Practice Tip: The Ins and Outs of Conditional Sales
| February 05, 2020
Imagine this typical scenario: you’ve listed your longtime client’s home and they receive a conditional offer at the asking price. Your seller clients accept the offer and take their home off the market.
Your client is already picturing their happy ending. But as you know, depending on the details of the purchase agreement, the deal could still fall through.
As a real estate professional, it’s important to discuss conditional offers, the negotiating process, and deposits with your clients BEFORE you list the house. Ensuring your client is educated on the factors, implications, and limitations of a conditional sale can avoid a lot of future dissatisfaction.
With conditional offers, the buyer may walk away from the offer completely, and may be entitled to have their entire deposit returned if they don’t waive conditions. While this is fairly standard for you, it isn’t an everyday thing for your clients. They may be confused and frustrated.
Inform your Client
When entering into a purchase contract, your seller client expects the buyers will make their best efforts to fulfill the conditions by a certain date. But what if the buyers do not waive conditions and your sellers aren’t convinced the buyer put in their best effort? Well, as you know, perception isn’t the law.
Sellers need to be aware that there’s risk involved with accepting a conditional offer to purchase that may result in having to return a deposit. Just because the deposit has been delivered and now sits in a brokerage trust account, doesn’t mean it’s your seller clients’ money. Yet.
Part of providing your client with competent services means working to help them understand the ins and outs of deposits, money held in trust, and conditional offers. Sit down with your clients and review the Residential Purchase Contract template.
Conditions to manage the seller’s risk
The standard purchase contract offers opportunity to create firm conditions without having to draw up a contract from scratch. However, the template as is, presents a sufficient amount of leeway—with vague wording that could make it easier for buyers to withdraw their offer.
In order to ensure the contract works in the best interest of your client, you should advise them to make their conditions as specific as possible to mitigate any uncertainty or alternative interpretations.
The following are examples of clarifying provisions that could manage the seller’s risk:
- in order to cancel the contract because of financing, the buyer is required to provide a decline letter from a lender
- conditions on a home inspection to contain parameters with specific details such as who can perform the inspection, e.g. inspection must be completed by a licensed professional with proper qualifications, or costs to repair not to exceed an agreed upon amount
- if there is a condition that the buyer must sell their current home first before purchasing a new property, they must provide a copy of their listing agreement to indicate they did, in fact, attempt to sell their home by the closing date
The more detailed the parameters, the more likely it will be that a buyer cannot refuse to waive conditions simply because they changed their minds on the house.
Making an offer is a serious matter, with serious money attached. Understandably, your seller clients can be dissatisfied with outcomes if a conditional offer does not reach completion. Ensure you educate your clients on the limits of conditional sales, so they understand what could happen, how to protect themselves from flaky buyers, and keep your relationship positive.