Knowing the Risks of Condition-free Offers

As a buyer in a competitive market, you may feel you need to tailor your offer to appeal to the seller. In a multiple-offer situation, you might even consider making a condition-free offer in order to get the home you want. This strategy may make your offer stand out, but it’s not without risks.

Conditional versus Condition-free Offers

Most offers to purchase real estate include criteria, or conditions, that must be met before the sale is final and title of the property is transferred. These conditions must be written into the offer to purchase, with an exact explanation of the process for meeting the condition as well as the deadline for meeting the condition. Once the conditions are met, the buyer acknowledges this in writing by signing a waiver, in other words they waive the conditions. If the buyer does not waive conditions by the agreed upon deadline, the offer to purchase becomes void.

A condition can be anything the buyer and seller agree to that is included in writing in the signed offer to purchase. Typical conditions include conditions for a buyer to: 

• secure financing 
• complete a home inspection to their satisfaction 
• review condominium documents to their satisfaction 
• finalize the sale of their current property.  

In short, a conditional offer has criteria attached whereas a condition-free offer is an offer to purchase property with no conditions or criteria attached. 

Risks of Condition-Free Offers

Conditional offers allow buyers and their licensees to perform due diligence research on a property, like getting a home inspection and properly reviewing all relevant information such as the title or condominium documents; secure financing for the property, typically through a mortgage; and otherwise ensure the buyer understands the details of the purchase they are making.

But you really want this house, and you have pre-approval for a mortgage so it’s no big deal, right? Not necessarily. A pre-approval is not a guarantee of financing. Financing is subject to the lender’s approval of the property, including the price, the type of property, its location, and any other variables the lender uses to determine it is acceptable to fund the mortgage. When it comes to submitting a condition-free purchase contract, caveat emptor—buyer beware.

Making an offer without approved financing in place and without inspecting a property, its title, or its condominium documents (if applicable), greatly increases the chances the deal with collapse.

Offers to purchase are contracts and they are usually submitted with initial deposits from the buyers. These deposits usually run in the thousands or tens of thousands of dollars. Depending on the wording in the condition-free purchase contract, if a buyer fails to complete the purchase as stated, they may forfeit their deposit. So, you could end up losing both the house and your savings. You may even face civil litigation by the seller. 

Even if the seller accepts your condition-free offer and the deal closes with you taking possession, you may end up with a money pit. Without a home inspection and proper review of documentation, you may discover property defects too late. 
 

Make an Informed Decision

Before placing a condition-free offer, talk to your real estate licensee about the potential consequences. Your licensee has a duty to advise you about the risks and possible implications of condition-free offers so you can make your decisions knowing all the relevant information.

If after learning of the risks, you still wish to proceed with a condition-free offer, your licensee may be able to perform some due diligence on the property prior to making the offer. Talk to your licensee about performing a title search, asking the sellers or their representative about material latent defects or other known facts about the property, and talking to neighbours about the property.

Should you wish to proceed with a condition-free offer immediately, your licensee must obey your lawful instructions.