Subject to Sale: Nobody Wins

Lately we're receiving a lot of offers from buyers with a "subject to the sale of the buyer's home" condition in the offer and these deals very rarely ever go together. The subject to sale condition basically means that the buyer's offer is conditional on them selling their own home - if they don't sell their home within an agreed to time period, the deal dies. If this condition is acceptable to the sellers they will typically add in a 24-72 hour clause, so if the sellers receive another offer, the first buyers have that length of time to remove their conditions or the second buyers get it.

Phew...that was a mouthful! Now here is why I think almost nobody wins in this situation...

Buyers:
In order to get this condition accepted, every other part of your offer needs to be very strong. When we're representing a seller and we receive a subject to sale offer, we will generally advise our clients to counter strong. The sellers really have nothing to lose, since the likelihood of the deal actually going together is slim to none. So as a buyer, you end up in a weak negotiating position, and will likely have to pay top dollar, with a large deposit and tight time frames on your other conditions - in fact, you could very easily end up paying for an inspection, only to lose the home to another party.

But you want that home, and you feel that putting in an offer subject to the sale of your own home will give you some time... time to sell your home, and a feeling that you've got your new home secured. Maybe it will buy you some time, but what happens when the seller accepts another offer, and you have 48 hours to remove all your conditions or kiss the home good bye? What are you going to do? You have a short period of time to make a decision, and if you decide to go ahead you have a very short period of time to get all your conditions removed (can you get financing for two homes in 48 hours?).

Of course, if you've found the one and only home that will work for you, and you absolutely must have it, and money is no object, then go ahead and put in an offer that is subject to the sale of your current home. But if it really is that wonderful, and you know you'd remove your condition if the seller's get another offer, then why not just go in with a strong offer in the first place, so you can get all the other things you want such as a possession date that works for you and a good price?

Of course, if the home is not truly one of a kind, you could get your existing home sold first and then make a strong offer without risking owning two homes. Keep in mind of course all this advice is relevant for the current market in Edmonton, and will change with the market.

Sellers:
The one benefit this type of offer gives you is the ability to negotiate hard with the buyers. Really, you don't have much to lose since the offer is almost worthless anyway (in my opinion). The problems tend arise with the home that the buyers now have to sell... The form that Realtors in Alberta use for this condition clearly states the address of the buyer's home, when it will be listed and for how much... Your Realtor then has an opportunity to help you determine the likelihood of the buyer's home selling. If it all looks good and you come to an agreement with the buyer, there are often more suprises on the way. The buyer may list their home for more money than they indicated they would, or they may come back and re-negotiate with you, trying to extend conditions or get a lower price.

All in all we much prefer to get the buyer's home sold before putting an offer on another home in the current market.