With the return of a balanced or buyer’s market for most properties in and around the GTA, conditional offers are back. Inspection and financing conditions are quite common but recently we started seeing the return of the sale of buyer’s property (SOP) condition as well. This condition means that if the buyer’s property doesn’t sell within a specified time period, the buyer can walk away from the deal and get their deposit back. Let’s look at the steps a seller and their agent can take to mitigate risk and reach a favourable outcome. Here’s everything you need to know about the sale of buyer’s property condition.
This is a sample of a clause you may see in the Agreement of Purchase and Sale:
This Offer is conditional upon the sale of the Buyer’s property known as _______. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than {{$Time}} on the {{$Date}}, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.
What are the risks of accepting a SOP condition?
As a seller, you would only consider accepting this type of conditional offer if the market is a buyer’s market. The typical SOP clause is for 30 to 60 days (you should negotiate the shortest time frame possible). The main risk is that the buyer walks away because they can’t sell their own home. It’s common and important to include an escape clause in your contract to have the opportunity to entertain a second offer. Once the property is listed on MLS as SC or SCE (sold conditionally or sold conditionally with and escape clause) your property will attract less attention. Some buyers will prefer less complicated deals, especially when the market has plenty to choose from.
Proactive strategies
Should you get an offer with a sale of buyer’s property condition, it’s important not to just blindly accept it. Your Realtor should do their due diligence and find out everything there is to know about the buyer’s property.
- Where is it?
- Is it listed already? If so, for how long?
- What is their listing price and likelihood of selling?
- A visit to the property to see what condition it’s in.
Charge a premium
As mentioned previously there are risks to accepting an SOP condition. When assuming additional risk you should negotiate a premium price. It has to be reasonable but should charge extra for the risks that you are taking.
What’s an escape clause?
The escape clause gives the seller an out. Should you receive a second offer that’s satisfactory to you, you can give the first buyer formal notice to remove all conditions from the contract or walk away from the deal.
How long is the escape clause?
The escape clause is typically 24 to 48 hours. The seller has to give formal notice to the buyer that the escape clause is activated and from that point, the first buyer has to decide whether or not they are removing their conditions or letting the deal die.
What if the second offer is significantly better than the first?
The first buyer has the first right of refusal. This means that if the first buyer removes all conditions within the specified time in the escape clause, the deal is firm and the first buyer gets the house.
Continue marketing the property
While showings of your property are certain to decline once it’s listed as sold conditionally with an escape clause, your Realtor should continue to market the property as before. This includes open houses, social media, and other forms of marketing to try to generate another offer. Getting a second offer will give you leverage by forcing the first buyer to remove their conditions or working with a better offer = better price, no conditions, etc.
How common is the sale of buyer’s property condition?
We haven’t seen the SOP condition in the GTA for many years. However, the return of buyer’s markets in and around the GTA has led to a resurgence of the SOP condition. As of today (August 2024) this condition is prevalent in smaller communities around the GTA. It’s not common in Toronto.
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