There are few things common to the real estate experience that are more exciting than writing or receiving an unconditional offer. The anticipation of having the immediate gratification of a firm sale upon signing is sublime. Although uncommon, the unconditional offer comes with some tricky bits to consider, so let’s look at some of those briefly.
The principle of Caveat Emptor means “let the buyer beware” and refers to the legal principle of a buyer's requirement to conduct their own due diligence when purchasing a property. It is incumbent upon the buyer to know what they need to do to satisfy themselves that the property they are purchasing is what they expect and they are able to purchase and use the property in the way they intend.
However, when the buyer is represented by a REALTOR®, there is a certain vicarious liability passed to the REALTOR® in ensuring the buyer fully understands the options they have in conducting the necessary due diligence. If the buyer is made aware of the options and risks of their decisions, the buyer may still proceed as they wish.
Let’s assume the buyer wants to write an unconditional offer on a property, and the REALTOR® has suggested to them they have the option of using financing and property inspection conditions to verify they are satisfied with the property condition as well as their ability to secure new financing on the property.
After some discussion the buyer informs the REALTOR® they will be buying the property using savings, and they are pretty handy so they can handle anything a property inspection would’ve discovered, but they feel an unconditional offer will help them get the best price on the property. If the buyer is insistent on this strategy, the simplest and most transparent way to promote the buyer’s intentions and protect the brokerage is to simply run a big showy line through the property inspection and financing conditions, write “DECLINED” in block letters beside both and have the buyer initial them on the offer. This technique simultaneously signals to the seller that the buyer is serious about their unconditional offer, and also shows that the option was discussed by the buyer with their REALTOR® and declined.
There is a common misconception among consumers that if a deposit is not produced, the contract is not binding on them. This is false. The deposit is not a consideration for the contract, but good faith money demonstrating the buyer is willing to place money on deposit to secure their intention to close the transaction once unconditional.
The purchase price is the consideration for the contract which means that if a consumer believes they can write an unconditional contract and then choose not to deliver the deposit as a way of getting out of fulfilling the contract, they are totally and woefully wrong.
The contract is legal and the obligations on the parties are binding for an unconditional offer once it is signed and communicated back, granting to the seller all remedies under the law including specific performance. It should be noted that the lack of delivering a deposit provides a void option to the seller, but it is only an option and not an obligation, so the seller could pursue the buyer to enforce the contract instead of invoking the void option in such cases.
Open For Acceptance Until
The “open for acceptance until” clause has a special function in the case of an unconditional offer. It is well understood that when an unconditional offer is presented, all the seller needs to do is sign it and send it back and it is sold. When this happens it is great, but what if a seller sits on it for a couple of days thinking about whether or not to accept it, and in the meantime, the frustrated buyer moves on to other opportunities? If the offer didn’t include an “open for acceptance until” date then the offer could simply be signed a week later and the buyer would be obligated to buy! In this scenario, legal wrangling would almost certainly begin roping in all parties and brokerages, but all that could be avoided by adding a date into that little section where the offer simply is no longer open for acceptance so the buyer can move on with peace of mind.
When the seller receives an unconditional offer, their REALTOR® has an important role to help the seller understand an unconditional offer may not mean the buyer is purchasing without the aid of financing, or other situations the buyer has not disclosed to the seller, only that the contract is not conditional upon those things. This could potentially leave the seller in a vulnerable situation if, for example, the buyer who thought financing wouldn’t be a problem and insisted on no financing condition learns at the 11th hour it is a big problem and cannot close. For this reason, the seller’s REALTOR® should help them understand how a larger deposit can help ensure the buyer’s compliance with the closing, or in the scenario I mentioned, provide the seller with some monetary compensation for losses incurred in regaining the title, or in the worst case scenario finding themselves in default on a purchase that was contingent on the sale of their property. As a rule of thumb, buyers who write unconditional offers should be prepared to provide a significant deposit to offset these risks to the seller.
Although unconditional offers can be a great opportunity for the seller, and provide the buyer with a strong negotiating position, keeping these simple principles and pitfalls in mind will help ensure the parties know what they are agreeing to and help prevent disputes.
Provincial Practice Advisor
Bryan has many years of experience in the real estate industry including over 10 years as a former broker in the Edmonton Region.
Email: firstname.lastname@example.orgPhone: 403-209-3619