Today’s topic is about the sequence of events that occur immediately after your real estate offer gets accepted; the time between the day you get your offer accepted and when you actually make it firm. Specifically, the subject conditions part of the deal, after the back and forth negotiating between the Buyer and the Seller and their respective agents.

Both parties finally agree upon price and terms and the sign off on the deal. Now as we all know rarely does an offer get accepted without any conditions. After the offer is accepted there is a period of time worked into the offer where the Buyer has an opportunity to follow through with and verify the conditions all parties have agreed upon in the offer.

Essentially this is the due diligence and the satisfaction of conditions part of the deal where primarily the Buyer is able to do a final check on the residential property and financing terms without the interference of other Buyers and with the complete cooperation of the Seller.

Let’s focus in on some of these subject conditions that are worked into the Agreement of Purchase and Sale.

Number 1: As soon as the offer is accepted the clock begins to satisfy these conditions included in the APS leading up to firming the deal. These deadlines are the dates that the Buyer negotiates that allows the Buyer the time to satisfy themselves in their full and unfettered discretion.

Typically, a staple condition is one of financing. This condition allows the Buyer to obtain the required financing usually by way of a mortgage to complete the deal. In today’s market an allowance of 5 to 10 business days is the industry norm to satisfy this condition.

Even though this conditional deadline has been accepted in the offer it is not uncommon for the seller to allow an extension by way of an amendment if the financing process proves to take longer then expected. In the even as a Buyer you find this timeline too short the Buyer should consult their realtor to negotiate an extension.

In the event the Buyer can’t obtain a mortgage favorable to the Buyers liking this is a way to walk away from the deal. Therefore, it’s important that the Buyer uses the terms ‘sole and unfettered discretion in the financing clause’. Typically, a scenario that cause the Buyer to walk away from the transaction is when the Buyer’s pre-approval doesn’t line up with the aspirations of the Buyer whether it be term, rate or qualification.

If you are purchasing a home with cash, you won’t need this condition but for most Buyers this condition is a must. From an economics standpoint most would agree that having some portion of the purchase price be from a mortgage as this allows for freed up capital you won’t be paying interest on.

Number 2: Secondly the most important condition you want to include in your Agreement of Purchase and Sale would be that of a Home Inspection condition. This is quite a common condition which protects the Buyer as to the current state of the property. The Home Inspection doesn’t relate to normal wear and tear of a property but more deal breakers and renegotiating points as structural defects, mold, faulty wiring, poor grading and drainage around the foundation and water on the walls in the basement.

Number 3: The next important condition is the requirement of the appraisal. If your down payment is less than 20% you will not need an appraisal. This is since your mortgage is deemed insured as in CMCH insurance which protects the lender against default. In the event your down payment is more then 20% the lender will require an appraisal as these mortgages are not CMHC insured. This tipping point is derived by the standard loan to value ratio. Be aware that the minimum down payment is 5% of the purchase price.

Be careful when using a high deposit because you may receive a lower than expected appraisal which will in turn require your deposit to increase. As mentioned in previous articles a lower down payment comes with a higher insurance premium so it’s important to find the proper equilibrium regarding your lending. Mortgage insurance for lower loan to value ratios provoke higher insurance rates that will be tacked on to your payments which could negatively alter your monthly payment due to the added insurance premium.

Number 4: For Condo, Townhome, and Apartment Buyers another key condition is for the Buyer to acquire and review condo bylaws and strata documentation. In these documents the Buyer may come across certain restrictions, regulations and allowance the Buyer must adhere to when moving into these living spaces. Expect the bylaws and declarations to lay out rules and regulations similar to a mini government for these dwellings. Some rules include; no renting, no pets, no children and no smoking. Also, the lender will notice these restrictions which could hinder financing. It’s imperative the lender reviews the declarations, disclosure and bylaws before funding the Buyer’s mortgage.

Number 5: The final condition worth contemplating is that the Buyer home must sell prior to the closing date of the new property. This one protects the Buyer in the event they can’t sell their property prior to going firm. Not necessarily a prominent clause but given the market over the last few years, this clause has appeared more frequently.