offer contract

What you need to know about Conditional vs Unconditional offers.

If you are buying a home for the first time, or if you haven’t made an offer in a while, the whole question of conditional vs unconditional offers can get confusing. This article explains how each type of offer works.

When you make an offer on a property it will either be:

UNCONDITIONAL

Meaning the offer is not subject to any checks or due diligence. You are completely happy with the property in every respect and if the owner signs your offer, the house is sold. You can’t pull out. When you bid at an Auction you are bidding on an UNCONDITIONAL basis. Unconditional buyers are often referred to as ‘cash buyers’.

Or your offer could be:

CONDITIONAL

Meaning you make an offer at a certain price, but that offer is subject to certain conditions. For example, your offer might be:

$567,000. Subject to 5 working days for finance and a builders report.

In other words, you have a finance condition and a builders report condition.

This means that if the owner accepts your offer, you will then have 5 working days to make sure you can secure finance from your chosen bank and to obtain a builders report that you are happy with. If all your conditions work out, you go UNCONDITIONAL and the house is sold. If one of your conditions doesn’t pan out – then you can usually withdraw your offer and carry on looking.

Wording is critical

Conditions need to clearly state who they are for and what the time frame is. This is very important. You can’t just write ‘subject to builders report’ on your offer because it’s too ambiguous. It raises a whole series of questions, like:

Who is going to do the report? Who is it for – the seller or the purchaser? Who is going to pay for it? Can you pull out if there is an issue? How quickly will this report be done? When will the contract become unconditional?


 Standard condition wording will be something along the lines of:

“This offer and any contract arising herefrom is conditional upon the Purchasers obtaining (at their own expense) a building inspection report from a qualified professional that is satisfactory to themselves in all respects within five (5) working days of acceptance hereof. This condition is inserted for the sole benefit of the Purchasers.”


Sound wordy? It sure is. And it’s best not to play games with this stuff. Talk to your solicitor before you offer to ask them for their preferred wording. You can re-use the same wording in future offers if required.

Examples of common conditions:

  • Builders report
  • LIM report (Land Information Memorandum)
  • Title search
  • Finance
  • Valuation
  • Confirmation that you can obtain insurance on the property
  • Solicitors approval
  • Subject to sale of your existing property
  • Approving body corporate minutes (for apartments / unit-titled properties)

You can basically include a condition for anything you want (eg. my cat not going missing before next Friday), but the more conditions you have in your offer, the less attractive it will become to the owner.

Note: Always talk to your solicitor before removing any conditions from your offer.

How much time do you need?

Perhaps more important than the number of conditions is the length of time required. The longer your conditions are, the less attractive your offer will be. For example, allowing 5 working days for a builders report vs. 10 working days can make a massive difference to your chances of being accepted. Especially if you are in competition with other buyers.

Along the same lines, there is no point putting a 10 working day finance clause in your offer as a buffer if you are pre-approved already or you can get everything done in 2-3 days. Putting those extra days in your offer so you aren’t rushed, might just end up costing you the house.

Does the timing really matter that much to owners?

If you are asking for 10 working days to confirm your finance arrangements, just remember you are effectively asking the owner to take their home off the market for 2 whole weeks. During that time you could conceivably change your mind and pull out. 2 weeks is a lifetime in the world of an owner who has their home on the market.

What happens if you run out of time?

Let’s say you have had your offer accepted (subject to 5 working days for finance). The bank is taking forever and it looks like you won’t get everything ready in time. At that point, you can ask the owners for an extension (eg. 1 or 2 more working days) to get everything sorted. In that circumstance, most owners will grant the extension. If they have come that far with you then they are usually very keen to see the sale go through.

If the owners won’t agree to grant an extension then you can decide to go ahead anyway (go unconditional) and take a punt that everything will work out. Or you can withdraw your offer and walk away.

Here is the critical point: No one can make you go unconditional if you don’t want to (as long as your conditions are worded correctly).


Do you need to be unconditional to win a multiple offer situation?

In a hot market, or to bid on Auction properties, buyers will spend money up front to remove conditions before they offer. This can often be considered a good investment as many owners will accept the 2nd or 3rd highest offer in a Tender because it is unconditional (if the top offer has conditions).

Price will always be the most important part of your offer, but in a multiple offer situation, conditions come a close second.

If you are buying a popular home in a hot-market, then there is a good chance you will need to be in an unconditional position to win.

However, if you are buying a farm, a commercial property, or a high priced residential home, then you will likely need a decent due diligence period.

All the more reason to talk to your solicitor before you offer to get their advice. You can also ask the agent you are buying through what is most common in that market for the type of property you are considering, although you need to understand they are working for their client (the property owner).

Do you need un-biased advice, specific to your situation? Book a 30 minute, one-on-one consulation. I will personally help you come up with the right strategy to fit your situation.


Further reading:

PODCAST: How to make unconditional offers (with Lindsey Smith)

How to buy your first investment property

How to buy a home when you have one to sell

How to make unconditional offers (if you want to)

Don’t let your conditions cost you next time you make an offer

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