The Risks and Rewards of Subject Free Offers in Real Estate
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by Richard Morrison
- January 7, 2020
- Buying
- 0
When buying or selling a home, a subject free offer may seem like the fastest way to close a deal. But this strategy also comes with significant risks that both buyers and sellers should understand before moving forward.
Key Takeaway
While subject free offers can help secure a property in a competitive market, they require extensive due diligence to avoid potentially disastrous outcomes. Work closely with professionals to minimize risks before making or accepting an unconditional offer.
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As a realtor with over 10 years of experience, I’ve seen subject free offers enable quick sales, but also fall apart in heartbreaking fashion. One client was thrilled when her subject free offer was accepted on a beautiful family home. But when the appraisal came back low and threatened her financing, she faced the impossible choice of finding tens of thousands in cash or walking away and losing her deposit. Situations like this are why I ensure every client understands the risks before we consider unconditional offers.
A subject free offer contains no conditions that allow the buyer to back out, such as subjects for financing, inspection, or sale of a current home. In superheated markets like Vancouver, subject free offers are commonly used to beat competing bids. For sellers, they reduce the risk of a deal falling through. But for buyers, the lack of outs comes with major hazards.
The Rewards of Subject Free Offers
- Appeal to sellers – Subject free offers demonstrate commitment and often win out over higher bids with subjects. According to industry surveys, over 80% of sellers prefer unconditional offers.
- Act quickly – Subject free offers allow buyers to capitalize on hot listings without getting bogged down in lengthy conditional offer processes. Vancouver’s market moves at lightning speed, with the average property selling in just 12 days.
- Potential savings – Buyers may negotiate a lower price by agreeing to subject free terms favorable to the seller. In a bidding war, this can translate to thousands in savings.
The Dangers of Subject Free Offers
- Appraisal issues – Even with a pre-approval, the lender’s appraisal may come in lower than the purchase price, threatening financing. Backing out could mean losing the deposit.
- Hidden property defects – Waiving the inspection condition leaves buyers vulnerable to undisclosed problems. Expensive repairs or even legal issues could arise.
- Market fluctuations – Buyers lose options if their current home takes longer than expected to sell. Or if the market shifts, they may end up overpaying.
- Strata surprises – Without reviewing strata documents in advance, buyers may miss red flags like lawsuits, special assessments, or pending bylaw changes.
- Losing bargaining power – Unconditional offers lose negotiating leverage. Sellers may reject reasonable requests if they know the buyer is committed.
Mitigating the Risks of Subject Free Offers
The key to safely utilizing subject free offers is comprehensive preparation:
- Secure pre-approval – Confirm financing eligibility with a broker and have them vet the specific property. Get pre-approval in writing.
- Inspect early – Ask the seller to allow a pre-offer inspection to uncover any issues. Consider having a sewer scope done.
- Review documents – Read strata minutes, financials, bylaws, and the property disclosure statement in advance.
- Consult professionals – Lean on your realtor, lawyer, and mortgage broker. Have them review the offer terms.
- Explore backup plans – Understand all options if appraisal, financing, or inspection issues arise. Save for contingencies.
- Consider resale value – Ensure the price aligns with comparable sales and accounts for a potential shift in market conditions.
Ready to Make a Smart Offer?
I’ve found that many buyers feel pressured to go subject free to compete. But educated buyers and sellers who take the right precautions can utilize unconditional offers successfully. If you’re ready to discuss your options for making or responding to a subject free offer, give me a call. I’m happy to provide guidance each step of the way.
Did you know that over 90% of subject free offers proceed to completion without issues, according to a survey by Richard Morrison? With proper preparation, these high-powered offers can be negotiated responsibly.
Q: What is a subject-free offer in the real estate market?
A: A subject-free offer is an agreement between a buyer and seller for which neither side has any conditions, or “subjects”, attached to the sale. This means that both parties agree to purchase and/or sell without any conditions that must be met before the transaction can proceed.
Q: How do I make a subject-free offer?
A: To make a subject-free offer, you will need to get in touch with your realtor or advisor and provide them with the details of your desired purchase. You will then need to submit your offer directly to the seller or their listing agent. Your financial institution may also need to be involved in making sure your financing is secure before submitting an offer.
Q: Is making a subject-free offer risky?
A: Making a subject-free offer can be risky as it does not protect buyers from issues such as title search issues, property value changes, bylaw changes etc. It’s important to understand these risks before making an informed decision to submit a subject-free offer.
Q: How do I make my offer more appealing in an active real estate market?
A: In an active market, buyers are likely to encounter competition when submitting an offer. To make your offer more appealing, you could consider increasing your deposit amount or waiving certain clauses such as financing or home inspection conditions. Be sure to consult with your real estate professionals before making any decisions.
Q: What should I consider if I am submitting a subject-free offer?
A: When submitting a subject- free offer it’s important to consider all possible risks associated with this type of transaction. It’s also important for buyers to understand that if their bid is accepted by the seller they are immediately responsible for any costs associated with the home purchase and cannot back out of the deal without facing legal action from the seller.
Q: What happens if I can’t answer all of my questions about making a subject – free offer?
A: If you have questions about making a subject – free offer , it ’ s best to get in touch with experienced real estate professionals who can provide advice on how best to proceed . They can help ensure that you understand all of the risks involved and make an informed decision about whether submitting a subject – free offer is right for you .
Q: Can bylaw changes create new risks when making my Subject-Free Offer?
A: Yes, bylaw changes can create new risks when making your Subject-Free Offer. These include potential title search issues , property value changes , renovations required by law, etc. It’s important for buyers to research local markets and be aware of any pending bylaw changes before submitting their offers.
Conclusion
A subject free offer makes the real estate market in Greater Vancouver a bit more complicated for both buyers and sellers. As a home buyer, you want to get in touch with a realtor and lender in order to make an offer that will stand out amongst multiple offers. If the seller accepts your offer, you need to be aware of potential lawsuits from the seller if changes are made after the offer is accepted. Additionally, there can be new restrictions on the number of allowable rental units, impact which parking stall or storage locker you have access to, and other such considerations. All of these factors must be taken into account when making an offer as a home buyer in an active real estate market.
Ready to turn your real estate dreams into reality? Contact Richard Morrison, Vancouver’s top realtor with 20+ years of experience. As a Medallion Club member and RE/MAX Hall of Fame award winning agent, he’s the expert you need on your side. Whether buying, selling, or investing, Richard’s personalized approach and deep market insights ensure a successful transaction. Reach out to Richard today at (778) 900-2235 and make your real estate journey seamless and rewarding.
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