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“Conditions cost money, … and big conditions cost big money.”

That is one of those little sayings used by those of us in the real estate business. What it means is that when you, as a Buyer, put conditions in your offer to purchase, you need to be prepared to pay a bit more money than you might if you had a truly “unconditional” offer. Adding a seven day condition to secure financing, for example, leaves the Seller on pins and needles for every one of those seven days. Other conditions, such as reviewing a status certificate, or securing insurance on the property have the same effect- stress for the Seller. While a home inspection condition is quite common nowadays, and rightfully so, it is the next level up, in terms of Seller nervousness, and thus may cost a Buyer a bit more money again, when presenting an offer on the property. During the term of these conditions – usually seven to fourteen days – the Seller does not allow further showings of the home, and the Buyer is secure in the knowledge that once the offer is accepted and the condition time period begins, it is basically in their control whether or not the property becomes his or hers. The Seller sweats out the time wondering whether this agreement will actually result in the firm sale of their home. The value of an unconditional cash offer then, is not to be underestimated.

So now let’s look at the biggest of the normally used conditions: the condition of the sale of the Buyer’s property. The Buyer agrees to purchase the Seller’s home, as long as the Buyer’s home is successfully sold within the agreed upon time frame. Now the Seller has to depend upon a second home selling, with potentially an unknown (to them) REALTOR® representing the party looking to sell this “back-up” property. Is it a marketable home? Is the real estate representative a good marketer of property? Will they price the property aggressively? Do we continue to market and show our house? These and many more questions arise when contemplating an offer with a Sale of Property (SOP) condition. The role of the REALTOR® includes helping to inform the clients at these critical junctures. I get as much information as I can gather on the house that need to sell and its marketability, as well as the track record of the associated sales representative. Even with this assistance, it is often still a tough decision. Because of this added stress and time frame, Sellers usually demand a sharp price in order to even consider a SOP conditional offer. Thus, the big condition usually costs big money.

Normally, when a SOP offer is accepted, the agreement stipulates that the Seller will continue to market the property, in the hope of securing another acceptable offer. This second acceptable offer does not need to be more money or better conditions. It simply has to be accepted by the Sellers. Once this has occurred, the Sellers give notice to the first Buyers, and they have 48 hours to decide either to firm up their offer by removing the SOP condition (usually along with any other conditions), or to withdraw the SOP offer completely, allowing the second Buyer to take first position. This is referred to as the escape clause, and usually is a time period of 48 or 72 hours.

Rarely do we see an accepted SOP offer get bumped by another SOP offer. However, it does happen occasionally. Let’s say we have a property for sale for $400,000. An offer comes in with an SOP condition, and after negotiating, an accepted price of $390,000. The SOP is for 60 days, with a 48 hour escape clause. Two weeks later, we see a second offer, again with a SOP condition. This offer is for $385,000 and a 90 day SOP and 72 hour escape clause. It is very unlikely that the Sellers would accept this second offer “as is”. More likely, their REALTOR® would suggest that changes be made that would be in the Sellers’ favour. After all, they already have a SOP offer in place. So the Sellers change the price to $395,000, the SOP to 45 days, and the escape clause to 48 hours. If the second Buyers accept this sign-back, then the first Buyers would get notice, and have to make some tough decisions. Factors to consider when contemplating the second SOP are price, terms, and the property that needs to be sold. If you are more confident in the first Buyers’ property being sold than you are the second Buyers’ property, then it might work to your advantage to stick with the first offer. All these factors are discussed between the Sellers and their REALTOR®. We don’t make decisions for you, but we do help you make good, well-educated decisions. We put the necessary facts, information and details before you, guide and advise, and then act on the decisions that you, the client, make. It is why I always look at these things as being “team” decisions. We work together, for your benefit.

I could go on with many other examples, but I do need topics for the next blog entry, don’t I? If you have comments or questions, please contact me and I will be happy to assist you. It’s what I do.

Randy Mulder

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