Assessing an offer conditional on house sale.

Considering an offer conditional on a house sale? Four points for sellers to consider before accepting that offer.

So in the 2023 market we frequently see offers conditional on the sale of property.

Making things even more interesting (or perhaps not) are situations where your buyers' buyer also needs to sell in order to purchase their property. Ever play dominos? Jenga? You get the picture. 

Below are four points I suggest you consider before accepting an offer conditional on house sale. 

1. How far along is your buyer in their process?

Is your buyers property on the market yet?

The longer they have been on the market, the more useful information you will be able to gather to assess their odds of selling within the allocated timeframe. Better still if your buyer already has some hot interest in their property or a conditional offer in place to purchase it.

If they are not on the market yet, you may want to agree in writing on a timeframe for them to begin advertising their property on key platforms like Trademe etc. And you may want to establish whether they plan on using a professional or DIY'ing it. With the greatest respect to private sellers, the real estate process is frequently less straightforward than it looks and, in this situation, engaging an experienced professional to handle your sale is likely to give the party accepting your conditional offer more peace of mind than were you to go it alone. 

2. What is your buyer intending to sell and where is it?

No brainer, right? You need to know what is being sold and where it is to assess the odds of a sale actually taking place within the allocated timeframe. 

But I mention this because, from time to time, we receive interest from a buyer who needs to sell a house offshore. A buyer selling a property in a market we have no to limited understanding of, or access to information about, is an unknown quantity. It's a coin flip. Personally, I am not a fan of flying that blind.

3. What is your buyers' price expectation and how fast is property moving in their suburb?

This is a biggie. There is a difference between accepting an offer from a buyer with a realistic expectation for a home located in a suburb that is moving well vs from a buyer who is chasing rainbows for their property in an area that is chocka with more-reasonably-priced competition and/or where properties are taking far longer to sell than you intend to allow for. 

4. Are there any polarising factors present with your buyers property that may trip them (and thus you) up?

Polarising factors are factors that may slow down or, in some cases, stop a sale altogether. 

Things like:

• Certain types of cladding (ie. recalled claddings or claddings with stigma)
• Known major issues with the structure (ie. weathertightness)
• Compliance issues (non-compliant works)
• Hazards (ie. flooding, contamination)
• Proximity to undesirable elements
• Title issues (ie. defects, unusual restrictions)

Almost all property is saleable, what you're keeping an eye out for is easily identified issues that your buyer is not factoring in. 

Why does any of this matter?

A typical house sale condition typically runs for 4-6 weeks, or as otherwise negotiated. And, understandably, the presence of a conditional agreement puts other buyers off.

Sure, they can make you a backup offer or activate your escape clause (see below) if they are in a position to do so. Not everyone is in a position to activate an escape clause though and a buyer has to be pretty keen, and pretty certain there are no better (and available) options out there for them, to back up an agreement with a lengthy condition. 

If your agreement falls over because your buyer has failed to sell their property, you will be back to square one at a point in time where you are no longer 'fresh to market' and are unlikely to receive the same amount of buyer attention that you did early on. Assessing the risks as best you can before you commit is very worthwhile.

A final word: Escape Clauses.

Always always always, give yourself an out.

Ensuring that you have the ability to exit your agreement in favour of another offer that offers you more certainty is wise. With a house sale condition, despite your best efforts to understand your buyers situation, there are many elements you - and even they - have no control over. An escape clause allows you to 'escape' from your agreement under defined circumstances. Having an appropriately drafted escape clause in your agreement makes it possible for you to, after a short notice period, cancel out your buyers agreement in favour of a better or an unconditional offer. 

*The above is not legal advice. We recommend you get your solicitors guidance in relation to the specifics of drafting. 

Hope this has improved your understanding of what goes into considering offers subject to house sale! Happy selling!

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