BC Sunshine Coast real estate by Menno at Royal lePage Real estate on the BC Sunshine Coast

It can happen that you see house you’d really want to purchase while your old house is still on the market – unsold. What are you going to do? Take a chance? There are various ways you could approach this issue.

It's not that hard to fall in love with a house - we see it happen almost every day. How to navigate the various possibilities at this point is worth a quick read.

The decision will be easy if you can afford to own two homes simultaneously. In that case, you can just buy one and wait for the other to sell. Most of us are not in that situation, we have to sell the previous house before we can even afford to buy another. We can effectively structure real estate deals that one hinges on the other. How effective can that be and more importantly: how advisable is it?

Here is the most common scenario. You have your current house on the market and that you are just casually looking to see what’s out there. Are there any houses out there you would like? Are you just getting a true feel for the market? Whatever your reasoning do be looking around, it’s entirely possible that you see a property that you really like. Is there anything you can do right now or should you wait for your old house to sell?

Another scenario is that you happen to bump into a house that’s not only for sale but also very much to your liking. When you like it so much that you actually would like to purchase it and you realise that you already have a home that isn’t even on the market, what can you do?

These situations, where you would like to purchase your next home while the old one hasn’t sold yet (or isn’t even on the market, at present), are not at all uncommon. There are various ways you could deal with this.

There is no standard transaction pattern that you can count on; various steps may be necessary to navigate the sale and the purchase satisfactorily.

THE SEQUENCE OF TRANSACTIONS

Most people cannot afford to own more than one house at a time. In such a situation, the “conditional sale” may be a solution you could work with. The “sold subject to” clause is a special kind of conditional sale: the one that’s contingent on the sale of another house. It means that neither house is actually sold until the buyer’s own house attracts a buyer. Then the domino effect comes into play. When one deal “goes through”, so does the next one. Suddenly, two houses are “sold”.

It’s completely legal to purchase your new home while your old home hasn’t sold yet. Most people who run into such a situation will want to make their purchase conditional on the sale of their old home. In fact, this is the only way available to people who can’t afford to own two houses (which would be the alternative).

Apart from the common clauses that we see in real estate contracts (financing, inspection, title, insurance, etc.) there is one rather more complicated clause: the “Subject to Sale clause”. This is where the buyer puts an offer in on a property, but the offer to purchase has the condition that the buyer first needs to sell his/her old home.

When something happens, something else may ensue. However, it doesn't always. At any rate, you got to stay flexible and keep a sense of humour about the whole chain of events.

THE CHAIN OF EVENTS MADE CLEARER

If the seller accepts an offer with that condition, the listing remains active on MLS, and will continue to be marketed by the listing agent. Real estate agents have to disclose the existence of this “Subject to Sale clause” whenever another prospective purchaser enters the picture. If that other purchaser arrives with another real estate agent (which is usually what happens) then that agent needs to be informed immediately.

Generally speaking, a seller will settle for a somewhat higher price on a “Subject to Sale clause” kind of offer, than if the offer were “cleaner”. (Cleaner offers, in this context, are the ones that contain fewer conditional clauses). This makes logical sense because the cleanest offer ALWAYS succeeds, unless the “Subject to Sale clause” offer is at a much higher price.

In other words, if buying as cheaply as possible is your priority, then don’t use the “Subject to Sale” clause. However, if buying with the most comfort and security is more important to you, then the “Subject to Sale clause” kind of offer may be to your benefit.

There are many events and situations that could make it hard if not impossible to build a chain of sales; it's best to always try and have some alternatives.

WHY A “SUBJECT TO SALE” MAY NOT WORK

There are quite a few sellers who cannot or will not accept “Subject to Sale” offers. For instance, if a property is being sold by a bank, it’s highly unlikely that they will entertain “complicated” offers. Also, sellers who are in a hurry to make the sale don’t want “Subject to Sale” offers either: it slows things down. Also not reasonably open to “Subject to Sale” offers would be those properties that already have another “Subject to Sale” offer on them – just because the logistics could become overwhelming.

Even if a “Subject to sale” clause has been accepted, it could happen that the chain of events does not take place. This can occur when the seller receives another (acceptable) offer on their property. In such a situation, the first buyer is notified that they have 12, 24, 48 or 72 hours (or whatever time frame was agreed upon in the contract) to waive their “Subject to Sale clause” and proceed with the purchase as if their “Subject to Sale clause” has not existed.  If the first buyer does not, or is unable to waive the condition, the seller can then continue with the new offer after the specified time has elapsed.

No terms or conditions of the “Subject to Sale clause” may be disclosed to any other subsequent potential buyers interested in offering on that property (other than the mere existence of the agreement). For instance: what price the other offer was for, is nobody’s business. All we need to disclose is that there is this other accepted offer.

A cloak of secrecy must envelop conditional real estate transactions so as not to jeopardise the negotiating positions of the various parties.

SELLERS’ RELUCTANCE TO ACCEPT

Sellers need to think about several things before deciding whether to accept an offer with a “Subject to Sale” clause:

SELLER BEWARE – What is the likelihood of the Buyer’s home selling? Is it priced properly? How long has it been listed for? Is it even on the market yet?

SELLER BEWARE – Some other prospective buyers might be turned off by seeing a home with a Conditional Offer on it. They might not want to compete with another buyer when there are ample other properties on the market. They might be in a relative rush to make a purchase (for instance during a house-hunting trip) and may not want to waste the hold time (24, 48 or 72 hours), awaiting the verdict on the original buyer’s ability to go through with the purchase or not.

SELLER BENEFIT – In a slow market, it might be good to “lock-in” a potential buyer at today’s market value, and just hope that their home sells soon as well.

SELLER BENEFIT – Some sellers believe that it increases the attractiveness of their home if there is a conditional offer on it because it shows (“proves”) that somebody else already wants it. This goes to the philosophy that what’s in demand is more valuable than what’s not in demand.

SELLER CAN BECOME BUYER AS WELL – Occasionally, it happens that the seller will just end up buying the property that’s the subject of the conditional clause. One could see this as a trade-in situation, which is fully legal. This works best if the subject-to property is much cheaper than the seller’s home. However, any variety of transaction models can come into play at this juncture. Creativity is permitted and encouraged!

In a chain-of-sales, all the parties are somewhat on the same team but still all have their specific individual interests. It's often a challenge to keep the various deals together.

RATTLING THE CHAIN

Since any “Subject to Sale” offer hinges on the successful sale of a third property, it’s very likely that any dates that were agreed upon in the original offer, may have to be changed. Ideally, people will want to line up their transactions. If the third-party buyer offers a certain closing date, then that may have the effect of shifting all other dates as well, if at all possible. It doesn’t have to but it’s quite likely to happen that way. In all, some additional flexibility and understanding will be required on the part of all those that are involved in the deal.

Things can get really complicated if there’s a whole chain of “Subject to Sale” transactions going on, all depending on each other. The more parties are involved, the more diverse the potential problems and challenges can be. Good record-keeping on the part of your real estate agent will be totally crucial.

Some real estate deals are fairly simple, others are complicated from beginning to end. A chain-of-sales usually ranks on the more complicated end of the spectrum.

MORE: There are many benefits to being more informed about real estate transactions. Here are some suggested blog articles that you may also find interesting:

How much do you think your mortgage is worth, right now: http://www.mennorealty.ca/Blog.php/mortgage-right-now

Debt into retirement: http://www.mennorealty.ca/Blog.php/debt-free-retirement

Your dear credit score: http://www.mennorealty.ca/Blog.php/mortgage-connection

On the market: fixed and variable rate mortgages: http://www.mennorealty.ca/Blog.php/eternal-mortgage-question