Getting ready to make an offer of purchase on a house is an incredibly exciting moment. As with any other step of buying a home, of course, you’ll want to make sure you know what you’re getting into. Before you get to this crucial moment, we’re going to cover what you should know about offer conditions so you can feel confident when the time comes.
Conditions of an Offer
When you make an offer, you will have to decide if you want to add a condition to your intended purchase price.
What is a conditional offer?
A conditional offer means that you are putting in your offer based on the result of your said condition. If the condition is not met, you are allowed to get out of the contract and the full amount of the deposit is returned.
What is an unconditional offer?
An unconditional offer contains no conditional clauses, otherwise known as a firm offer. Once you sign the offer, it becomes a binding agreement and your deposit becomes non-refundable.
Conditions may reduce some of the risk on your end but may also make your offer less enticing to the seller. It will be up to you and the real estate professionals you’re working with to decide which is right for your scenario.
Here are the three most common conditions of an offer:
1. Condition of Home Inspection
Home inspections are never a bad idea. Though buying a home is generally seen as a good investment, buying a home with serious (but hidden) issues could cost you a lot of money down the line. Home inspectors will take a thorough, professional look at the property, taking into consideration areas such as the roof, overall structural integrity, plumbing and electrical systems, drainage foundations and even appliances. The home inspector’s role is to inform you of the condition of the property and highlight any defects and necessary repairs.
What if the home inspection comes back with many issues reported?
A home inspection highlighting many flaws is of course disappointing but is a life-saver in the long run. Using the home inspector's report, you can decide based on their findings as to whether or not to continue the purchase, request repairs or lower your previous offer’s purchase price.
Should you negotiate with the seller if issues are reported?
If the home inspector comes back with a long or expensive list of needed repairs, you can go back to the seller and ask for a reduction in price. Before doing this, it’s always best to consult with your real estate professional for professional advice.
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2. Condition of Selling your Current Home
When an offer is conditional on the sale of your current home, it means that you must sell your current home before the offer is considered secure. Depending on how long it takes you to sell your home, this could leave the seller waiting for a long time. If you're not able to sell your home relatively soon, this condition could put the deal in jeopardy. So, while this condition helps you by not having the financial burden of carrying both homes, it could potentially turn the seller off from your offer.
3. Condition of Financing
The Condition of Financing is important to ensure you can secure financing for your new home. Once you've made an offer on a property and it's been accepted, the lender will want to do an appraisal to confirm you’ve paid fair market value for it and that it's in good condition (read more about real estate appraisals here). The condition of financing protects you if your mortgage approval hits a snag. If your mortgage application is denied because you were laid off from work or your lender's appraisal came in lower, the condition of financing potentially gives you a way out. It’s also important to ensure you are pre-approved before putting in an offer to help secure financing.
“Should I put a condition on my offer?”
The real answer is that there is no right or wrong answer to this question. Every house, every buyer, and every situation has different circumstances and needs. The good news is that your real estate agent is there to help you and can assess your situation to determine the best decision for you.