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Everything about the conditional offer to purchase

#Buying a property #Selling a real estate property

Last update : 2023-05-15 08:26:04

If you have listed your home for sale, the next step is probably to receive offers from individuals interested in purchasing your property. But did you know that a promise to purchase can come with conditions that may affect your sales plan?

An offer to purchase may contain various conditional clauses that may delay the sale of your home, or even allow the buyer to withdraw from the transaction if they are not met. But this does not mean that the buyer is free of any responsibility and commitment to you!

Living room of a house

What is a conditional offer to purchase?

The offer to purchase is a formal document that commits the buyer to purchase the property from the seller if the seller accepts the proposal. In particular, it contains the purchase price, as well as the date and time at which the offer will expire. It may also, in some cases, include conditions to be fulfilled by the buyer or seller prior to the conclusion of the transaction.

If no conditions are added to the contract and the seller accepts the offer, then the promise to purchase is applicable and the transaction can be concluded. In the event that one or more conditions are included, the purchaser's obligation to sign the deed of sale is suspended until the conditions are fulfilled.

The buyer is still bound to the seller by contract. Until the conditions are met, he or she is not required to sign the sales contract. However, as soon as the conditions are met, he or she is obligated to purchase the house according to the agreed terms.

Although it is found in all real estate transactions, the promise to purchase can be complex. Whether you are a buyer or a seller, make sure you know all the specifics.

3 conditions often included in the offer to purchase

The condition of inspecting the house

1. Inspection condition

One of the most common conditions contained in a promise to purchase concerns the inspection of the property. This means that the offer made by the buyer will only be valid if a pre-purchase inspection is carried out to check the condition of the home for sale.

The buyer must then call upon a home inspector to ensure that the house is in good condition. If the inspection reveals no major problems, the condition will be considered met and the acquisition process can continue.

Conversely, if the inspector discovers potentially serious defects, the buyer may modify their offer to reduce the purchase price or withdraw it entirely.

The inspection is an essential step in a real estate transaction and should never be overlooked. Find out why in our article Three reasons to ALWAYS do a pre-purchase inspection.

2. Financing condition

The financing condition is another important clause that can be added to a purchase offer. When the buyer incorporates this condition, they will have to prove that they are able to obtain the necessary funds to purchase the property before officially acquiring it. They will have to receive proof of financing from the lender of their choice.

Has the buyer been pre-approved for a mortgage? While this is an excellent initiative to know your borrowing capacity, it is not sufficient at this stage. The individual concerned will need to obtain a formal mortgage commitment indicating the amount of money that is being provided by the financial institution to purchase the property listed in the offer to purchase.

Without this proof of financing, either because of refusal or because the agreed-upon deadlines are exceeded, the promise to purchase could become null and void.

The risks of waiving this condition as a buyer

As a buyer, the financial consequences could be severe if this condition is omitted or rejected. If your lender refuses to finance you, you will not be able to complete the purchase contract. You will of course not be able to afford the property you want, but you could also be sued for damages by the seller.

In the event that the financial institution agrees to finance you, but offers you a lower amount than expected, you will have to pay the difference in price out of pocket. This type of situation can occur when the property valuation is lower than your offer to purchase. Your lender may then provide financing based on their appraisal and not the proposed purchase price.

The condition of selling your house before buying a new one

3. Conditions of sale

Unless the individual concerned is a first-time buyer, the person placing the offer to purchase will most likely have a property of their own to sell before they can purchase a new one. They can then offer a promise to purchase which is conditional on the sale of their own residence.

Both parties involved will have to agree on a reasonable amount of time to allow the buyer to complete the sale of their home and fulfill the condition. If the buyer does not succeed in disposing of the property within the agreed time, the purchase offer may be cancelled.

A time frame of 60 to 90 days is usually established for the completion of this type of condition.

Other conditions

The three conditions mentioned above are obviously not the only ones that can be added to a purchase offer. In addition to these, a buyer could, for example, make their promise to purchase conditional on the analysis of the backfill material to detect the presence of pyrite or any other harmful material.

In the case of co-ownership, the individual concerned could also include as a condition the review of the financial statements of the co-ownership corporation.

Although still not very common in promises to purchase, this is an excellent initiative on the part of the buyer, since the examination of the documents and financial statements of the syndicate makes it possible to see if the syndicate is effectively managing the finances of the building. Well-managed finances provide peace of mind to the new buyer, while the opposite could be a sign of potential problems.

The timeframe of the conditions

The importance of the timeframe with the conditions

Regardless of whether it is a condition of sale, financing or anything else, it is essential to ensure that they are accompanied by a deadline for their completion. Otherwise, Article 1501 of the Civil Code of Québec provides that 'a condition which is not subject to any time limit for its fulfilment may always be fulfilled', unless it becomes certain that it cannot be fulfilled.

It is therefore important for both the seller and the buyer that the conditions mentioned are accompanied by a reasonable period of time. This will prevent the potential buyer from finding themselves in a situation beyond their control and stop the owner from delaying their sale for too long.

Can the conditions included in the promise to purchase be prevented?

Once the conditional offer to purchase is established, the buyer does not have the right to voluntarily prevent the fulfillment of the condition in order to be released from the contract. An individual who prevents the fulfillment of a condition, even if not acting in bad faith, would no longer be able to rely on it. The contract would then be validated as if the condition had been fulfilled.

For example, if the buyer makes a promise to purchase conditional on the sale of their home, but later withdraws it from the market or declines all offers received so as not to sell it, the law will give effect to the promise to purchase. The purchaser will have to buy the property from the seller as agreed or be required to compensate the seller for breach of contract.

A conditional offer to purchase therefore does not allow the buyer to walk away from their obligations as they please. They are bound to the seller by a legal contract that both parties must respect and try to complete to the best of their abilities. 

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