Many sellers receive offers that include one or more conditions set by a homebuyer. These conditions are called Conditions Precedent, and as the name implies, means that something has to happen before a sale is final.

Some offers are conditional on a buyer conducting a satisfactory home inspection, or on a review by the buyer’s lawyer. Other common conditions include the buyer’s ability to obtain mortgage financing or on selling their present home. For the seller, conditions are often a source of confusion.

Can you consider other buyers once you’ve accepted a conditional offer? What are the consequences of misinterpreting such an offer? And what’s an escape clause, anyway? In this post, we’ll answer some of the most common questions sellers have about conditional offers.

 

You can still consider other offers

A condition is a “safe” way for a buyer to purchase a property since they are not obligated to proceed with the purchase until the condition is satisfied. For example, if the buyer can’t get financing, then they are not obligated to complete the purchase.  While this is beneficial to the buyer, it may not be beneficial to the seller. Make sure you work with an agent who has the experience to guide you.

What you should be aware of though, is that accepting a conditional offer doesn’t mean you can celebrate just yet.

Until all of the conditions in an offer have been satisfied and have been removed from the agreement by the buyer, the sale isn’t final. It is a conditional sale. This means you should continue to offer the property for sale after you’ve accepted a conditional offer, and you can even entertain other offers – subject to certain terms.

Tell me about the “escape clause”

If you don’t know what an escape clause is, you’re not alone. Basically, it’s a clause added to an Agreement of Purchase and Sale that requires you to notify the buyer you’ve entered into a conditional contract with, that you have received another offer from a second buyer and you wish to deal with it. The original buyer will then have a certain period of time as defined in the Agreement of Purchase and Sale to either waive their condition(s) from the agreement or choose not to proceed.

For you, the benefit of an Escape Clause is you have the right to deal with a second buyer if the first buyer can’t meet the terms of your agreement.

Of course, an Escape Clause has a benefit to the buyer also.  It allows the buyer to waive their condition(s) in the agreement and complete their transaction with you under the terms you previously agreed to. – even if you get a second offer which is better than the first agreement. In the example outlined above, if the buyer decided to waive their condition(s) then they have bought the home under the terms you previously agreed to.

How likely is the buyer to move forward and remove their condition(s)? It depends. Let’s say their condition is obtaining financing, and they haven’t done so by the time you notify them of a second offer. In most cases, they’ll be taking on a good deal of financial risk if they press forward with your agreement. If the condition is something like a completed home inspection, it will typically carry less risk. A buyer will usually consider their individual tolerance for risk before committing to removing a condition in an agreement.

Interpreting the ramifications of an Escape Clause in an agreement can be tricky. Make sure you work with an agent who has the experience to guide you.

 

It’s possible to accidentally sell your home to two buyers…

So, you’re well within your rights to continue fielding offers after you’ve accepted a conditional offer. But sellers who use this approach need to be careful.

When you’re dealing with two potential buyers, it’s important to set the terms and conditions of both contracts carefully. That way, you can ensure they’re not in conflict with one another. For example, you should stipulate that your new contract is contingent on being released from your first agreement.

One unpleasant (but entirely possible) outcome of a poorly-worded agreement is accidentally selling your home to two buyers.

Make sure you work with an agent who has the experience to guide you.  An experienced and knowledgeable estate agent can help you identify the best possible offer on your home while minimizing the stress and complications that often arise during the selling process. At the Christensen Real Estate Group, we have the necessary experience to guide you through any real estate transaction.

 

For over 30 years, our clients have trusted us to minimize risk, offer unbiased opinions, and ensure their best interests are served. Contact us today to talk about your needs, by emailing us at niels@christensengroup.ca or calling us at 416-441-2888 ext. 772.