The market is heading towards a balanced market and that means there is going to be more negotiating between buyers and sellers and this is the return of conditions! Not the condition of a house, conditions that if aren’t met, you can back out of the deal!
In this blog, I’ll go over:
- how seller’s market affects conditions
- the difference between conditions and clauses
- the common conditions
- how conditions can be used as negotiating tools
How Seller’s Market Affects Conditions
We have had a seller’s market for the better part of the last decade. Multiple offers were the norm. Buyers were often competing against 5, 10, 15, 20 offers or more! Aside from selling for way over the asking price, most offers would have no conditions.
BoC increased interest rate by 400bps in 2022, the market is now returning to a balanced market. This is good for the market. This is good for buyers and sellers, and better for the industry.
Many listings are sitting on the market and not selling. With fewer or no competitive offers, buyers can now include conditions to protect their largest investment. How crazy was it to think that buyers would look at a house for 15-20 minutes and make a million dollar investment decision and not have any conditions to protect that purchase?!
The Difference Between Conditions and Clauses
Conditions are not to be confused with clauses. In a typical offer, there are standard clauses that outline the structure of the sale, and they mostly protect the seller.
However, Buyers’ agents may state the buyer gets extra visits, or the seller needs to do certain things before closing, or the seller warrants that they never had a grow op in the house. But none of these can really kill the sale.
On the other hand, with conditions, buyers can back out of the deal if the conditions aren’t met. These are for the protection of the buyer.
Common Conditions When Buying/Selling a Home
Common conditions could be a home inspection, financing approval, status certificate review and now, even conditions on the sale of the buyer’s property!
Buyers typically need to submit a deposit with their offer within 24 hours of acceptance, but the conditional period will be for a few days or a week from the acceptance of the offer. That’s the time buyers can do their due diligence. If conditions aren’t met or not up to the buyer’s standard, they can back out of the deal and get their deposit back in full.
Home Inspection
Home Inspection is the time a buyer can bring in a professional Home inspector to make sure there aren’t any hidden problems with the house.
Conditions aren’t meant for renegotiating the price, although that can happen with a home inspection, they’re meant to give buyers some protection on their purchase.
Sometimes if an inspection reveals there’s a leak in the basement, buyers can negotiate for the seller to fix it or compensate the buyers so they can fix it after closing. Sellers don’t have to agree to any compensation, this is why you need an agent who is a strong negotiator to protect your sale.
I recently sold a house where the inspection revealed there was mould in the attic. The buyers wanted $4k to cover the cost of mould removal. My sellers sold the house that had a tenant living in it and sold it for lower than market value. We told the buyers that we can wait until after the tenant moves out, clean it up and sell it for 20-30k more so we weren’t going to compensate for the mould removal. The choice is theirs. Take it or leave it. They took it.
Financing Approval (Including Appraisal)
Financing conditions are more important now than ever not only because of the increase in interest rates and the stress test, but also because the house needs to be appraised by the lender for the sale price to ensure the house is worth that much according to the lender.
Having the property appraisal approval is something out of your control. If the property is appraised lower than the purchase price, the buyer will need to come up with the difference for the sale to go through.
Sellers have to consider that if this lender doesn’t appraise the house, the next buyer might face the same situation with their lender. Sellers can reduce the price, or try to sell it again to someone else and hope it appraises.
Review Of Status Certificate (Condo Only)
Status Certificate only applies when you are buying a condo. It is about 300 pages that outline everything from financial statements, condo by-laws, any upcoming changes in the maintenance fees and more.
With a condo purchase, you’re buying a percentage of the entire building. You need to know the financial status, any litigation they might be in, any special assessments that owners will be responsible for.
I’ve had clients where the maintenance fees were going to increase significantly and the seller credited the difference of the increase in maintenance fees for a year to incentivize the sale.
On The Sale Of The Buyer’s Property
As the market slows down, conditions on the sale of buyer’s property is becoming more common. We haven’t seen this condition in years because of the seller’s market we’ve been in.
This is to ensure the buyer’s property sells if they have a property they need to sell in order to buy. This is a much longer condition, typically 30 days or more.
But there is also an escape clause. This means the seller can continue to market the property for sale and if they receive another offer, the buyer has 24 hours to decide if they will remove the condition and go forward with their purchase, or if they will back out. Depending on their confidence in selling their home.
These conditions are for buyers’ protection and while we’ve been in a seller’s market for the better part of the last decade, buyers are now getting their conditions in their offers.
Sellers, this isn’t all bad news, when a sale does go through, you know it’s going to be solid and won’t get any surprises.
How Conditions Can Be Used As Negotiating Tools
How to Win as Buyers
You can use conditions as part of negotiations. Depending on your comfort level or financial situation, including additional conditions initially, when negotiating the price, you can remove one or some of them as part of negotiations to lower the price.
How to Win as Sellers
Just as buyers use conditions as part of their negotiations, you can as well. If buyers want conditions, you can negotiate a higher price.
With the lack of homes for sale, we still haven’t fully reached a buyers market. So there are buyers still out there and with the proper marketing, we might even get multiple offers.
By getting ahead of any surprises, doing our due diligence before marketing the home for sale, like getting a home inspection or the status certificate and give it to potential buyers before any offers.
We know if there’s anything that could be a surprise, we can show that we weren’t hiding anything and that we’ve priced the property accordingly.
If you’re considering buying OR selling, you deserve to have a competent agent who is a strong negotiator who can help you through the process and protect the purchase and sale of your largest asset. Book a call with me here.