What Is a “Subject-Free Offer” and Should You Make One?

As the Kelowna housing market grows steadily more competitive, buyers are keen to find ways to increase the odds of their offer being accepted. One way to do so is to make a subject-free offer, or a bid that has no conditions once it is accepted by the seller. While this may seem like an easy way to improve your offer’s legitimacy, we will caution you to reconsider whether the risks are manageable since they so rarely are.

A subject-free offer implies that the buyer is certain of their offer and has no other considerations to make—they have done their research and due diligence, so they no longer need to stipulate any conditions in their offer to purchase a property. In a perfect world, a subject-free offer makes sense since it assures the buyer that the offer will not fall through. Unfortunately, between an offer being accepted and a purchase being made, issues may come to light that would (and should) dissuade the buyer from following through.

Why is a subject-free offer risky?

In a hot real estate market like the Okanagan or the Greater Vancouver Area, the number of potential buyers on a single property can be substantial. In this case, it is a seller’s market since the seller has the freedom to choose between competing offers on their property. This puts the onus on buyers to make their offer as appealing as possible.

However, a subject-free offer may not be the best idea. There are several situations where a subject-free offer would put a buyer into a difficult financial position.

• The buyer is unable to secure mortgage insurance on their purchase, but they do not find out until after the offer is accepted
• Although the home seemed to be in perfect condition, it is later discovered that it has serious issues that affect property value
  • This may include new developments coming to the area that reduce sight lines, faults in the maintenance of the home, or drug-related offenses committed on the property
• For condos, the strata may be poorly managed and so lenders may not provide financial assistance
• There may be issues in obtaining the funds to cover the down payment on the home

In any of these situations, a subject-free offer would leave the buyer with little recourse to back out of the deal. As you can see, the risks inherent to these types of offers are often unpredictable.

Real-Life Example

Although there are many considerations in the purchase of a home, it is possible to have your research done upfront. If that’s the case, and your financial situation will not be affected by factors outside your control, then a subject-free offer may entice buyers enough to accept it quickly.

It is easy to become attached to a property in your real estate search and be willing to drop all conditions to get it. While that will definitely make your offer appealing, we strongly urge you to instead take the safer approach of keeping certain subjects intact. Subjects in real estate are conditions that must be met for an offer to be finalized.

Common subject clauses on real estate offers include:

• Subject to financing
  This ensures that your offer is conditional on financing or mortgage approval
• Subject to sale
  If a seller accepts an offer that is subject to sale, then they must wait for the buyer’s property to sell for the sale to go through (usually with a 72-hour “escape” clause)
• Subject to home inspection
  Though you may feel confident in your first walkthrough of the home, this condition will ensure that you can have a qualified home inspection done prior to the final purchase
• Subject to property disclosure
  Reviewing the history of the home is an essential step in the home buying process, ensuring that there are no prior issues with the home, its previous owner’s activities, or zoning issues
• Subject to strata
  Prior to the purchase of a condo, taking the time to obtain and review meeting minutes from their board will prevent you from entering a situation where the strata’s practices or policies cause the property to be undesirable

This is just a shortlist of the most common subject clauses that may help you to see why a subject-free offer is generally inadvisable.

How do you safely make a subject-free offer?

If you are fully confident in your financial situation and are able to cover your down payment, then you may wish to consider making a subject-free offer on a property. By contacting a mortgage broker to assist in this process, you can eliminate many of the risks involved in making a subject-free offer. Further, you are likely to save money by taking advantage of the best mortgage and financing options available to you.

• Working with a mortgage broker will ease the difficulty of obtaining and securing financial assistance for the purchase of the home. This approval will guarantee that your purchase is backed by a third party.
• A realtor or advisor can help you to navigate the ordering of documents to review the history of a property or the strata involved in its maintenance. These documents are absolutely essential in making an informed decision on the purchase of real estate.
  • Review the Title to the property and the owners of it to ensure all information is accurate to your offer
• Ideally, have a home inspection performed prior to making the subject-free offer. This will reduce the risk of issues in the home increasing your annual maintenance costs or forcing renovations.
  • It may not be possible to have a home inspection done prior to the sale of the property, particularly in a competitive housing market
• Confirm that you are able to have the property insured once purchased
• Produce a subject-free offer alongside a professional agent

There are certain cases for making a subject-free offer. These are often cases where the buyer was able to perform all necessary checks and balances to ensure their purchase would be financially viable. Such an offer should include the due diligence, so as to show the seller and any financial lenders that the property is a safe investment.

Lastly, if a seller is encouraging subject-free offers or locking in a date to review all offers, a buyer should consider why the seller is taking such an aggressive approach. Oftentimes, these demands will reduce the number of offers made and may actually reduce the final sale price. Part of completing your due diligence should be to investigate the reasons a seller is selling in the first place.

Before you make an offer, contact Rampone-Marsh to ensure every dollar you spend is well valued