Firm vs. Conditional Offers in Real Estate

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What is a firm offer?

An offer that is direct, without any conditions. The Buyer makes a firm offer when the are 100% certain about purchasing a home. Once the offer is made, the Buyer is legally obligated to follow through with the transaction and cannot back out of the deal.

Firm offers are most commonly used when purchasing a home in a competitive (high volume) area. For example, a real estate agent may list a property at a lower price than market value (the price the property is worth) to get multiple offers. In competition for a house, if a Buyer really wants a property, they are likely to make a firm offer to entice the Seller to accept their offer based on the fact that there are no conditions attached to the sale.

A Seller would likely prefer a firm offer because it is less likely for the offer to fall through based on the fact that there are no conditions that the seller must meet prior to the sale of the house.  When a firm offer is made the Buyer already has the cash, or pre-approved mortgage. However, the Buyer is taking on the risk of not knowing anything about the home, which could be found during a home inspection.

Pros to Firm Offer

  • Quick time frame. The Buyer makes the offer; the Seller accepts – there are no conditions to be met
  • The cost of the property is direct. There are no added fees – home inspections (usual cost of home inspections in Ontario is $300.00- $500.00)
  • Seller may accept lower offers on a property if there are no conditions – common when the owner wants a fast closing date

Cons to Firm Offer

  • The Buyer cannot receive any compensation for additional fees for fixing issues with the home (i.e., roof problem) – this is one major reason a Buyer would prefer a conditional offer
  • Buyers cannot ask for chattels (movable property) to be included in the sale
  • The Buyer must have the money to pay for the property – cash or pre-approved mortgage
  • The deposit is forfeited if the offer is not accepted – if the Buyer is at fault for the deal not closing, the Seller gets to keep the deposit

Caveat Emptor – Let the buyer beware. This is a warning to a buyer that the goods (the home) he or she is buying is sold “as is,” and subject to all defects.

What is a conditional offer?

An offer that is made with conditions attached. In order for the offer to be valid all conditions must be met prior to the transfer of title to the property.

Conditional offers can be used to protect the buyer. For example, if the buyer makes an offer that is contingent on a home inspection. This protects the buyer from having to endure potential additional repairs to the house.

Example of condition in the Agreement of Purchase and Sale

Inspection Clause: Buyer acknowledges having the opportunity to inspect the property and understands that upon acceptance of this Offer there shall be a binding agreement of purchase and sale between the Buyer and Seller. The Buyer acknowledges having the opportunity to include a requirement for a property inspection report in this Agreement and agrees that except as may be specifically provided for in this Agreement, the Buyer will not be obtaining a property inspection or property inspection report regarding the property.

Having this clause in the Agreement can help the buyer ensure that the property they are purchasing has no major issues. One example of a major issue is a roof problem. If the roof of the house is severely damaged this can be a costly repair for the Buyer and should be taken into consideration when valuing the home. The Buyer may decide to request that the Seller fix the roof prior purchase or the Buyer may offer less money based on the cost of fixing the roof.

Another common conditional offer is a financing condition. This allows the Buyer to back out of the offer if he or she is unable to get enough financing from a lender (bank).

On a conditional offer, the offer is only complete once all conditions have been met. Once the conditions are met, the offer becomes firm and the title to the property is legally transferred.



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