage pre-approval outlines your financial leeway. The right broker can help you thoroughly understand your details and outline the possible financial strategies. Down payment, income source, credit standing? These all factor into having a solid pre-approval to make an offer you can live with. For your full approval, you'll have access to several lenders, not just one, should you need an alternative lending solution.

A 'walk-through' home inspection at your first viewing may provide valuable info. If you have time to view the home, take a home inspector with you for some eagle-eye advice. They'll only have 30 minutes (compared to 2+ hours for a full one), but it may help you avoid the risk of living through major repairs.

The age of home system elements can be a useful clue. If you can't do an inspection, your realtor can at least ask the seller about the age of certain elements, such as the roof shingles and furnace/HVAC system, to provide some insight on when they might require replacement.

The seller may have a previous home inspection. You can always ask if the seller will provide a copy of a previous report. It'll likely be outdated, but could provide you with the backstory to shore up any concerns. Keep in mind that they selected the home inspector, not you.

Look for less home. Easier said than done, but in high-octane markets, buying a smaller home, or one that's not in your preferred area, may allow you the pre-approval wiggle-room for less risk of the deal falling through, and help you get into the housing market.

Your down payment can make a difference. Your expert mortgage broker can help you assess your home-affordability and whether you should shore up your down payment. First-time buyer programs and rebates, gift from parents or relatives, foregoing a major upcoming expense like a holiday or a new car, or borrowing from your other investments may help reduce your risk and strengthen your mortgage application with a lender.

Fortune can favour the prepared.

Get better rates and great advice to plan your no-conditions bid.

If you need help with a financial strategy to get a home in today's turbo-charged market conditions, talk to us. We're with you from beginning to end, for your stress-free mortgage approval process. We'll outline the details for your clearer decision and help you save more — with your best rate, and a mortgage product with flexible options and no hidden fees.

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