What Does Conditionally Sold Mean?

| Buying

Whether you’re buying or selling your home, you might encounter a situation where the offer is based on certain conditions. If the offer is accepted, this is referred to as “conditionally sold.”

Here we look at what conditionally sold means and when it might come into play.

So, What Does Conditionally Sold Mean?

Conditionally sold means the buyer and seller have signed an agreement of purchase and sale in Ontario, BUT the transaction is pending based on one or both parties meeting specific conditions. A deadline is set, and once the conditions are fulfilled, the sale is finalized.

Looking for more real estate definitions and explanations? Check out these posts next: 

Why Would a Buyer Make a Conditional Offer?

Buyers often make a conditional offer because they’re selling their existing home. There’s always a chicken or the egg riddle in this scenario: Do you sell your home first and then buy, or vice versa?

In the case where the buyer decides to buy first, they often won’t have the funds for their down payment and also face the risk of carrying two mortgages until they do manage to sell. This scenario is called a “sale of property condition,” or SOP as we call it in the biz.

However, most buyers will also throw in conditions such as the property must pass a home inspection, or for condo offers, undergo a status certificate review. The one last possibility is financing, where the buyer needs to get mortgage approval. (Eek! We always advise our clients to get pre-approved to avoid this scenario!)

Speaking of mortgages and financing, just how much do you need to save for a down payment on a house? Read this blog to find out! 

Why Would a Seller Accept a Conditional Offer?

While it might seem accepting a conditional offer is a bad idea, it actually offers several advantages, particularly in a buyer’s market. When inventory is high, sellers need an edge, and accepting a conditional offer can often provide an opportunity to sell, despite the risk and inconvenience. Common scenarios for accepting conditional offers might include:

Slow market: In a slow market where offers are harder to come by, accepting a conditional offer helps facilitate an elusive sale that wouldn’t otherwise be possible. It can be a win/win for both the buyer and seller.

  • Lack of offers: If a home has sat on the market a while, a conditional offer is better than no offer at all!
  • Negotiating power: Sellers can gain more negotiating power and demand a premium price to compensate for the inconvenience and potential risk of the condition not being met.
  • Escape clause: An “escape clause” allows sellers to continue to market their home, keeping them in the driver’s seat to secure a sale should the conditional sale fall through.

When Can a Seller Back Out of a House Sale?

It is exceedingly difficult for a seller to back out of a firm house sale, as the agreement is binding. However, as mentioned above, most conditionally sold agreements include an escape clause. This clause is risky for the buyer, as it allows the seller to keep their home on the market during the period the buyer is meeting their condition. Although the buyer has the right of first refusal, they would have to match the terms of the second offer. If they can’t match the terms, the seller can back out in favour of the better offer. Hence the term “escape.”

Furthermore, if the buyer breaches other terms of the contract, such as not getting financing, the seller can terminate the agreement.

Planning your next home sale? here are a few more posts you might find useful:

When Is It Too Late to Back Out of Buying a House in Ontario?

Buyers also face a hard go of it if they try to rescind a firm offer. However, if they can’t meet the terms of a conditional offer, they can back out. Should the seller not meet their end of the bargain, such as failing the house inspection or status certificate review, the buyer can terminate the agreement—no harm, no foul, as they say.

What About Buyer’s Remorse?

As for buyer’s remorse, Ontario doesn’t have an official “cooling off” period for home buyers. However, it’s not unheard of for buyers to include a rescission period, typically of 10 days, to mull over their decision. If they change their minds for whatever reason, they can terminate the offer.

The Bottom Line

Conditionally sold agreements can be beneficial to both buyers and sellers in the right situation. Buyers gain time to sell their home, secure financing, or confirm that the home passes inspection. Sellers can negotiate a higher price and use an escape clause allowing them to consider additional offers, furthering their negotiating power.

Whether buying or selling a home in Toronto, you get the best results when you work with the best! Reach out to the top Toronto real estate agents at The Christine Cowern Team. Give us a call at 416.291.7372 or email us at hello@christinecowern.com today!