Should I Make a Subject Free Offer?

Buyers in an active real estate market are likely to encounter competition from other buyers interested in the same home. So it is natural to look for ways you can make your offer more appealing to a seller. One of the riskiest options, however, is submitting a subject-free offer.

Subjects Protect You

Subjects are conditions that you include in your offer, which must be satisfied through due diligence before you will move forward with purchasing the home. For instance, if you require financing through a mortgage broker or financial institution, you will insert a subject into your offer stating that you will not purchase the property unless you can secure that financing by a specified date before completion of the deal. You will also include information on the type of financing you are seeking. Once financing has been approved, you remove the subject.

Only when all subjects have been removed are you obligated to purchase the property. Subjects that are commonly added by buyers include:

• Requiring a satisfactory home inspection;
• A review of strata documents if the property is in a strata complex; and
• A subject allowing the buyer time to enter into a contract to sell their current home first.

Risks of Going Subject-Free

Suppose you choose to make a subject-free offer in the hopes of making your offer more appealing to a seller. You could be exposing yourself to serious risks, such as:

• Discovering defects in the property after you’ve already purchased your new home.
  • Only certain types of defects must be disclosed by the seller, and it is up to the buyer, through a property inspection, to identify any others; and
• Learning that your pre-approval for financing is not a final approval.
  • The financing you believed you qualified for may fall through, leaving you without the financial means to complete the transaction. This could result in a forfeit of your deposit and/or a lawsuit from the seller; and
• Learning that the strata corporation has approved a change in bylaws.
  • Bylaw changes can create new restrictions on the number of allowable rental units in a building, or impact which parking stall or storage locker is assigned to the strata lot you are interested in.

Take Steps to Minimize Risk

While it may be tempting to submit a subject-free offer when competing against other buyers for a property, it is important to speak with your real estate professional first to understand the potential consequences.

The licensed real estate professional representing you must act in your best interest and provide you all the information you need to make an informed decision. They can also offer advice on how to minimize some of those risks and the steps that can be taken before drafting the offer, which may include:

• Asking the seller if a home inspection can be done before an offer is drafted to determine if the home requires any repairs;
• Reviewing the property title to determine if there are any charges against the title; and
• Requesting strata documents from a seller to review first.

If you ultimately decide to submit a subject-free offer, understanding the risks involved is the best way to prepare for any potential consequences.

Questions?

BCFSA’s Practice Standards Advisors are available to answer questions about real estate transactions and the services to expect from a licensed real estate professional. Get in touch with us, at [email protected].