What is a subject free offer?

A subject-free offer is a bid (on a home) provided by the buyer that is unconditional once the seller accepts. The seller can negotiate terms after they receive an offer, but once the offer is accepted by the seller, it is binding for both parties. That’s why it is recommended to do thorough research on any prospective property and negotiate all terms of a contract beforehand.

Conditional offers, on the other hand, typically allow for certain terms to be negotiated even after the initial offer. They can also be canceled if certain terms of the agreement are breached. The offer may be contingent upon a successful home inspection, or the buyer’s satisfaction with the terms and particulars of the strata documents and their mortgage financing. These steps are known as “due diligence” – Which essentially means doing the appropriate homework or research on a property and knowing what you’re getting into before finalizing your purchase. With subject-free offers, there is no opportunity for due diligence once the offer has officially been submitted. It puts much more of an onus on the buyer to do their research before their initial bid. Because it’s a firm and binding offer, a buyer who decides to back out after the fact will most likely be met with serious legal ramifications.

How do you prepare to make a subject-free offer?

Before submitting a subject-free offer, make sure you’ve done your due diligence to ensure you’re making the best possible choice. This is your chance to collect the necessary information about the property itself, the neighbourhood, and your own financial situation.

We recommend the following steps:

• Receive pre-approval from a mortgage broker. This doesn’t guarantee approval once an offer has been made – But it’s a good indicator of whether or not you’ll be approved. Approval will also completely depend on the cost of the property you place an offer on.
• Hire an experienced real estate advisor who knows the particulars of writing and submitting a subject-free offer.
• Do your research on the history of the property that you’re thinking about buying. Have there been major renovations? A history of damage? You could ask for a Property Disclosure Statement, which is NOT the same as a home inspection but can be helpful in potentially identifying problems that may otherwise have gone undetected.
• If possible, conduct an inspection prior to submitting your bid/offer.
• Seek the help/guidance of a legal professional who can walk you through your rights and responsibilities as a potential “buyer.”
• Review the Title of the property.
• Confirm that you are able to purchase insurance for the home in question.
• Meticulously review strata meeting minutes and any other related documents to the property.

Once you’ve explored the above steps, if any of the information you’ve collected makes you feel uncomfortable about making a subject-free offer, you could opt for a conditional offer instead. Yes there are potential benefits to a subject-free offer, but you must make sure that they outweigh the potential risks.

What Are The Risks?

Suppose you do choose to go subject-free on your offer in hopes of making your offer the most appealing to the seller, you could be exposing yourself to some serious risks which could include:

• Discovering hidden defects and damages to the property once you’ve completed your purchase. The seller is responsible for disclosing certain damages, but a majority of responsibility is on the buyer, through a property inspection, to identify any other damage or concerns.
• Your pre-approved financing may not get “final” approval. Once you begin the thorough financing process, it may fall through, leaving you without the financial means to complete the transaction. This could mean that you lose your deposit and could leave you susceptible to a lawsuit from the seller.
• Strata Bylaws may change suddenly. Bylaw changes can create new restrictions on the number of allowable rental units in a complex, or impact which parking stall or storage locker is assigned to you in the strata lot. These changes could prove to be detrimental and inconvenient in both the short-term and the long run.

Are subject-free offers common?

In a place like the Greater Vancouver market, which has mainly been characterized as a “sellers-market” then yes, subject-free offers have become quite common. With such a limited supply, buyers are looking for a leg up on their competitors, which makes a subject-free offer an appealing possibility.

Why make a subject-free offer?

Greater Vancouver is one of the most competitive housing markets in the world, so a subject-free offer will certainly make your offer stand out from the others. Even if your offer is slightly less than your competitors, a subject-free experience might help sway your offer to the sellers.

Usually, subject-free offers include a competitive price, a willingness to work with the seller’s preferred dates, and evidence that the buyer has done their “due diligence.” This helps establish trust and confidence that the buyer is invested and interested in completing the deal. If time is sensitive for the seller (perhaps because they’ve placed an offer on another home that is subject to financing), they may choose your offer over a competing offer, to speed up the process.

Buyers in an active real estate market are likely to encounter competition bids from other buyers. So, by that logic, it’s only natural to explore ways to make your offer more appealing to the seller. One of the riskiest options, however, is submitting a subject-free offer.

What role does financing play in all of this?

With subject-free offers, it’s the responsibility of the buyer to do as much due diligence as possible before they are approved. They will need to identify what the mortgage lender is looking for and ensure that they have ticked all of the necessary boxes to secure a mortgage. Though approval is never a complete certainty, prospective buyers placing a subject-free offer should do their very best to secure financing beforehand.

What About Red Flags?

A subject-free offer should never be made blindly. Think about the seller’s motivation before you submit your offer. Why are they trying to do a deal so fast? Are there any aspects of the home that you should be worried about? Or conversely, is there something with the home that the seller is trying to “cover-up?” If something seems suspicious, then it’s worth a closer look. This is where seeking legal advice and help from real estate professionals can help you identify any blind spots through the process.

The help of an experienced real estate advisor can make a world of difference and can use their expertise and experience to help you make an informed decision. Not only will they understand the ins and outs of a subject-free offer, but they will also be able to help with your due diligence prior to your potential purchase.

If you are ready to get the home-buying process started, then let us help! Visit our website at https://patchingmortgageservices.ca/. You can drop us an email at: [email protected] or call 604-561-6716.