Is there a difference between a “term” and a “condition” of an offer?
If you’re confused about the difference between a condition and a term in an offer, you’re not alone. It’s about as clear to most people as the difference between weather and climate. What you need to know is that terms and conditions are critical items of a written offer, and ultimately the Agreement of Purchase and Sale (APS), designed to protect the buyer and seller in a transaction.
A condition is a clause the buyer needs to waive or fulfill by an agreed time in order for the sale to be finalized, while a term is used to clarify what the buyer expects to be done or included with the property.
Let’s look at a couple of common conditions attached to an offer. I regularly talk about the importance of making any offer conditional on your satisfaction of a home inspection. By doing so, you’ll generally be able to walk away from the transaction if the inspection uncovers a major repair, structural issue or any other issue that you’re not prepared to deal with.
It’s also a good idea to make your offer conditional on mortgage financing to protect yourself in case you aren’t able to qualify for a mortgage on your new home. Even your bank will tell you not to assume that a pre-approval means you’re guaranteed the mortgage. Depending on your situation, your real estate professional will be able to identify and draft other conditions that should be included in your particular offer.
Conditions can also protect the seller by providing a set limit to the amount of time a buyer has to satisfy the conditions. That’s important because during this process, the property will appear on the Multiple Listing Service at REALTOR.ca as “sold conditional”. Other prospective buyers will be less inclined to submit offers to homeowners who are already dealing with a conditional offer, so from the seller’s perspective it’s important that the conditional period be as short as possible in case the offer falls through.
Now let’s look at some terms you may want to add to your offer to avoid unpleasant surprises once you take possession. For example, you may include terms specifying that all existing light fixtures, specific appliances, a full tank of fuel oil and a new survey of the property commissioned at the seller’s expense be included in the transaction.
It’s a good idea not to include terms that are too vague, such as “seller will repair the fence.” Instead, use what you learned from the home inspection to specify what repairs are needed to the fence.
If the terms you rely on aren’t specific enough, you essentially lose control over the quality of repairs or replacements. Sure, the seller can repair the wall or paint the room, but will the work be up to your standards? If not, you may just end up re-doing the work anyway. Rather than relying on the seller’s standards, consider adjusting the purchase price to reflect the cost of repairing the fence yourself once you take possession.
There are consequences if the seller fails to fulfill the terms included in the offer. If you find yourself in this situation, seek the guidance of your real estate professional and lawyer on how best to proceed.
Keep in mind that it’s a good idea to work with a real estate professional and lawyer to help you customize the standard APS form to include terms and conditions that fit your needs. Don’t let the stuff you know about up front add to the long list of things you have to do when you move in to your new home.Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.