When buying a home, a buyer can ask the seller for conditions. A condition means that a buyer will purchase the property but only if the condition is met to the satisfaction of the buyer. In a regular purchase contract in Calgary provided by the AREA, 4 conditions are preprinted.
The most common conditions referenced are:
- Financing
- Property Inspection
- Sale of Buyer’s Property
- Review of Condominium Documents
Financing condition
Unless a buyer is able to pay the full purchase price of a home in cash, the financing condition is the most important. Being preapproved or prequalified still does not mean that one can leave the financing condition out of the purchase contract. Once the purchase contract is in place, and the property is conditionally sold, the bank or mortgage agent submits the entire request for financing with updated paperwork, including such items as paystubs and proof of funds. If the financial situation of the buyer changes after the initial preapproval, the lender can still reject the financing. Examples that may change are interest rates, job or salary changes, reduced credit scores, or, perhaps, the buyer forgetting to declare a debt during the preapproval process.
These are actual examples of buyers damaging their credit score between the time of a firm sale and the actual possession of the property. Large credit card purchases such as furniture or a car did affect the credit score. In another case, a buyer missed several credit card payments, which affected his approval just before possession date. Also, a buyer who changed the purpose of the property got in trouble with the lender. Initially, the buyer indicated that the property was for personal use. However, on meeting with the lawyer, the buyer indicated that its purpose would be for a rental. The lawyer submitted that situation to the lender. The lender ‘flagged’ the file and refused to release the funds on possession day.
Home inspection condition
The home inspection is the second condition preprinted on the purchase contract. It is always strongly recommended that a home inspection be done. The home inspector looks at all elements in a home such as the roof, the plumbing, the electrical, the furnace, etc. This condition allows the buyer to ‘walk away’ from the purchase if something is not to the satisfaction of the buyer. It also gives the buyer the option to renegotiate or to have a seller repair or replace certain items. At the very least, a home inspection gives the buyer a good sense of current or potential future issues and a baseline from where good maintenance starts. A seasoned investor or the contractor may forgo the home inspection. More about home inspections are written in FAQ’s about home inspections.
Condition of Sale of Buyer’s Property
The condition to selling a home before buying is the third preprinted condition in the purchase contract. This condition comes with several angles, and both buyer and seller need to be very aware of the implications. For example, the buyer needs to be able to list his or her home within 24 hours after the purchase contract between buyer and seller is signed. Another important factor within this condition is this: As soon as another offer comes in, the buyer needs to waive all conditions within 24, 48 or 72 hours, or the purchase is void and the property goes to the next buyers. This time frame depends on what is negotiated. But, either way, a buyer can lose the conditional purchase while his/her own home is listed.
Of all conditions, this one seems the be the most rejected. Especially in seller’s markets, this condition is often of no interest to the seller. Read more about the sale of buyer’s home condition.
Condition to review condominium documents
Every condominium comes with a set of condominium documents. The purchase contract lists the exact condominium documents the seller must provide the buyer. Most buyers request this condition in order to review these documents. In Calgary, there are several condominium document review specialists who are experienced in reading and interpreting the state of the condominium corporation. It is not mandatory to have these documents reviewed by such a specialist, but it is strongly recommended.
Other but less common conditions
Although the previous conditions are considered the most common, a buyer can request any condition as long as the seller agrees. One condition we came across in the past was to have the property seen and approved by a parent. A further example was the request of an engineer to assess the basement structure.
Review of title is another example of a less common condition. However, review of title may be an important condition in certain circumstances. In Calgary, every home comes with a title which is registered at the Land Title Office. Title may indicate very important components of the home, such as an encroachment with the neighbours, or architectural controls within the community. Perhaps there is a ‘lis pendens’, a written notice that a lawsuit has been filed. Also, the Home Owner’s Association is listed on title when fees for the community are in place. There are many things on title that may affect a decision on whether or not to buy a certain home. A realtor’s duty is to pull title for every purchase (or sale) of a property. Putting this condition in a contract is not often done, but in some cases, it certainly is a valuable practice.
Conditions are commonly accepted
Conditions are widely accepted in Calgary and most sellers even expect conditions. After all, most sellers understand that a buyer needs some time to get the mortgage in order and wants to know the state of the property.
If the market is heated and leans to a seller’s market, it may get more difficult to have a seller accept conditions. Or, at least, a seller may try to negotiate for fewer condition days. Especially when competing offers come in, sellers are more likely to accept the offer with fewer or no conditions, even if the offered purchase price is lower. Thus, much will depend on the strength of the market, the type and state of the property, etc.
In essence, a seller can refuse the request for any condition. However, a seller not accepting any conditions really limits the chance of selling the property.
The risk of no conditions for a buyer
If a seller decides to reject any or all conditions, it is up to the buyer to accept this. Obviously, it may involve some risk for a buyer, and much will depend on the personal situation and comfort level of the buyer. And if a buyer is not willing or able to forego a condition, the buyer must move on and find a different property.
How many condition days are acceptable?
In the purchase contract, conditions need a specific time and date within which the condition needs to be fulfilled. If this exact time and date passes and the condition has not been waived, the contract is null and void. In a balanced or a buyer’s market in Calgary, approximately 5 to 10 business days are normally acceptable for fulfilling conditions.
The effect on conditions during covid in Calgary
The type of market, a seller’s or buyer’s market, strongly influences the willingness for a seller to accept or reject conditions.
During this covid market, many sellers received multiple offers. This resulted in offers without any conditions. After all, the fewer conditions, the stronger the offer for the seller. Many buyers had no choice but to purchase a home without conditions.
Conditions with foreclosures
Properties in foreclosures usually work a little differently when it comes to the request of a condition. How it changes depends on the type of foreclosure. The foreclosure can be through a bank or the Court of Kings Bench. Banks are usually more lenient and may accept conditions such as financing or even a home inspection. If the foreclosure is through the Court, one cannot ask for conditions. Instead, at a specific court date, a judge reviews all offers and decides on the highest bid without any conditions.
Conditions are not terms
In a real estate contract, a buyer can ask for certain terms and conditions. These two are not interchangeable. A condition must be satisfied to close on a contract, to make a firm sale. A term comes in after the firm sale, but before possession. This occurs, for example, when a home inspector finds a certain issue, but there is not enough time to get it repaired before the specified condition date. Read more about the difference between a term and a condition.
Please note: The above is general information and not considered legal advice. We do our best to write informative articles about real estate in Calgary, Alberta. If you have any questions or concerns about our comments, please feel free to contact us or speak to your legal advisor.