As a homeowner, you’ll have already experienced the process of purchasing a home at least once. So when the time comes to move up and out into another house, you’ll have some idea of what to expect the next time.
But things can get complicated as timing and factors can intermingle to make the whole procedure less straightforward when you have two homes in the same picture. Should you sell your first home before committing to buy the next one? Or can two properties be juggled at once?
Can you afford to put in an offer on a new home before having a sale on your current one? These questions and others can muddle the experience, but there is an important tool if things aren’t quite lining up: The SBP Condition, which is short for Selling of Buyer’s Property Condition.
The Selling of Buyer’s Property Condition
For prospective purchasers, the SBPC should be used wisely and sparingly, preferably only in situations where it becomes a necessity or emergency option. It exists for the benefit of the buyer, but can damper the odds of a successful purchase if used when it isn’t needed.
An SBPC is an added condition of purchase, stating that a buyer is willing to purchase a home but only under the condition that they sell their current home first. This, of course, only applies if a buyer currently owns their home and is trying to sell it.
They also cannot be a first-time buyer who is a renter at the time they place a purchase offer. It’s basically a failsafe to prevent the buyer from having to own and deal with two homes at the same time while sales for each are being negotiated.
The SBPC acts on a negotiated time limit that nullifies the offer should the buyer not be able to sell their property before the decided amount of time is up. This would mean the deal is dead, the buyer gets their deposit back, and the seller continues looking for offers.
For buyers, the Selling of Buyer’s Property Condition adds clarity and stability to the financial side of the situation. It makes selling your current home a mandatory step to locking down your next one. Offers are a serious financial undertaking as they are legally binding contracts stating you’ll be purchasing a specific home at a specific price.
Breaking that contract is grounds for legal action, all the way up to being sued for the outstanding amount that was promised to be paid. For these reasons, attaching an SBPC to an offer lends peace of mind that it can be followed through on.
Once your current home is sold, as a purchaser you’ll have an exact dollar figure of what your finances will be and how much of it you can budget moving forward. You can guarantee the money is coming for the purchase you’re trying to make.
Therefore, an SBPC makes sense for buyers if they are stuck in a few different scenarios. If it might take some time to sell their current property, the Condition can buy them a set amount of time to close the sale.
It can also help speed that sale along by setting a minimum sale price on the current home, with the purchaser knowing they can only move forward on the offer for their next home if they get a guaranteed dollar amount in the sale of their current one.
It’s also a safety net if the home doesn’t sell at all, knowing that the offer will not close without the funds in hand from the condition of selling their current space.
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While those scenarios outline where the use of the Condition would make sense, it’s still not something that comes into use very often in the local real estate market. When invoked, the SBPC tends to only have traction in a buyer’s market. In such market conditions, there are more property sellers than property buyers and the purchasers have control and leverage to wait, while the sellers are motivated and sometimes desperate to make a sale.
With that advantage, prospective buyers have more leeway to add purchase conditions like the SBP. For these reasons, the Condition typically doesn’t come into play for real estate in Ontario. Homes in Ontario and Kitchener-Waterloo in particular tend to sell at a steady rate.
This means that a buyer’s home that is listed for sale at a reasonable price won’t wait long to be sold, and they therefore will have their profits fast enough to not need to invoke the SBPC since they’ll have what they need to make an offer on a new home. So, whenever feasible, it’s recommended that the current property be sold first and avoid the extra obstacles entirely.
The sale of your current home before house hunting means the SBPC can be avoided. Then, while the transaction is closing, offers can be put in on new homes with confidence, peace of mind, and security.
There are a few risks to keep in mind, though, when selling your current home first. Without an SBPC, there may be a gap between when you finally find and purchase the new home after you’ve made the sale of the current one.
This might mean you’ll need somewhere else to stay in the meantime, which could include the cost of a short-term rental and the hassle of moving in and out of it. It could leave you paying out of pocket for an extended hotel or AirBnB stay, or the inconvenience of staying with family and friends over a few weeks or months.
While selling beforehand carries its share of risks, the Special Buyers’ Condition isn’t free of them either. It has a few disadvantages and drawbacks of its own. Mainly, the use of the SBPC tells the seller that you’ll be able to back out on your offer because it’s entirely contingent on something else happening that is out of control for both them and the buyer.
An offer with an SBPC condition simply carries less weight, and wait time, than an offer with the offer money already in hand and accounted for. Even during the negotiation stage, suggesting contingency conditions to the purchase offer instead of making an outright offer might turn off the seller entirely. This is also why the SBP Condition functions in a buyer’s market rather than a seller’s market.
It makes the offer less appealing to sellers when they have multiple offers to consider or are in a bidding war scenario from potential buyers.
While the SBPC has clear advantages, those only exist in certain situations where the buyer has limited options. Usage of it in the K-W market is rare simply because it is rarely necessary.
Use it when the time is right and it can be to your benefit, but don’t just toss it into negotiations and muddle the picture, either. While the SBPC can be a valuable tool, it has to be the right tool for the right job first.
If you have any questions about the offer process or about real estate in general, feel free to reach out and contact us!