Conditions & Clauses to Know in Real Estate

Buying a house is the most expensive purchase that you will ever make. There are many factors to consider when buying a home and, most importantly, it requires understanding the contract because buying a house is complicated.

When an offer is formally presented for making an offer on a home you want to buy, you will need to fill out a lot of paperwork specifying the terms of your offer. In addition to the obvious items, like the home’s address and purchase price of the property, there are additional items that you should consider adding to the purchase contract.

When people go to purchase a home, there is sometimes confusion concerning conditions and escape clauses in real estate agreements. Although there is some concern over the clarity of the conditions, it is rather straightforward and dependent on how the clause is initially written. A potential homeowner should keep in mind that closing the deal isn’t the biggest step in the transaction, but rather it’s the small steps in getting to the end result.

In technical terms, a condition is defined as “a requirement that is fundamental to the very existence of the offer.” If there is a break of a condition on the purchase agreement, the buyer is allowed to get out of the contract and the full amount of the deposit is returned.

According to Brian Madigan LL.B., read articles Ontario Real Estate Source, there are really just two categories for conditions:

Pending deals (those which require a confirmation)
Confirmed deals (those which include an escape)

He states that “pending deals are usually described by a condition precedent clause, and confirmed deals with a provision for escape are evidenced by the condition subsequent clause. The condition precedent clause begins with the words “this agreement is conditional upon….” and the condition subsequent clause begins with the words “the purchaser shall have the right to terminate…”

There are numerous types of conditions that might be included in the Offer to Purchase, but one of the most important clauses for a potential buyer to understand is the financing condition.

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Financing Condition:

The financing condition protects the buyer, which essentially tells the seller that the purchase is conditional on you obtaining financing. It will state that the financing that you obtain must be satisfactory to you in their sole and absolute discretion. This means that the terms and conditions must be satisfactory to you, the buyer. This condition is included because if you buy a property without the financing condition and you are unable to get the required funding, you are in trouble. A financing condition protects you from losing your deposit and being sued by the seller for non-completion of the transaction. If your offer is conditional upon financing, then you are obligated to seek financing in good faith. You can’t just back out of the potential deal simply because you changed your mind.

In addition to the Financing Condition, here are some other conditions that might be included in the Purchase & Sale Agreement and what they can mean for you:

Subject to Inspection:

The home inspection clause is standard and appears in almost every residential real estate transaction. This condition gives the buyer the right to have the home professionally inspected by a certified home inspector to evaluate the house that is being sold. The right for the home buyer to go on the property with the home inspector is granted by the owner of the property. This condition is the buyer’s way of being protected from the unknown deficiencies in the home. The house must pass the inspection for you to proceed with the purchase.

For more on home inspections check out:

Subject To Legal Review:

This clause indicates that the buyer will proceed with the purchase of the home provided their lawyer can first review that all of the conditions have been met and approves the contract. This takes places within a specified time limit, such as 24 to 48 hours.

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Subject To Survey:

A subject to survey is another part of a solicitor’s review in determining if there are any defects in the title. It will determine if the building(s) on the land comply with zoning by-laws or if there are any encroachments by building(s) onto adjacent lands. The survey will also determine whether any building(s) from neighbouring lands encroach upon the subject’s property. A recent survey can disclose the location of fences to the property boundary and if there have been recent additions to the property. Lastly, the survey helps to determine whether anyone else may have a claim against the subject property or if any rights of way or easements exist.

Subject To Appraisal:

This clause represents a request for a written, formal, impartial estimate or opinion of value that adequately describes the property as of a specific date. It is supported by the analysis of relevant data for the home. The report is conducted by an official appraiser to determine if the purchase price that your offer represents is reasonable and fair market value. The report includes such items as general information, legal description, taxes, assessed value and age of the dwelling. It also describes the neighbourhood, nearby schools, shopping centres, common types of dwellings, services, and utilities.

Making Your Own Conditions:

You can add any additional conditions that you feel are important for the seller to consider you offer, like removal of garbage from the back yard, leaving window treatments, appliances, special lighting, etc. While the conditions are meant to protect you and you should take advantage of them, beware of including too many in the offer because you may lose the deal and the seller will reject your offer.

How can you evaluate offers when they come in? Read more about about what offer you should accept here.

Buyer Beware:

Even though conditions are standard in purchase agreements and a good real estate agent is watching out for your best interest in the contract, it’s still well worth your while to educate yourself about the key components of a purchase agreement. This is a huge investment and probably your home for many years to come, so be an educated buyer and do not leave anything to chance.

For more real estate fundamentals be sure to read:

Whether you’re ready to buy right now or just researching, Woolcott Real Estate is here to help. Feel free to reach out with any questions you may have!