Should I Buy Or List First? – Part III
In part three of our three part series on Should I Buy Or List First?, we explore the pros and cons of drafting a conditional offer on a property. In case you missed part two of our series here on buying your new home before selling your current property, click here.
Strategy #3: The Conditional Offer
The third option at your disposal when deciding whether to list your current home before or after purchasing your next home is to draft a conditional offer (also know as a subject-to-sale offer).
Unlike strategy #2 (buy first, sell later), whereby you commit yourself unconditionally to the purchase of a new home prior to selling your existing home, with a conditional offer, you are only committing yourself to purchase your new home if your existing home sells by a specified end date.
While the conditional offer strategy sounds almost too good to be true, it falls short in a few different ways:
1. There is typically a clause in this contract that allows the seller to continue to market their home even after the conditional offer has been accepted. During this time the seller is able to entertain offers from other bidders. If the seller wishes to pursue any of these other offers prior to the sale of your home, he has the right to do so, but must give you the right of first refusal. If your current home has not yet sold, you will be forced to walk away from your purchase unless you are willing to shoulder the prospect of holding two properties (and mortgages) at once.
2. Sellers typically view conditional offers as “second rate”, and in many cases will only entertain them if their property has been languishing on the market for some time. In hot real estate markets, the likelihood of having an offer accepted with a subject-to-sale clause present is very low. In order to compensate for the inherent unattractiveness of these sorts of offers, buyers must often offer a generous price premium in order to attract the attention of sellers.
In a lot of ways, the conditional offer is the middle ground between the other two options we’ve discussed in this three part series. While on the surface it appears to be a good solution for those who are unsure of whether buy or sell first, in reality, this approach lacks the clear advantages that the other two strategies confer. The fact that another buyer can show up at any stage of the process and “bump” a conditional offer means that you might have your heart set on a home that another purchaser can easily fly in and snatch from under your eyes.
If you have questions about the market or would like to discuss anything mentioned in this article, feel free to send me an email or drop me a line—I’d love to chat. I’m a Vancouver Realtor who is an expert in residential real estate and sell extensively condominiums, townhomes and detached homes.