What does condition mean when buying a house?
If you’re buying a home and are about to enter the negotiation period, your real estate agent may have helped you to pull together a purchase agreement, which includes the terms of your offer. In the homebuying process, these are referred to as “conditions” and they can be used to define the specifics of your offer, protect you if your terms are not met, or as part of your negotiation strategy. Here’s what condition means when buying a house.
What does condition mean?
In the homebuying process, conditions refer to the terms outlined in the purchase agreement, which have to be met in order for a real estate deal to be legally binding and close. From the sellers perspective, conditions can reduce the likelihood of the deal falling through, since any issues will be raised before the sale is finalized. But in most cases, conditions protect the buyer, giving them the opportunity to back out from, or renegotiate, if certain conditions are not met.
What are the most common conditions when buying a house?
Every real estate transaction is different, however, there are some conditions which are common in most deals and oftentimes recommended as part of your purchase agreement.
For example, the home inspection condition gives the buyer the right to inspect the property and negotiate repairs or adjustments based on the findings. After an offer has been made, the home inspection is conducted by a professional inspector, so that any issues with the property’s structure, such as the foundations or the roof, are identified before the deal is finalized.
The outcome of the home inspection may impact the value of the home and could warrant an amendment to your offer. Or, you may decide to pull your offer entirely. For less serious findings, you may negotiate a pre-purchase repair, meaning that the seller makes the necessary fix, or, if it’s allowed by your lender, a cash credit at closing for you to cover the repair costs. For non-essential or cosmetic repairs it can be more cost effective and efficient to do them yourself once you own the home. But these are all parts of the deal you can discuss with your agent or lawyer.
The appraisal condition also involves a third-party, non-biased professional to assess the home, but in this case is related to the property’s market value. Typically, if you require a mortgage, the home must appraise at or above the purchase price in order for the lender to approve the loan. That’s because it is too risky for them to loan out more than the home is actually worth. As a buyer, the appraisal condition allows you to renegotiate or walk away from the deal if the appraised market value is less than your offer.
If the appraisal comes in lower than your offer then the appraisal condition provides the opportunity for you to renegotiate the purchase price with the seller. However, in a highly competitive market you may decide to forgo the appraisal condition if you know you can afford to pay above market value for the home. That means that in addition to your down payment you would need to secure the funds to pay the difference between the market value and your offer out of pocket and upfront.
Unless you are making a cash offer on a home, the financing condition provides you with a set time period to secure financing for the purchase—and the ability to walk away, without penalty, if you can’t get the funding you need in time. You will need mortgage pre-approval from your chosen lender before you can make an offer, however once an offer is accepted, the financing condition provides you with the time required to secure final loan approval, which may take up to a week.
Once the offer is accepted, you will meet with your lender to get final approval on your loan, ensuring you ask ahead of time what documents you’ll need. You should also get homeowners’ insurance, which you’ll need to close the deal. You may also decide to hire a lawyer to review your offer and set up title insurance on your behalf.
In most cases, the financing condition allows you time to secure your mortgage, but if you’re already a homeowner, then you may add a sale of existing home condition, meaning that you need to sell your current home before proceeding with the purchase. This will lengthen the closing process, but if the seller is also buying conditional on the sale, then it can be a favourable option. That’s why it’s always important to understand the seller’s motivations.
How to make an offer on a home with conditions
Your real estate agent can guide you on making an offer on a home, including any conditions you’d like to include. They will make recommendations based on the market and the parties involved, which will impact your offer. In a highly competitive sellers’ market, for example, your agent may suggest fewer conditions to make your offer more attractive. However, conditions and timelines are almost always negotiable, so frequently your initial offer will contain your ideal conditions, which can then be pared back as required to close the deal.
Regardless of the offer being made, it’s important to use clear and specific language in all condition clauses. From there, during the offer stage, the seller can then negotiate the conditions based on their own motivations. It is then the buyer’s responsibility to actively remove any conditions that the seller is not willing to negotiate on.
In any case, timely communication between all parties will result in a smoother exchange and increase the chances of the deal going through quickly.
If there are any issues or disputes, there is the possibility of extending condition periods. Depending on the province you’re buying in, it can be more or less common for more complex real estate disputes to be resolved via mediation, which involves a neutral third-party mediator, who helps both parties come to an agreement.
What are the typical time frames for conditions?
The due diligence period typically lasts between 30 and 90 days, as specified in the purchase agreement, although it can be longer for more complex transactions. It refers to the period after the offer is accepted during which the seller must provide the requested documents and information to the buyer, who will conduct inspections and review property disclosures.
The appraisal period refers to the time frame during which the home must be appraised. Typically this is coordinated as part of the financing condition, since the lender uses the appraisal to grant the loan. An appraisal will usually be accepted for up to 90 days, however in a fast-moving market this timeline may be shortened.
The loan approval period provides a time frame for the buyer to secure final loan approval from the lender. This will usually take a couple of days but can be longer.
In most real estate transactions the goal for both the buyer and the seller will be to come to an agreement in the shortest amount of time possible, but your real estate agent can guide you on what is realistic based on your circumstances and the market you’re in.
How to negotiate a home sale with conditions
There are multiple strategies for negotiating the best price for a home you love, however conditions can provide a good way of making your offer more attractive without increasing the purchase price.
In most cases, the fewest conditions and the shortest timelines are going to be the most favourable to a seller. However, good negotiation comes down to working within the boundaries of how much you can afford, the market and the seller’s motivations.
The home inspection condition is one of the most common conditions in real estate deals, so if you choose to include it, you want to choose a qualified home inspector, who can identify any issues that may impact the value of the home. It’s vital that both the buyer and seller review the inspection results and negotiate repairs or credits as necessary.
There is always the option to waive or remove conditions, which will likely make your offer more attractive to the seller, although it will almost always come at the risk of the buyer. For example, if you feel confident in the property’s condition then you may decide to waive the home inspection, but you risk finding issues later on. Or, if you can afford to pay cash and you’re willing to bet that the market will improve then you might not include the need for an appraisal. Waiving certain conditions comes with benefits and more risk, so you should always consult your real estate agent and legal counsel before considering condition waivers.
When buying a house, what does “conditional” mean?
If a home is listed with a conditional status, it means that an offer has been accepted but the deal will not be finalized and closed until certain “conditions” are met. This means that if you see a home that has a conditional offer, you may still be able to make a back-up offer in case the original deal falls through. Equally, if you’ve had your offer accepted on a home and it’s contingent on the conditions outlined in your purchase agreement, then other prospective buyers can still make back-up offers in case the conditions are not met.
Note that a pending status also reflects a real estate deal in its final stages, however, there are no conditions present, so the deal is more likely to close and other offers will not be accepted.
Houseful is here for your next steps
From getting your keys to getting back on the market—and all the days in between—Houseful is here to help you keep an eye on the big picture. Let’s see what’s possible and take the next step toward fulfilling your home ownership goals. Visit houseful.ca.
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