Offers, leverage & psychology

What “subject to sale” really costs you

The price, the stress and the leverage you give up when your money is not sorted before you write an offer.

Most buyers think the main risk of a conditional offer is that it might not be accepted. The bigger cost is quieter: the price, terms and leverage you give up to get it accepted, and the stress it puts on everyone involved.

What the numbers say

13.6%of pending U.S. home sales fell out of contract before closing (Redfin).
27.8%of cancelled deals involved the buyer's financing falling through (Redfin survey of 443 agents).
21%of cancelled deals happened because the buyer's own home did not sell.
+20%better odds of winning a competitive offer by waiving the financing condition (Redfin, 2018 to Sept. 2019); in 2016–17 it was +58%.

U.S. data from Redfin, shown for direction only. We have not found a Canadian study measuring the same thing; if you know of one, tell Sean.

Put simply: sellers are right to worry. Money problems and unsold homes are two of the most common reasons a deal falls apart, and sellers and their agents know it. So they price that risk into how they treat your offer.

How a conditional offer changes the psychology

The seller

Selling a home is usually one half of the seller's own move. An offer subject to your sale means their plans now depend on a house they do not control, in a market they cannot predict. The natural response is to protect themselves: hold out for a higher price to compensate for the risk, keep showing the home, shorten your deadlines, and treat your offer as a placeholder until something cleaner arrives. Even when they accept, the relationship starts on uncertain footing, and every later request for repairs or date changes gets a cooler reception.

The buyer

Buyers without their money sorted tend to shop at the top of an assumed budget, get emotionally attached, and then negotiate from weakness because they need the seller's patience. If the stress test or an appraisal says no, the disappointment lands after you have already pictured your furniture in the living room. Buyers who are pre-approved shop inside a known number, walk away more easily, and negotiate more calmly. That calm shows in the offer.

The agents

A listing agent's job is to protect the seller from deals that do not close. Faced with a subject-to-sale offer and no pre-approval, the professional advice is usually to counter harder, add a time clause, or wait. When your agent can present a lender's pre-approval, a clear plan for your current home and short subject periods, the listing agent can recommend your offer with confidence. Agents talk, and “this buyer is ready” is one of the most persuasive things they can say.

What it actually costs

The direct costs are easy to underestimate:

Price. On a $750,000 home, each 1% you give up to get a conditional offer accepted is $7,500. Many sellers expect at least that to take on the risk; in a hot market you may not be accepted at all.
Time. A time clause can bump you with 24 to 72 hours' notice (the exact window is negotiated). If you lose the house, you start over, often at a higher price.
Carrying costs. If you rush to buy first after all, you may carry two mortgages, taxes and utilities, or pay bridge interest.
Leverage. Inspection credits, possession dates and inclusions are all harder to win when you are the riskier buyer.

Estimate your cost of going conditional

Better ways to handle your current home

Sell first, buy second. Negotiate a longer completion, or a short rent-back, so you are not homeless in between. Your purchase offer is then clean.
List and shop together. Get pre-approved on both scenarios, list your home, and write an offer as soon as your sale firms up.
Buy first with bridge financing. If you have a firm sale on your current home, many lenders will bridge the gap between the two completion dates. Peter can confirm what you qualify for.
If you must go conditional, make it as strong as possible: a pre-approval letter, your home already listed and priced to sell, a realistic sale deadline, and a meaningful deposit.

See buy first or sell first? for the full comparison.

A quick note on B.C.'s rescission period

For most residential purchases, B.C. buyers can rescind within three business days after acceptance by paying 0.25% of the price. It cannot be waived. It is useful if something unexpected turns up, but it does not replace having your financing arranged: after subjects are removed, you are committed.

Questions

What is a subject-to-sale offer in B.C.?

It is an offer that only becomes firm if the buyer sells their current home by a set date. Until that happens the seller is tied up, so sellers often add a time clause that lets them keep marketing and accept a backup offer, giving the first buyer a short window (often 24 to 72 hours, as negotiated) to remove the condition or step aside.

Do subject-to-sale offers get accepted?

Sometimes, especially in slower markets. But they are accepted less often in competitive conditions, and when they are, sellers tend to hold firmer on price and terms. In Redfin's February 2019 data, only 7.1% of winning offers were contingent on a home sale.

How can I avoid writing a subject-to-sale offer?

Sell first and arrange a longer closing or rent-back, list at the same time you shop, or buy first using bridge financing if your equity and income qualify. A pre-approval tells you which of these is realistic before you look at homes.

Can I still use the B.C. rescission period if my offer is subject-free?

Yes. For most residential purchases B.C. buyers have up to three business days after acceptance to rescind by paying a fee of 0.25% of the price, and the right cannot be waived. It is a safety valve, not a strategy; financing should still be arranged in advance.