Buying a home: What are Buyer and Seller conditions?

By Robin Tuck
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Buying and selling can be quite a daunting experience if it’s your first time. But it’s really not too complicated once you understand a few key concepts. Typically the sale process takes place in several stages, but this blog post will cover one stage in particular; home buying conditions and the conditional stage (sometimes known as being in escrow in the US).

The sale process (in Canada)

With any sale, the process in Canada is as follows:

  1. Offer stage – negotiation of terms, price and conditions
  2. Conditional stage
  3. Unconditional stage
  4. Closing or possession day

The offer stage

When you attempt to buy a property, typically you take a look at the property and decide on a price you’d like to offer. You then make an ‘offer to purchase’ to the seller, which is a legal document that details the proposed terms and conditions of the sale.

If the seller agrees with the terms (price, possession date, furniture to be included etc) and conditions (to be discussed shortly), then they will ‘execute’ the offer by signing the offer to purchase.

If one side wants to negotiate or change any terms, they will typically strike out, replace or add any terms they disagree with and add an initial to the change. This all takes place on the same document but once it’s changed it is known as a counter offer.

Once there are no more changes and both sides agree, the contract becomes ‘fully executed’, and the property is technically under contract and, if there are any conditions, it is ‘conditionally sold’. If there are no conditions, it will be unconditionally sold.

The conditional period

Once both sides have agreed, both sides will enter a conditional period where certain conditions need to be met before a certain date, in order for the deal to continue. This typically is the time when both the buyer and seller are able to do more detailed due diligence to make sure they’re comfortable moving forwards with the deal.

The deal is known as conditional at this point because if certain conditions are not ‘waived’ before a certain date, the contract will become void, and the deal is cancelled.

Conditions are typically included in an offer as a safety net for buyers and sellers, to make sure they can actually proceed with the deal and are genuinely buying what they believe they are buying.

When might an offer be unconditional?

In hot markets, we often see unconditional deals, where buyers will make offers with no strings attached. This is risky because if, for example, they can’t pay for it on possession date, they will be in breach of contract and are liable to be sued for damages (or at the very least they will lose their deposit).

During the latest housing boom in 2021/2022, we saw a lot of unconditional offers in Canmore. Canmore was an extremely competitive market at this time, and some houses would receive 10 or more offers within hours of the property coming to market. This was a challenging situation for buyers that were looking to move to the Bow Valley.

As a buyer, you have a few tools to make your offer more enticing to a seller. One option is to offer more money, and the other is to make an offer with fewer conditions.

Because each home buying condition is a potential reason for a deal to fall apart, any offer with fewer or less conditions is likely to be more attractive to a seller. An unconditional offer with no conditions is ironclad, and the seller is given a very high level of security that the deal will go through. So in a situation where there are ten other competing offers, a buyer is very likely to go for the one with no conditions, even in some cases where the offer is lower than competing offers.

How do home buying conditions work?

What are terms?

Each contract contains a terms section and a conditions section. Terms are expected outcomes in the deal; i.e. purchase price, what is included in the deal, how many sets of keys the buyer will receive, what day the deal will close etc. These are typically the most important parts of the deal and these generally get hammered out in the offer stage.

What are conditions?

Conditions, on the other hand, are essentially one or more items that need to be waived in order for the deal to proceed. They are essentially check stops for the buyer and seller to explore the property and deal in more detail to make sure they are buying exactly what they believe they are buying and that the deal makes sense for them.

If the conditions are not waived, the deal falls apart, the buyer receives their deposit back and there are no consequences for all parties involved (unless it is found that the reason for pulling out is not honest or in line with the condition requirements).

Conditions must have an expiry deadline. If the conditions are not waived by this deadline, then the deal will fall through by default. The reason for this is because it is far safer for a deal to fall through if something goes wrong than become legally binding automatically. So this is how the system works.

Conditions can be for any legal reason, but generally conditions fall into one of 5 categories:

  1. Home Inspection condition
  2. Financing Condition
  3. Condo document review condition
  4. Lawyer review condition
  5. Sale of buyer’s home condition

These typically cover every concern that a buyer would have when buying a property. A seller might also include a lawyer review condition as well, but typically sellers include fewer or no conditions. If any one or all of these conditions fail to be waived, then the deal falls apart.

Do I need to include conditions in my offer?

Conditions absolutely do not need to be included in a deal, but they are fairly typical because they protect the buyer or seller.

Nobody really likes entering a deal when their financing or the condition of the property is uncertain, so a conditional period allows us to address the areas of uncertainty without having to commit to the purchase and without the risk of losing out on the deal to someone else.

Conditions are not required, but if you do include a condition, it must be waived for the sale to continue.

Can the house be bought or sold to someone else while I’m conditional?

While a property is conditionally sold, nobody else can enter into a contract to purchase the property from the seller. They can enter a backup offer to be next in line if your deal falls through and conditions aren’t waived, but their offer will have to include a condition that says the offer is only valid if your offer falls apart.

Types of home buying conditions

1. Home Inspection condition

When you first tour a house, it’s a very superficial skim through the property. You’ll probably make an offer based on the property at face value and your best guess at its condition.

But you may have absolutely no idea what state the property is actually in. If you’re experienced, you may be lucky enough to know a bit about certain parts of the home, but in general, most people don’t know how to tell the good from the bad.

A home inspection condition buys you some time to bring in a home inspector, who will go through the house and inspect the property from top to bottom.

What does a Home Inspector do?

A home inspector is a certified expert that will go through every system in the house, one by one and give you a accurate snapshot of the condition of the building.

If your boiler is 45 years old and in need of immediate replacement, or you have Poly B piping that may be hard to insure, or if your roof is leaking etc. they should be able to spot it.

Generally a home inspector would come up with a list of major or minor issues that may need attention in the future and present it in an easy to interpret report. This is extremely useful information for you as a potential home buyer. It can also sometimes be useful for a seller to have.

Typically a home inspection would cost around $300 in the Bow Valley, but they can be more or less depending on the property size. They’re not cheap but are absolutely worth it for two reasons:

  1. If there is a major issue in the building (e.g. asbestos, ground contamination, cracked foundations etc), it gives you the ability to walk away from the purchase without recourse.
  2. If there is a minor issue that needs fixing, it can be a point of negotiation with the seller.

Even if you are buying a property as-is, a home inspection can give you a much clearer idea of what to expect in your purchase. It also gives you the right to walk away if you find something that would be too expensive to fix.

I will go into home inspection reports and using them to negotiate in another post (watch this space!) soon.

Once your home inspection is completed, and you’ve read the report, you’ll have three choices:

  1. Waive your home inspection condition
  2. Don’t waive your home inspection condition and walk away from the deal
  3. Amend the contract to reflect some requested changes in the contract (for example, repair a roof leak). Once this is amended and accepted by both sides, you can go back to step 1 and waive your home inspection condition.

2. Financing Condition

Life is never simple, and although you may be pre-qualified for a mortgage amount, you are still probably not 100% certain that a bank will finance you on a specific property you’re interested in.

Banks are becoming increasingly challenging when it comes to financing. Some are now asking for full condo documents or flat out refuse to finance if there are certain things in the property (for example, poly B piping or baseboard heaters).

But with banks, it’s a catch-22. You can’t really know if you’re going to get financing for a property until you’ve tied it up and can tell the bank what the purchase price will be.

So a financing condition is a great way to tie up the property, agree to a price and then take the contract to the bank to approve.

If the bank refused to finance you for the property, it could be financially crippling if you were forced to complete the deal. This is why I would absolutely never recommend offering without a financing condition if you need any kind of financing to complete. If you’re a cash buyer, you probably don’t need one.

Typically a couple of weeks is reasonable for a bank to decide if they can finance. Again, if they say they can’t, you can send a non-waiver of the financing condition, and safely pull out of the deal.

3. Condo Document Review condition

A condo document review condition is something you would only include in a condominium purchase. This condition allows you to request and examine the documents pertaining to the condominium board and the management of the condo board as a whole.

Typically you would receive a whole bundle of documents from the seller, including condo bank financials, a reserve fund study, AGM and general board meeting minutes, insurance documents and an estoppel certificate.

Basically you want to do your due diligence and make sure that the condo board has enough money in its reserves to ensure you can fix everything that needs to be fixed, and that there are no major red flags hiding out of sight. If the AGM mentions a possible special assessment or cash call down the line, you would want to know about it!

Basically if you find anything dodgy in the documents, the condo document review condition allows you to walk away without any issues.

4. Lawyer Review Condition

The Lawyer review condition is really a catch all term that allows your lawyer to look over the contract and make sure that everything in the contract is in order. They may go through the purchase contract and find a sneaky term that puts you in a compromising condition and recommend you walk away, for example.

There are also times where a sale is complicated and you may need a lawyer to go over everything to make sure the sale is legal and above board. For example, if the property was inherited or you’re a power of attorney selling a property on behalf of someone, you’d really want an expert to double check that the property can be sold at this time.

5. Sale of Buyer’s property

One of the most complicated kinds of deals is when a buyer is trying to purchase a property but they are simultaneously trying to sell their own home to afford it.

In these cases, timing is crucial and you need the conditions to make sure you’re not locked into buying one home before your other one has sold. This can be quite a tricky deal to push through, and is more common in slower markets when a seller has no alternative.

As a buyer, you keep this condition until you have waived all conditions on the sale of your other property. That means if your home sale falls through, you can still pull out of the new purchase as well. The deadline for the conditions on the house you’re purchasing should always be later than the deadline on the conditions of the house you’re selling. Otherwise you could be forced to carry two properties if your home sale falls through.

How do I waive my conditions

To waive your conditions, there is a simple form that must be filled out that essentially says, “I, the buyer, waive the following conditions in the contract….” and then the conditions you’re waiving are listed.

This form must be sent and received by the deadline that’s stated in the main contract. If you miss the deadline, then technically the deal is dead and you have to resubmit a whole new contract. If both parties still want the deal to happen, it’s not the end of the world and the deal can generally be revived. BUT, if you have to resubmit again, technically the property is available again and someone can scoop the property from you.

Or the seller/buyer can decide not to enter into a contract with you again without any recourse.

Non-Waiver of conditions

If you decide not to waive your conditions and have decided to pull out of the deal, then technically, all you need to do is wait and the deal will expire automatically. However, it is customary to provide a ‘non-waiver’ of conditions, which is essentially the exact same as a waiver document, except it says you will not be waiving. It’s essentially the official end of the purchase and it’s a the official way to say you’re walking away from the purchase.

Rules for not waiving conditions on a property purchase

In theory, it is only legal to not waive a home buying condition if your reason aligns with the condition.

For example, let’s say you’ve included a financing condition but decided not to include a home inspection condition in your offer. Your financing is successful but then you do a home inspection anyway and find there is asbestos everywhere. Technically it isn’t legal to pull out of the deal because of the asbestos, because the condition of the property wasn’t a condition of the deal.

It is only really acceptable or legal to pull out of this deal and not waive your financing condition if you couldn’t get financing, not because you got cold feet or found out something about the property that you didn’t like. This is why having a financing condition and a home inspection condition is important if both of these are important to you.

How long is a conditional period?

A conditional period can be as long as you like, but typically it’s common to make it as short as possible so as to not drag out the sales process. Also, we don’t want to tie up our property for too long with someone that isn’t going to close on the property, so shorter is better for everyone involved.

If a buyer or seller needs more time, the contract can always be amended to allow more time or extend the waiver deadline. This is often what happens if financing drags on longer than expected and is totally fine as long as everyone agrees.

If the seller has plenty of interest, they may decide that you’re a risky offer and go in a different direction. They may choose not to extend, let the deal fall through and go in a different direction.

As for typical duration, there are no set rules, but typically about 2 weeks for buyer conditions is common.

How long are seller conditions typically?

Typically seller conditions are fewer and should require less time. Often a buyer won’t want to spend money on getting a home inspection or a bank appraisal if there’s still a chance that the seller could pull out. So typically a seller may have a week (or more sometimes) to make sure everything is ok on their end. The buyer conditions would generally have a later deadline than the seller.

Why are conditions important?

Conditions can serve three functions really:

  1. They allow you to walk away without issues if anything comes up that is unacceptable to a buyer or seller
  2. They can serve as a negotiation point for buyers or sellers if issues do come up. For example, if there is a roof leak, the buyer can demand it’s fixed before waiving their condition
  3. It allows the buyer and seller to explore the sale and do a deep dive into the sale without risk of the deal being scooped from beneath their feet. They can also tentatively commit to the deal and do due diligence without without risk

When would a buyer not want to add conditions?

Every additional condition on a deal is another way the deal can fall apart. A deal with no financing condition is significantly stronger than an offer that has one included.

An offer with no conditions at all is called an unconditional offer, and you (as a buyer) may want to make an offer like this in a hot market where there is lots of competition and you’re trying to beat everyone else to the punch.

A good unconditional offer

Let’s say you’re purchasing a property in cash, with the intention of demolishing it and building something new. There would be no need for a financing condition, probably no need for a home inspection and potentially no need for a lawyer review. This would allow you to make a firm offer, which is generally the most attractive offer.

Typically if there were two similar offers, I might recommend a client take a slightly lower one with no conditions over one that has 3 or 4. It’s the safer bet, but it obviously depends on the client’s appetite for risk as well.

A bad unconditional offer

As was seen in 2021, there are times when unconditional offers can come back to bite the buyer. In Ontario, many buyers were so desperate to purchase properties that they were putting in unconditional offers on quite risky homes.

They would secure the property ‘as-is’, only to find that the home was riddled with deficiencies and issues. This can prove to be an extremely expensive mistake, and because they purchased it as-is, without inspecting, it’s their issue now!

Final thoughts

So that was a fairly comprehensive run down of real estate conditions and the kind of situations where they play a valuable role in real estate transactions. They’re enormously important to know about as a buyer and as a seller, and may save you tens of thousands of dollars in the long run if used correctly.

If you have any questions regarding conditions or any other aspect of real estate sales, don’t hesitate to fill out the contact form or email me at info@robintuck.com

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