Cool Buyers in a Hot Market
In some regions across Canada, the real estate market has been steadily heating up. In these areas, real estate agents have more buyers than sellers, and multiple offer situations are becoming commonplace. It's called a seller's market, and it can be perilous for a buyer.
The most common hazard for a buyer in a sellers market is to be in a multiple offer situation and get caught in a bidding war. With each round of counter offers, the price gets higher and the buyer has to decide between the possibility of overpaying for the property or losing it to another buyer.
But there are other perils for the buyer in a seller's market, where the risk is not as clear cut. In order to make the offer more attractive to the seller, a buyer may be tempted to make an offer without any conditions. Conditions are included in an offer to ensure that the buyer is not bound to the Contract unless the buyer:
- Is approved for required financing.
- Is satisfied with the results of a property inspection.
- Has an opportunity to review and approve all minutes of the Strata Corporation and financial statements (if the property is a strata unit).
Additionally, if the buyer is already a homeowner, a condition may be required to ensure that the buyer is able to sell their own home prior to being bound to the offer for another house. Depending on the circumstances, there may be other conditions that are also required.
What happens if the buyer chooses to forgo the use of these conditions? A buyer should consider the consequence of not being able to perform the task. For example - what if the offer is not conditional upon -
- Financing: what will happen if the buyer is not able to arrange the financing?
- A property inspection: What if there are material defects that would likely only be discovered by a professional home inspector?
- Review of financial statements and minutes (if purchasing a strata property). What if these documents contain evidence that the property has some potentially serious problems?
- Sale of the buyer's property: what if the buyer needs the cash from their current home in order to buy another home?
A prudent buyer will ensure that any issues that need to be confirmed or investigated are enshrined as a condition in the Contract. Once the offer becomes firm (i.e. without any conditions) it is a legal promise by the buyer - secured by a "good faith" deposit - to complete the transaction.