When you are thinking about buying a home, it is important to understand the meanings of a firm offer and a conditional offer. These terms come into play when you are submitting an offer on a house and it’s important to understand what these terms mean and how they can affect the strength of your offer.
Once you find a home you would like to purchase, your real estate agent will help you decide what type of offer to submit.
A FIRM OFFER
If you believe there’s no need for a home inspection, or you don’t need to finalize your financing with your bank, you can submit a firm offer. This tells the home seller that you are committed to buying the home with no conditions. Firm offers tend to be the most appealing to sellers because they don’t need to wait any longer for their house to be sold—it’s a done deal.
On the other hand, what happens if you need a little more time to get your affairs in order before you lock yourself into a purchase? That’s when the conditional offer comes into play.
A CONDITIONAL OFFER
Conditional offers are exactly what they sound like—conditional. A conditional offer is an offer to buy a house but with some conditions that need to be taken care of before the sale can be finalized. They include the following:
A HOME INSPECTION
A home inspection is one of the most common conditions when submitting an offer to buy a house. This condition means you want to buy the house, but you want a licensed home inspector to look at the home first to make sure its structurally sound and not hazardous. For conditional offers, your REALTOR® will include a due date for when the inspection need to be completed. The deadline is usually around a week or ten days.
Home inspectors are use to find out if there are any major problems with houses and this can affect your offer on the property. If there are any problems with the home, you may be able to reduce the price that you’re offering on the property to compensate for the cost of work that needs to be done. If the workload is too cumbersome, you can use this as a reason to walk away from the deal entirely.
You may also wish to include a financing condition with your offer. This tells the seller that you are interested in buying the home but you need time to get approved for a mortgage. With a condition to finance offer, you indicate how long you need to secure a mortgage on the property and guarantee you can afford it.
If you are unable to secure financing, the sale can be ended and you can walk away.
To find out more about getting your finances ready, read How To Get Pre-Approved For a Mortgage.
When you submit an offer on a condominium, you will probably want to have your lawyer look over the condominium corporation’s Status Certificate. The Status Certificate is a document that specifies what condo fees go towards, and if the corporation is in good standing. It assures you that when you begin paying condo fees they will be going towards the appropriate maintenance of your building.
Technically, you can make virtually anything a condition on your offer to buy. For example, you could have a condition that says you need time to check the city zoning on the property before the deal is firm. Your real estate agent can help create these clauses in your offer.
Note that the more conditions you include on your offer, the less appealing it can look to seller. This can be especially true if you are competing with other buyers who have submitted offers at the same time. Sellers generally choose the offer with the least number of conditions and the highest dollar amount.
THE SALE OF PROPERTY (SOP) CONDITION
You may not need an inspection or to secure financing but some buyers already have a home they need to sell before they can purchase this new one. The SOP condition essentially says “I really want to buy your house, but I need to sell mine first.”
Because it may take time to sell your current home, this condition is asking a lot from the sellers and isn’t always appealing. You are essentially asking the seller to wait for your home to sell. This is where the Escape Clause comes into play.
THE ESCAPE CLAUSE
If your offer included a Sale of Property condition, the seller can continue to show the house to other prospective buyers. This is called the Escape Clause. The Escape Clause states that if another buyer comes along with an attractive offer, you will have 48 hours to decide if you want to walk away from the purchase, or remove all your conditions including the Sale of Property—and firm up on the deal. This can feel like a risky proposition because you may not actually have sold your current home, but you’ll be removing that condition from your offer.
We call this situation Getting Bumped and it’s not fun when it happens. Your REALTOR® will help walk you through this process and determine whether a Sale of Property Condition is worth including in your offer.
WAIVERS VS FULFILLMENTS
Once all conditions in your offer are met, you need to tell the seller inform the seller. At that time your real estate agent will have you sign a Notice of Fulfillment (NOF). The Notice of Fulfillment is a document that says you have fulfilled a particular condition of purchase, and you’re one step closer to purchasing the home.
You may change your mind and decide not to bother getting the home inspection. You may decide you didn’t need all of those conditions on your offer after all. So instead of fulfilling your conditions, you are simply going to waive them.
That’s when your REALTOR will have you sign a Waiver indicating the conditions are no longer necessary.
GETTING THE SOLD SIGN ON THE YARD
Regardless of whether you sign a Fulfillment or a Waiver, all of your conditions must be accounted for within the allotted period of time in order to secure the sale of the house. Once this has been achieved, the sold sign will go up on the front lawn and it will be time to start packing! Congratulations!
Remember, your REALTOR® is an important resource for advice on what conditions to include or avoid while creating your offer. Their knowledge of market conditions will help you determine what is best to protect you and the large investment you’re making in purchasing a home. Let your REALTOR® guide you through this exciting process because they will make sure everything is done right, and by the books!