Offer Conditions: What Homebuyers Should Know

By Emily Southey | 6 minute read

Conditions are designed to protect the buyer when making an offer. They are sometimes referred to as Conditions Precedent, which means that the conditions must be met before the sale is final. For example, some offers are conditional on the buyer conducting a successful home inspection, while others might be conditional on the buyer selling their existing home. The trick with conditions is finding the right balance. As much as you want to protect yourself as a buyer, you also want the seller to find your offer attractive. The more conditions you include, the less attractive your offer may appear. 

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When making an offer on a home, consider the housing market. In a buyer’s market, you may be able to get away with including more conditions. However, in a seller’s market, including too many conditions could mean your offer gets rejected. 

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To learn more about offer conditions, including the most common types of house offer conditions and the differences between conditional offers and firm offers in real estate, keep reading.

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Conditional Offer Real Estate vs. Firm Offer Real Estate: What are the Differences?

The key distinction between a conditional offer and a firm offer is that the former is an offer made with conditions attached, whereas the latter is made without conditions. Firm offers are typically made by homebuyers who are certain about purchasing a property, as once the offer is made, they are legally obligated to follow through with the transaction if accepted. 

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Firm offers are also more common in seller’s markets, where there are lots of buyers looking for homes but only a limited number of homes for sale. For example, a real estate agent may list a house at a price below market value in an attempt to get multiple offers. If a bidding war commences, a buyer may make a firm offer to entice the seller to accept their offer over someone else’s. 

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In contrast, conditional offers come with at least one condition. This condition must be satisfied before the transfer of title to the property. A conditional offer is only complete once the conditions have been met, at which stage it becomes a firm offer.

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Conditional offers are typically favoured by buyers, as they provide a considerable degree of protection. For example, an offer that is contingent on a home inspection could protect the buyer against the cost of significant repairs. If a defect such as a leaky roof is uncovered during the home inspection, a buyer can request that the seller repair the roof before the move-in date or lower their offer price based on the cost of the repairs.  

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Generally speaking, sellers prefer firm offers as they are less likely to fall through, whereas buyers prefer conditional offers for the security they provide. 

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Why Conditional Offers Matter to First-Time Homebuyers

Conditional offers are especially important to first-time homebuyers. Given the complexity of real estate transactions coupled with the fact that buying a home is one of the biggest purchases you’ll ever make, protecting your interests is critical. One of the best ways to protect yourself is through conditions.

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While including conditions in your offer could prevent you from getting your dream home, the realities of making an offer without conditions could be much worse. For example, one of the most common conditions first-time homebuyers include in their offers is a financing contingency. Including such a condition allows a first-time buyer to back out of the deal if they are unable to obtain the necessary funds. (Obtaining the required funds may be more difficult for first-time homebuyers who tend to be younger and therefore may have less money in the bank). Conversely, if a first-time homebuyer were to make a firm offer without a financing condition, only to discover they are unable to obtain the necessary funds, they could face serious legal consequences. 

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Ultimately, a firm offer leaves the first-time homebuyer vulnerable whereas a conditional offer can ensure they are protected against issues relating to financing, home inspections, and more.

Types of House Offer Conditions

Buyers can include conditions for just about anything in their offers. However, the most common types of house offer conditions are listed below.

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Home Sale Contingency

If a buyer already owns a home, they may want to ensure it is sold before purchasing a new property. Including a home sale contingency in an offer allows the prospective buyer to walk away from a deal if they can’t find a buyer for their current home. The offer will only be considered firm once the buyer’s existing home has been sold. Sellers tend to avoid this contingency as there is no guarantee as to how quickly the buyer will be able to sell their home. For this reason, home sale contingencies are most common in a buyer’s market.

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Home Inspection Contingency

A home inspection contingency is a smart choice for any buyer. This condition allows the buyer to cancel or withdraw their offer depending on the results of the inspection. If you make your offer contingent on a home inspection, a professional home inspector will inspect the property’s interior, exterior, and HVAC system to ensure it is in good condition. If it isn’t up to snuff, the buyer has the right to request repairs from the seller, negotiate a price reduction, or rescind their offer entirely.

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Financing/Mortgage Contingency

A financing contingency is especially common among first-time homebuyers. This type of condition protects the buyer if they do not qualify for a mortgage after making an offer. A mortgage lender must sign off on the deal for it to go through, and this process includes a home appraisal. Ultimately, if your mortgage application is denied, whether because you recently lost your job or your lender’s appraisal is lower than you thought, a financing contingency gives you an out.

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Appraisal Contingency

An appraisal contingency allows the buyer to rescind their offer if the appraisal of a home property is worth less than the agreed-upon price. In essence, if an appraisal reveals the property to be of a lower value than expected, the buyer can back out of the agreement and receive a refund of their deposit.

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