A ‘Subject to Sale’ Condition on an offer is one sometimes utilized by those that already own a home but want to move to another property. It is more popular in other parts of the country but not often used or accepted here in Calgary.
When you already own a home you generally have two options:
1. Buy first and sell later. This requires you to secure financing to own properties in the event your current home is not sold before you take possession of your new home.
2. Sell first and then buy. This requires confidence knowing you will find a home in that timeframe or that you have a plan B to live elsewhere if that takes a bit longer.
The third option folks hear about is:
3. Buy first with a ‘subject to sale’ condition, sell first home and complete the firm sale of the purchase.
In 2015 I was assisting a few clients that were rather stuck by the hot market of 2014. They couldn’t secure financing to buy first or just weren’t comfortable holding two properties or they were too nervous about selling first because the market was so hot they feared being without a home or being forced to buy something that wasn’t quite right. The market was so hot it was hard to win out in competition with just a typical financing and home inspection condition so a ‘subject to sale’ lost out. Unfortunately even in a slower market, it can be a challenging scenario. To be successful the buyers are most often focusing on a slower market and selling in a more active market. The challenge for the buyer is that they trade the risk factor of this scenario with negotiating power. Very few sellers will negotiate to their best price when they are looking at a subject to sale. The buyer also has to aggressively price their home to get it sold in the time required especially in a slower market.
This is the overview of how a ‘subject to sale’ offer works:
You are Mr. and Mrs. Smith and own a beautiful home at 124 Great Street SE. You want to move to a new home so you meet with your mortgage broker to confirm numbers and we start the search.
We find a great new home owned by Mr. and Mrs. Swanson at 245 View Street SW.
We write an offer that is accepted with a financing condition, property inspection condition and ‘subject to sale’ condition. You must complete your financing and inspection in the typical 5-10 business days but have a longer time to secure a firm sale on your home, say 70 days.
During this time Mr. and Mrs. Swanson continue to market their home.
We have to put your home, 124 Great Street SE, on market within a typical 24 hours. I have prepared your marketing plan ahead of time, we have prepared the listing paperwork and prepared your home for sale so we are ready to go.
If you sell your home within the example 70 days with all conditions removed then you remove your ‘subject to sale’ condition on 245 View Street SW. Your home is sold knowing where you are moving and at what cost. Mr. and Mrs. Swanson have sold their home and can move on with their plans. All is well.
The challenge is if someone else wants to buy 245 View Street SW before you sell your home. Another buyer can write an offer and if Mr. and Mrs. Swanson accept then you will have a short period of time to remove all your conditions, typically a day or two. If you cannot or do not want to remove all conditions then your offer is now ended and Mr. and Mrs. Swanson can move forward with the second buyers.
If you remove all conditions you have bought 245 View Street and still own 124 Great Street so you need financing in place from the onset if you would consider this option. If you don’t remove the conditions then you start again but you have no risk of owning two properties. At this point your home is already listed for sale so you rather need to know ahead of time how you will manage your next steps.
I’ve assisted with numerous moves like this. I even helped a great family complete a subject to sale even in the hot market of last year. How? Good negotiating, advising the sellers regarding the sale and marketing potential of the home to be sold and some solid planning. The key to success is working closely with your realtor so there is a clear plan working forward given the various scenarios.
Considering a move? I’ll explain all of your options and ensure you have the information you need to make your best decision.
(This information applies to our market in Calgary. This type of offer may work differently in other areas.)
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