Tips for Home Buyers: Subject to Sale

Buying a New Home Subject to the Sale of your Old Home

I wanted to chat about an option that Home Buyers may have when buying their new home, called a subject to sale. This subject allows Home Buyers to purchase their new home, subject to their current home selling by a certain date. The simplest reason for doing this is to line up the sales of these properties for financing and moving day reasons – it gives the family a chance to move out of their old house and into their new house without any hassles, rental places or otherwise.

First, let’s take it back a notch and talk about subjects.

Subjects are conditions in a Contract of Purchase and Sale that must be fulfilled in order for the sale to go through. Real Estate contracts have subjects for many reasons, the typical reason is to give the Home Buyers a chance to do their due diligence on their potential new home, including tasks like getting a home inspection (to discover thing that can’t be discovered during a simple walk through), getting their financing secure (mortgages can only be officially approved when there’s an accepted offer on a specific property) and gathering any documents that a potential Buyer has the right to see (so they know what they’re getting into). Legally, the Buyer has to use every reasonable effort to see that the conditions are satisfied.

A subject to sale is another subject clause the Buyer may use, which (typically states):

Subject to the Buyer entering into an unconditional agreement to sell the Buyer’s property at ____Address_____ by ____Date____. This condition is for the sole benefit of the Buyer. However, if the Seller receives another reasonable offer on their property the Seller may deliver a written notice to the Buyer requiring the Buyer to remove all conditions from the contract within 72 hours of the delivery of the notice, not to include Sundays and Statutory Holidays. Should the Buyer fail to remove all the conditions before the expiry of the notice period, the contract will terminate.

Reading through the legal jargon, this subject means that the Seller will give you a chance to sell your property by a certain date (typically the Buyer will have a month or so) – HOWEVER – if the Seller get’s another offer, then they can force you to decide if you’re going to go ahead and purchase their property (regardless of if they’ve sold their home) or the deal will terminate so the Seller can sell their home to this other Home Buyers.

Why would a Buyer use a Subject to Sale Offer?

Like I stated before, typically to try to line up their financing and the moving dates to work perfectly with their old home and new home. A Buyer may have also been planning to sell their home, and before they had the chance to do that, they may have found the perfect home and don’t want to risk losing it. Seller’s can be hard pressed to accept this subject (especially if it’s a busy market with lots of Home Buyers), so the Buyers (or really, their Buyers agent) have to convince the Sellers that the Home Buyers current home will sell quickly because it’s a great house, priced to sell, is clean and ready, is on the market already, etc.

Why would a Seller accept a Subject to Sale Offer?

Subject to Sale offers aren’t strictly to benefit the Seller, so why would they “tie-up” their property to one Buyer? If their home has been on the market for a little while and hasn’t sold, it could be useful as it secures an Accepted Offer from an interested Buyer, which will lead that Buyer to focus on buying this home, rather than any others. Typically, Sellers balk at subject to sale offers and in order for the Buyer to convince the Seller to accept, they make their offer hard to refuse financially, either by offering above their asking price or the asking price, which of course, is great for the Seller.

A subject to sale offer can make sense in a lot of situations, and they occur successfully fairly often, you’ll just need a smart negotiator (that’s us!) on your side (whether you’re the Buyer or the Seller) to ensure that you are protected and understand every aspect of this situation. If you’re the Buyer, this same agent will be selling your home so you’ll want someone who can sell quickly to ensure that you can close on your ideal new home.