Q: We are house hunting this spring and conventional wisdom tells us we should make our offer to purchase a home conditional upon certain terms – that the home pass a home inspection within five business days of the offer, for example. But what about in a competitive real estate market or multiple offer scenario? Should we ever make a firm, no-conditions offer to get a jump on other buyers?
A: Read on for the lowdown on conditions, and how they can help – or hinder – you as a buyer.
The two most common first-time homebuyer conditions are:
Conditional on financing: The sale is conditional on approval by your mortgage broker or lender. Even if you’ve got mortgage pre-approval, your lender must sign off on a particular property. They’ll use an appraiser to ensure the value of the home is inline with the selling price.
If it is (or if you’re snagging a deal), you’re set!
But if the appraiser deems the property overpriced, your lender may offer less money for your mortgage, leaving you responsible for the difference between the sales price, and a lower-then-expected mortgage loan. In some cases, that may be outside your ability to raise before closing. Making your offer conditional on financing gets you off the sales hook. (While losing the home may be disappointing, it’s less disappointing then losing the home…. as well as your deposit, or being sued for breach of payment.)
Conditional on home inspection: Let’s say your home inspector finds a series of problems that will cost you serious money to fix. You may decide to withdraw the original sales offer and make a lower offer to accommodate the expected repairs. Or, to cancel the sale altogether.
No conditions: In highly competitive real estate markets and multiple offer scenarios, firm, no-conditions offers usually carry more weight. (Try to see it from the seller’s perspective: an unconditional sale is a done deal, without any of the delay of waiting for financial approval or an inspection.)
As a buyer, should you take the risk associated with a no conditions offer? In some cases it may seem unavoidable, although in a tight real estate market, you can sweeten your conditional offer by offering a more competitive price.
In a hot spring market, it’s crucial for first-time homebuyers to work with a knowledgeable Realtor. Their insights into local market conditions, neighbourhood housing stock, and other factors will give you the edge when it comes to having your offer – conditional or not – accepted, so you can achieve your dream of homeownership.
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