When purchasing a home, most offers typically include conditions (or “subjects”)—specific requirements that must be met before the sale is finalized and the property is transferred. Common subjects include:

• Financing approval
• Home inspection
• Fire/home insurance
• Review of strata documents (if applicable)

These conditions help protect buyers from potential issues related to financing, the property’s condition, or securing insurance. Once all conditions are met by the agreed date, the sale can proceed. If not, the buyer can walk away without penalty.

However, in today’s competitive housing markets, subject-free (or condition-free) offers have become more common. These are offers made without any conditions, essentially saying “what you see is what you get.”

Let’s break down the pros and cons of subject-free offers for both buyers and sellers.

Pros of Subject-Free Offers

For Buyers:
In a competitive market, a subject-free offer can make your bid more attractive to the seller. It shows you’re serious, and the deal is less likely to fall through, which might help you beat out other potential buyers.

For Sellers:
Sellers benefit from subject-free offers because they speed up the process. The buyer is willing to proceed without any conditions, which means there’s less waiting and uncertainty. A subject-free offer often includes a competitive price and aligns with the seller’s preferred closing date.

Cons of Subject-Free Offers

For Buyers:
Subject-free offers are extremely risky. Here’s why:

• Financing Uncertainty:
  A pre-approval is not a guarantee of financing. Lenders still need to approve the property and its value. Without a subject to financing, the buyer risks losing their deposit if the financing falls through, which could be thousands of dollars.
• Skipping Inspections:
  Without a home inspection, you could be buying a property with hidden issues like structural damage or code violations. Insurance companies might also require an inspection, so skipping this could leave you without coverage.
• No Due Diligence:
  With no time to review important documents, check title issues, or secure insurance, you could face legal or financial problems after the sale.

For Sellers:
While sellers face less risk, financing could still fall through, leaving the sale in limbo. Even if the offer is accepted, the deal isn’t guaranteed until the buyer secures funding.

Financing Around Subject-Free Offers

If you’re considering making a subject-free offer, you’ll need to do as much research and preparation as possible beforehand. Securing financing, though never guaranteed, is crucial. Pre-approval helps, but you’ll want to ensure the lender approves the specific property. Our team at Mortgage Man DLC will assist you with every step of this preparation, be sure to reach out to us markgoode.ca

Contractual Obligations

Be aware that once your offer is accepted, it becomes a legally binding agreement. If you can’t secure financing or decide to back out, you could lose your deposit or even face legal consequences. Sellers might sue for damages if they’re forced to sell to another buyer at a lower price.

Mitigating Risks of Subject-Free Offers

If you decide to go ahead with a subject-free offer, here’s how you can reduce the risks:

• Get Pre-Approved:
  This gives you a clearer picture of your financing options, even though it’s not a guarantee. You can simply download Mortgage Man’s My Mortgage Toolbox free.
• Do Your Homework:
  Research the property’s history, any major renovations, and potential issues through a Property Disclosure Statement.
• Review the Title and Strata Documents (if applicable):
  Ensure there are no outstanding legal issues with the property title or hidden concerns in the strata documents.
• Secure Insurance:
  Confirm that you can obtain insurance for the property, and if possible, conduct an inspection beforehand.
• Consult Experts:
  Speak with your real estate agent and mortgage broker (mark@markgoode.ca / 705.326.8523) to assess the risks and explore alternative strategies like a short closing period, which might make your offer competitive without going subject-free.

Conclusion

Subject-free offers can help you win in a competitive market, but they come with significant risks. Always weigh your options carefully, do your due diligence, and consult with your real estate and mortgage professionals to make an informed decision. If you’re considering a subject-free offer, talk to Mortgage Man’s mortgage experts to discuss financing and ensure you’re fully prepared.