The Risks of Waiving Your Conditions
Tags: House Prices, Chad McMahon, Protecting Your Investment, Real Estate, Toronto, Oakville, Homes for Sale
While the market is definitely cooling off a little, we are still experiencing multiple offer situations on certain listings. If you haven’t been following the market too closely in the recent and current markets, Sellers would put their home on the market typically underpriced to attract more buyers and they would hold off on taking any offers on the property until a certain date - AKA: offer night
Competitiveness for the listed properties escalated sale prices and in turn would also have buyers dropping the typical 2-3 conditional clauses that protect them and go in clean on these offer nights to have a better chance at securing the property.
Buyers would choose to drop their conditions for financing, a home inspection and the status certificate condition (applies if they were looking at a condo townhouse or condo apartment) While yes this does give you a better chance at securing a property there are other things you can do to look better as well, which I will mention later.
So what could dropping these conditions do to you as a buyer? Do you really understand the risks that are involved here? Let’s go one by one and see how this could go sideways on you.
If you waive your financing condition and you don’t have 100% pre-approval to go ahead and waive it from your bank or lender you are putting yourself at quite a risk.
If the bank sends an appraiser to the property and your appraisal price suddenly comes in under what price you have paid, you will have until closing day (the day you take possession of the property) to come up with the difference.
If you can’t close on the property, you risk losing your 5% deposit you put on the home, you may find yourself having nowhere to live, as well as an increased chance to be sued by all parties that may be affected from you now not being able to close on your end.
Side note: also when you buy a home resist any and all urges to make any large investments or accumulate debt until you own the home. Adding any more debt to what you’re carrying could affect your pre-approval right up until closing….so don’t buy a car to celebrate buying a house or start buying all your new furniture for the new house.
Now with your inspections condition you could always try to do an inspection on a home before the offer night happens but if you don’t win on offer night you are out the money and time you spent to get the inspection done (roughly $500). Now if you waive your home inspection you are quite literally putting your life in your hands as whatever unearths itself with the house you purchased on the day you take possession is all yours to deal with.
You could find yourself dealing with major structural issues, molds, infestations, bad electrical, old electrical, asbestos, UFFI, KITEC plumbing and more. You are literally taking your life and your new largest investment into your own hands.
If you do this I would strongly advise that you get an inspection done the day that you take possession. In my years in this business I have seen so many double taps in wiring, self plumbing fixes, moldy attics, blocked dryer vents, cracked foundations that could add up to a very costly fix if not addressed immediately. Some of these issues could potentially start a fire in the home or slowly grow molds that can get you very sick over time. So please take this as a very serious warning that you’re really rolling the dice here.
The last condition you can waive is your status certificate condition. While not overly as risky as the other two, this is still something you’d want your lawyer to look over and make sure the building is in good financial standing and that the reserve fund is in the black and that there are no special assessments on the way.
A special assessment is when a condo corporation has to do some major work on the complex or building, if they don’t have enough in their reserve fund they will increase the monthly maintenance fees for each unit for a specified duration until the debt is paid off, and then bring it back down….make sense?
One thing to never do is to waive a condition but with the intention to ride it on the timeline of another condition. For example, say you waived your financing but will use the time on the inspection condition to get both of these conditions satisfied. Say your inspection comes back rather clean but you want to get out of it now because of you are having financing issues.
Well if the Seller is willing to rectify the home inspection issues themselves or offer some sort of remediation on price then you really won’t be able to get out of it. So if it’s actually your financing you needed waived you could find yourself in some trouble here as well.
I’ve said to many over the years that you sometimes have to sacrifice for what you want and I empathize with today’s buyers, but there are certain things I wouldn’t risk myself. Have I had clients do this? Yes. Have I warned them profusely about potential outcomes? Also yes. But I would want to know what I’m inheriting from the Seller.
Now I mentioned earlier that I would give other ways to make you offers look better on offer nights. Well I recommend that you first to try to meet the Sellers ideal closing date, make sure you have a considerable deposit (min 5% of purchase price), have that bank draft present and ready to be dropped off if your offer is accepted and lastly include a letter to the sellers about your family and your aspirations for the home. I have won my fair share of deals with a letter and having these other suggestions at the ready. It doesn’t always come down to the most money.
So there you have it in a nutshell folks. Now just weigh out if it’s worth the risks to you, if you can swing it, you’re in a better driver’s seat than others but it’s definitely a risky play no matter how you slice it. Now you know what you’re risking if you decide to waive conditions. Any other real estate questions you want answered, just let me know!