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.
It seems buyers have nothing to loose but gain only if they wait more. “When the herd is selling, buy. When the herd is buying, sell.” as most of the people are sheep and they just follow the trend without analyzing. These bull sheep were keeping dead market alive from last 2 yrs with different financial suicide option ($0/40 yrs option). There were sign of caution and US live housing movie but bull sheep were just following trend because Canada is different.
Same logic holds good in bear market too as we are getting shortage of greater (or greatest now) fool. When these sheep are in bear market how much good offer given by builder/seller their bear mode will not change. So price crash will go to happen faster than expected.
Experts also agreeing (no other option) that housing price is going down as media/newspaper is full of price down. But biggest Q is who’s buying now:
(a) You’re too young to understand the basic economics
(b) You’re too stupid
(c) You believe that in long term it’s all good
(d) Does not know how to use calculator and do math (interest, down payment, taxes, maintenance, condo/townhouse fee, depreciation, rent/own ratio the same unit, CHMC premium, realtor fee)
Do you have the same viewpoint on “subject to the completed sale of buyer’s home”? ie: buyer has an offer on their current property and are simply waiting for the conditions to be removed before they can complete their next purchase.
***No, in fact, that’s how we’ve helped a number of our clients reduce the stress of buying and selling, with no risk of owning two or no homes. Sara.
‘Lately we’re receiving a lot of offers from buyers with a “subject to the sale of the buyer’s home” condition.’
Hey – wasn’t it more fun when the only people buying homes in E-town were specu-vestors buying with no conditions because they were only planning to flip anyways?
I think it’s a simple matter of people knowing that buyers are fickle right now and they are not in a position to handle the carrying costs of two homes. So they put the condition in. Makes sense to me.
I guess the “$450K bungalow w/ no conditions allowed” is not the “New RE Reality” in E-town after all. Perhaps, as some suggested, that was not reality at all – just a pretend world created by market psychology. But, as with all dreams, the alarm clock eventually rings…
Maybe Ron S should spend more time learning the english language and good grammer instead of commenting on the Real Estate market.
a,
Good thing for Ron S this is Edmonton Real Estate blog… not Edmonton Grammar Blog.
You might feel more at home here.
http://spandg.blogspot.com/
Ron S I also think
(e) any families that are starting off would want to enter into the market. Aka kid on the way.
(f) people from out of town
It would be interesting to see the demographics on who is actually buying right now.
***Comment deleted. Name calling.***
It is not worth to buy house in Edmonton right now. I lived there for 3 years.It is too high. You can get in Ontario brand new and 50$ less at least what they are asking in Edmonton for 35 years old.
The worth days coming for sellers soon.
Good idea Zorik, maybe you should prepare a resume for work at one of the GM or Ford plants in Ontario where you can save all that money.
P.S. see you back here in 6 months.
I didn’t call anyone specific names for crying out loud. You guys just scared to have to answer an honest question or what?
***Comment deleted. Personal attack.***
Maybe Ron S should spend more time learning the english language and good gramm[e]r instead of commenting on the Real Estate market.
Well, yes people have made mistakes, yes in Edmonton a lot of people have more than 1 property, yes, they have been stupid, but by panicking they will make the things worse, which will be even more stupid, if you bought a house of yourself at a higher than market price then maybe you may want to take advantage of government’s develop the basement for rent program or if it is second property try to see if you can get the lowest possible interest rate and start paying towards principal to make a passive income to come for years to come, maybe look for solutions and don’t make bigger mistakes now, after all everybody needs a place to live and in few years population will grow and in real estate it is always slow adjustment of supply and demand. So have some patience maybe it will be worth it.
Okay, let me rephrase my post. Zorik, please study and understand fundementals. Ontario does not have any fundementals at this point. It is even hard to get a $8 an hour cashier job in Toronto now.
Although I tend to be a bit of a bear and look at the downside of this last fast-paced boom here in Alberta, I agree with posters that you cannot compare “apples to bicycles” and put home values from Ontario, Winnipeg and Edmonton side by side.
Although things have “cooled off” here in Alberta, and the RE BALOON (lets not call it a bubble – bubbles pop and nothing is popping here) is slowly deflating and MAY deflate some more. But know this:
a) Property in E-town WAS undervalued, even though the peak numbers like $450K for a starter bungalow got a little silly!
b) Despite high inventories and overvalued dogs that won’t move, homes that represent good value are resulting in steady sales figures, explaining the “sales despite high inventory” mystery.
c) The economy in Alberta is, albeit cooler, still very strong. Even if oil drops to $80/bbl there is still money to be made here.
d) People waiting for the sky to fall and prices to drop to pre-2006 levels might well be waiting forever.
As far as global economics are concerned, there is a lot of instability right now. Canada is not “as immune” to the 0/40 phenomenon as we thought, and many homeowners and speculators are “enjoying” the high house prices. What does THAT mean? That means LOTS of new toys paid for with HELOCs! Canadians are carrying record debt loads, and people who have no business being IN a home bought in with a 0/40 because homes were being advertised as a “retirement fund you can live in!” Also, energy prices are wavering due to increased possibility of mass speculation there too. Plus, it turns out 40 billion people in China are NOT all in the market for a car in the next year… Many are moving to urban centers where mass transit is an option. Have any of you BEEN to China? Seen a Chinese city? There is no room to WALK there with all the hoards of people, let alone room for cars and places to park them!
Yes, new families need a place to live. (But an apartment is a great place to live in uncertain times when rent represents 1/2 the cost of buying).
Yes, house prices do not mean AS MUCH to those in it for the long haul. (But the mortgage you sign up for is due every month for the next 25, 30 or 35 years. My buddy who bought 12 mos ago is facing negative equity and is paying about $325 more a month more than he would be if he bought that SAME PROPERTY TODAY! So, he’s going to pay $325 / mo or $3900 per year MORE… FOR THE LONG HAUL!)
He’s in for THE LONG HAUL alright…
Don’t believe the hype. The sky is not falling, but don’t buy a lemon at last years prices. You’ll regret it.
Cheers,
E-town
Get sold first! This puts a buyer in the strongest position.
Aloha,
Keahi
Your commentary does not address other reasons why some buyers don’t sell first before putting an offer to purchase: (1)If you sell your home first, you have a closing date that may leave you in a position of where you have no place to move to if you haven’t been able to subsequently get a firm agreement to purchase; (2)Potentially, a seller may refuse to agree to a closing date that will coordinate with the sale of your own property. (Reasons such as timing, reasonable period needed to move, etc.) Also, you take a chance that you won’t find a suitable property, and may be put into a position of purchasing a house or at a price that you’re not happy with just so that you have a roof over your family’s head.
“Subject to sale” of the buyer’s home was very common in many purchase agreements during the 1990′s. I saw many of those during the years I was involved in real estate law.
Just interesting that there is such negativity associated with it now. There are risks with both scenarios, IMHO.