For a seller, the obvious allure of an unconditional offer is the certainty which it immediately provides. In the past, unconditional offers were typically made in rare instances when the buyer has the resources to finance the purchase themselves and does not require anyone’s approval. Today, we see many buyers submitting offers which contain no “subject to mortgage approval” clause in spite of the fact that they will clearly require a mortgage approval to complete the purchase of your home.
In this particular market, unconditional offers are being made in an effort to create an advantage for buyers when they are competing with other offers. It’s a gutsy move on the buyer’s part. Sellers should be aware that in most cases there are limited benefits to them in taking this kind of offer seriously. In fact, you may be accepting more risk than you ever imagined. You need to understand that at the end of the day, you still have a sale which is conditional upon the buyer receiving a mortgage approval. If a lender won’t lend the buyer the funds they won’t be buying your home. It really is that simple.
When a buyer appropriately includes the “subject to mortgage approval” clause there’s a short term “out” for the seller. If the buyer is unable to obtain financing you can move forward with your selling effort, normally within a short period of time. In this particular market you can likely expect your home to attract a level of interest which is similar to what you experience the first time it was offered for sale. The risk of accepting a finance condition is pretty limited and almost inconsequential.
Consider this; a buyer offers to purchase your home without a mortgage condition in spite of the fact that they’ll require mortgage approval. They provide a ten thousand dollar deposit. You’re happy.
The buyer then proceeds to see his lender and based on some change in his financial situation, or something which he failed to disclose to the lender during his initial “pre-approval” process he is rejected by the lender.
The buyer is distraught realizing that’s he has likely made a move which will ultimately cost him $10,000. He’s not ready to give up and decides that he is going to try to arrange financing some other way. Whether he chooses to tell you about his misfortune today, or 60 days down the road, the same $10,000 is at stake, so there is little incentive which might cause him to come forward so you can deal with a collapsed sale and move forward with your plans.
Meantime, possession date on the home which you’ve purchased draws near. Perhaps you’ve obtained bridge financing which would allow you to possess both homes for a short period of time so that you can move directly from one house to the other. As soon as the sale on your first home completes you’ll pay the lender out of the proceeds. Trouble is, your sale doesn’t close and suddenly you own two homes, and two mortgages. Ouch!
Now, you might say, “At least I’ve got the $10,000 deposit. That will be helpful in dealing with this mess.” Yes, if the buyer should agree to surrender that money you’ll probably be able to find your way out of it. You should be aware however that there is a provision in the Real Estate Act which forbids a real estate brokerage from releasing a deposit which is “subject to dispute.” If the buyer objects to its release, the deposit is staying right where it is until the matter is settled.
Clearly, this would be a sleazy approach for a buyer to take and I believe that contracts which we use in Saskatchewan would ultimately entitle you to the deposit, but you might have to drag this bum to court to make that happen and that can be a lengthy, costly and onerous process. The buyer could try other sleazy tactics like filing an interest in your property with the Land Titles Office making it difficult for you to sell it to someone else. These tactics would be used as a way of strong-arming you into returning all or part of the deposit. I would say that the larger the deposit the more likely it is that a buyer will throw down the gloves and fight.
I know of one instance where a buyer changed their minds on a purchase after removing all conditions. They flew back home to England and they used the very tactics which I just described. The seller had to jump through all sorts of hoops to get their home back on the market and it has been difficult locating these people to serve them with a summons. The sale fell through over two years ago. The seller will have her day in court this May. The deposit was a mere $5,000 which clearly tells me that some people will do just about anything to try to save a buck.
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Royal LePage Saskatoon Real Estate