The Safest Approach to Protect Buyer & Seller in an Offer to Purchase & Sale

Many Buyer offers today are back to including conditions, such as, Financing, Home Inspection and Home Insurance and sometimes, the Sale of the Buyer’s property. It is sound due diligence that should be taken. When a Buyer considers purchasing a new home, he should take the proper time that these aspects are properly investigated, to make an informed and wise decision. First questions the Buyer should be asking: Am I preapproved? or better yet; Can I obtain a Mortgage Commitment from a Lender?

Necessary Steps

A Buyer makes an offer on condition that he is approved for mortgage financing. Yet sometimes we find that the Seller, the Seller’s Agent or both, counter the Offer back to the Buyer deleting the financing condition. This turns the offer into a cash sale. Therefore, if the Buyer included a Financing condition it indicates that the Buyer requires approval for a mortgage with Lender’s consideration. Sometimes an appraisal is necessary from an Accredited Appraisal Company. This is quite common when purchasing commercial properties.

Could there be a Negative Outcome?

With a cash sale (no financial condition), the Agreement becomes firm and binding and, if unable to close, consequences can follow:

1. The Buyer would be in breach of contract and would lose his deposit, as well as, if the Seller resells to another Buyer for less, the Buyer could be directed through a court order to pay to the Seller the difference between the original purchase price and the subsequent sale price.
2. The Seller is left with the property unsold. If they are depending on their sale to close in order to complete the purchase of another home they in turn could be in breach on the home they are buying.

Neither of these outcomes serves anyone. In fact can cause great concern and expense.

Financing Approval Drives the Sale

Accepting an Offer conditional on the Buyer confirming he has the money can avoid the problems. If the Buyer does not get approved, the parties release each other. The Buyer’s deposit is returned and the Seller can continue to actively market his property. There is no waiting to a few days before closing to learn that the transaction won’t close on the date agreed upon.

Taking a Chance

In a competitive situation, though chancy, a Buyer could choose to exclude a condition to sell his home. Subsequently, the Seller might counter the offer back to the Buyer with the condition stricken out. In either case, the Buyer risks not selling his home. This could lead to where the money won’t be there to close the deal and he doesn’t want this scenario. Reflective of today’s current market conditions, the Buyer may turn down a lower offer on his sale, and again is left with no sale.

The Seller Can Continue to Sell

With a condition of sale, for an agreed number of days, the Seller should express in an Offer that he can continue to market the property. Should another Buyer come along, the first Buyer is notified and is typically given 48 hours to remove his conditions or opt out of the Sale. This would allow the second Buyer to complete the purchase. Outside of a few emotional bruises no one gets hurt financially.

The market has reverted back to this traditional and sound approach to buying and selling. Buyer conditions for the most part are again the norm.

Additionally, the risks of excluding a Home Inspection condition in a Buyer’s offer can also prove to be costly to the Buyer if he is not aware of deficiencies. Let’s do our due diligence so that both Seller & Buyers will happy in the end.