Conditional sales are not uncommon in real estate, but many of the conditions themselves are.

There are a couple of conditions I have never seen in deals before, and there is good reason for it…

There is a time and a place for a conditional offer, and a time and a place for an unconditional one.

More often than not, the conditions are for the protection of the buyer, since it is the buyer who would be putting forth the offer and thus the buyer that would be including the condition.

I don’t want to dumb this down to the first day of Business Law 101, but perhaps some background is needed…

In real estate, a conditional sale arises when the buyer and seller both sign the Agreement of Purchase & Sale, however there are condition(s) included that must be satisfied or waived in order for the deal to become “firm.”

If the buyer included a condition for his protection, he may satisfy himself of whatever event that condition might refer to, and subsequently waive his condition to complete the deal.

For example, the buyer might include a condition on financing whereby he has five business days to obtain a satisfactory mortgage for the property.  If after five days he is unable to do so, the conditional period will lapse and the deal will fall apart, meaning that the deposit is returned to the buyer without deduction.  If he satisfies his financing requirements, he can sign a waiver.

In my experience, there are three conditions that are prevalent in the real estate industry:

1) Financing.  As mentioned above, quite often a buyer will include a condition on financing, and the terms may vary.  Perhaps he only needs to obtain a mortgage on the property he is purchasing, but he might be trying to get a second mortgage, or perhaps a mortgage on another property.  I find it best to do the legwork in advance, and get a mortgage pre-approval before you even begin looking at properties.  This enables the buyer to submit an unconditional offer.

2) Status Certificate.  All condominiums are essentially their own corporations, thus all condominiums are run differently and according to different rules & regulations, specifically with respect to the finances.  The status certificate is somewhat like a publicly-held company’s annual report whereby in that they detail the past, present, and expected costs associated with running the building.  The most important of which is the reserve fund that accumulates over time and is used for major expenditures.  I would estimate that more than 50% of all condominium deals are conditional on satisfactory inspection of the status certificate.  If a buyer finds something he doesn’t like, such as a special assessment of $2,800 payable on October 1st, 2008, then he can let the deal fall through.

3) Home Inspection.  Only once have I ever done a condominium deal that was conditional on a home inspection, er, condo inspection.  It was an older building, but it still passed the test.  It’s wise to do a home inspection on a freehold property since you never know what lays beneath.  Over the last few years, most agents in my office have done a home inspection in advance on behalf of their sellers to attempt to minimize offers that are conditional on a satisfactory home inspection.  No matter what the case, it makes sense to do a home inspection since a modest $350 investment could save you tens of thousands down the road.

These are the three most frequently used conditions in real estate today, but what about the uncommon ones?

There is one condition I have never used and never seen before….until last week, that is.

“Conditional on the sale of the purchaser’s home.”

Think about that for a moment: The buyer of a property has submitted an offer that is conditional on him selling his own property first.

Think of the timing involved.  This isn’t like a home inspection clause where the deal might firm up 1-3 days later when the inspection has been done.  This could be dragged on for days, weeks, or in very intense cases—months!

The clause might read something like this:

This Offer is conditional on the sale of the buyer’s property known as 123 Fake Street, Coburg, ON, L7J 1M4.  Unless the Buyer gives notice in writing delivered to the Seller by 11:59PM on Friday, September 5th, 2008 that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without interest.

So this basically means that any seller accepting this agreement would be tying up their property for as long as it takes the buyer to sell his property!

Who would do that?  Why?  Why would anybody tie up their property for weeks at a time with no guarantee of a firm deal?

If the buyer in this example is unable to sell his house by September 5th, the deal would fall through, and the seller would have wasted an entire month.

It all depends on the type of market you find yourself in when contemplating the use of this clause. 

If you’re in a hot market, you have both reasons for and against using this clause.  You might assume that the buyer can sell his property rather easily and accept this clause, or you might just assume that somebody else will offer on your property and therefore you don’t want to tie it up by using this clause.

If you live in a rural area where properties often take weeks to sell, perhaps if you have a hot buyer who wants to purchase your property you might consider accepting his condition.

If you’re in a weak real estate market where your property has been for sale for five months with no bites, and all of a sudden you get an offer that is conditional on the sale of the buyer’s property, you’d be a fool not to accept the offer!  Wouldn’t you?

It also depends on the buyer’s property itself and how saleable it is.  If the property is a dirty wood shack in the middle of nowhere, then you have virtually no guarantee of a successful sale!  And what about the price?  If the property is worth $300,000 and it’s listed for sale at $389,000, then you know the buyer is just playing games trying to tie up your property while he tries to sell his at an over-inflated price.

I would never advise my seller to accept an offer that is conditional on the sale of the buyer’s property, EVER!  Under no circumstances, other than perhaps if the property had been sitting on the market for eight months with no offers, but I’ve never dealt with a scenario like that.  In fact, I’ve never had a property sit on the market longer than 20 days!

But my whole reason for writing this post today was because I recently saw the sale of a property in Riverdale where the seller actually did accept this condition!  There on MLS under “Condition” it said, plain as day: “Sale of Purchaser’s Property, Aug 31.”

I couldn’t believe my eyes.

I wracked my brain trying to think of why a seller in Riverdale of all places would accept this offer!  Maybe the buyer’s property was a slam-dunk, and the seller thought there was no down-side?

Sometimes you think you’ve seen it all, and then something like this happens and you realize there is a first time for everything…