When purchasing a home, most offers include conditions or subjects, which are criteria that must be met before the sale can be finalized. These conditions protect the buyer from making a poor investment and ensure no hidden surprises regarding financing, insurance, or the property’s condition. Common subjects include:

• Financing Approval
• Home Inspection
• Condo Status Review (if applicable)

These conditions are written into the purchase offer with a date of removal, agreed upon by the seller. If the subjects are lifted by this date, the sale proceeds. If not, the buyer can waive the offer, making the purchase void.

The Rise of Subject-Free Offers

Recently, especially in competitive housing markets, subject-free (or condition-free) offers have become more common. These offers are submitted without any conditions, essentially accepting the property "as-is."

Impact on Buyers and Sellers

Pros of Subject-Free Offers:

Buyers: The primary advantage for buyers is the ability to outbid the competition in a heated market.
Sellers: These offers typically include a competitive price and a willingness to meet the seller's preferred dates. If the seller needs a quick sale, they may prefer subject-free offers.

Cons of Subject-Free Offers:

Buyers: Submitting a subject-free offer carries significant risks:

Financing: Pre-approval is not a guarantee of financing. If financing falls through, the deal can fail, and the buyer might lose their deposit.
Inspection & Insurance: Skipping the home inspection and insurance subjects means the buyer might face costly surprises.
Due Diligence: Without subjects, there’s no chance for due diligence after the offer. The buyer must thoroughly research before bidding, as backing out can have serious legal consequences.

Sellers: While there’s less risk for sellers, they cannot be certain that financing will be secured.

Financing Around Subject-Free Offers

Buyers must do as much due diligence as possible before submitting a subject-free offer. This includes talking with a mortgage agent to aid in securing financing. Though approval is never certain, prospective buyers should aim to secure financing beforehand.

Contractual Obligations

Understand the difference between a purchase offer and a purchase agreement:
Purchase Offer: A proposal to purchase with set terms.
Purchase Agreement: A full contract between buyer and seller. If financing falls through, the contract is breached, potentially resulting in the loss of the buyer’s deposit.

Preparing a Subject-Free Offer

If you decide to proceed with a subject-free offer with your real estate agent, consider these steps to mitigate risks:

Get Pre-Approved: Obtaining a pre-approval from your lender is a critical first step. This process helps determine your likelihood of securing a mortgage based on your financial situation. While pre-approval is not a guarantee of financing, it shows that you meet the basic criteria for a mortgage.

• Maintain Financial Stability: Avoid large purchases or taking on new debt.
• Keep Documentation Updated: Ensure all financial records are current and readily available.

Do Your Due Diligence: Thoroughly investigating the property before making an offer is crucial:

• Property Condition: Check for any signs of damage, necessary repairs, or renovations.
• Neighbourhood: Research the area for factors like crime rates, school quality, and future developments.
• Property History: Look into past sales, previous ownership, and any legal issues associated with the property.

Get Legal Advice: Understanding the legal implications of a subject-free offer can save you from future problems:

• Consult a Real Estate Lawyer: Get professional advice to comprehend the risks and potential legal ramifications.
• Contract Review: Have your lawyer review the purchase agreement to ensure there are no unfavourable terms or hidden clauses.
• Risk Assessment: Discuss the possible outcomes if the deal falls through, including financial and legal consequences.

Title Review: Ensuring the property’s title is clear is essential to avoid future disputes:

• Title Search: Conduct a comprehensive title search to confirm there are no liens, encumbrances, or legal claims against the property.
• Verify Ownership: Ensure the seller has the legal right to sell the property.
• Title Insurance: Consider purchasing title insurance to protect against future title disputes.

Insurance: Securing insurance for your home is a critical step:

• Pre-Approval for Insurance: Confirm that you can obtain insurance coverage for the property.
• Inspection Requirements: Be aware that some insurance companies may require a home inspection before issuing a policy.
• Adequate Coverage: Ensure the insurance policy covers potential risks, including natural disasters, theft, and liability.

Strata Documents (if applicable): For properties governed by a strata corporation, reviewing these documents is vital:

• Lawyer Review: Have your lawyer examine strata documents, including meeting minutes, bylaws, and financial statements.
• Assess Financial Health: Evaluate the strata’s financial health to ensure there are no looming special assessments or financial issues.
• Rules and Regulations: Understand the strata’s rules, including restrictions on renovations, pets, and rentals, to ensure they align with your lifestyle and plans.

Final Thoughts

While submitting a subject-free offer can be advantageous in a competitive market, it is risky. Ensure you discuss this with your real estate agent and mortgage expert to make an informed decision. A good realtor will help minimize your risks while maximizing your opportunities.