You have seen the house, it looks good, fits your criteria and you are ready to put an offer. Should you go firm (no conditions) or put a conditional offer?

Firm Offer

A firm offer has no conditions which is once accepted by both sellers and buyers is legally bound to close. In Toronto's hot real estate market, firm offers are common. A property is listed for sale with an offer presentation date. Buyers compete that evening and the one with the strongest (terms and price) offer wins.  From a seller's perspective, the offer with least or no conditions is most attractive since the property will be sold firm that evening; the point of no return.

There are risks buyers need to be aware of:

1. Property Value: If the property does not appraise at the purchased price, they have to come up with the difference. Eg. Property sold for $1.2 million and appraised at $1.15 million by the lender. Lenders will lend based on $1.15 million and the buyers are on the hook to come up with the additional $50,000
2. Property Condition: Lenders require appraisals on the properties prior to funding the mortgage. If the appraisal or MLS listing sheets show property defects, they might not fund the mortgage. Examples of defects lenders will not fund on: insulbrick siding, 60 AMP electrical service

Conditional Offer

Putting a conditional offer provides an escape clause, however it has to be legit and can be challenged by the seller. A typical condition is arranging financing acceptable to the buyer within a few business days. Another common condition is inspection, however more sellers are providing a pre-listing inspection for the buyers to review upfront. Another option is to conduct a home inspection prior to putting an offer on a property.

In a sellers real estate market, buyers are at a disadvantage when putting a conditional offer when competing against other buyers.  Understanding the risk, completing due diligence and having a plan B is important for buyers in this hot real estate market.

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